Editor’s note: Bruce Johanson, co-owner with his twin brother Blair of Johanson Consulting Inc. of Fayetteville, recently sat down with Talk Business & Politics contributor Scott McClymonds of CEO Velocity to talk about how successful companies are tying their compensation and benefits packages to the achievement of their strategic goals.
Johanson Consulting’s client base cuts across many industries, including several Arkansas banks and credit unions. The firm’s typical clients usually include at least 50 employees, but may have up to 10,000. Here are some excerpts from the interview.
Scott McClymonds: Bruce, what does it mean to be a compensation consulting company?
Bruce Johanson: Compensation to most people means compensation and benefits. We assist in creating comprehensive compensation management programs. We look at a company’s current practices and transition them to best practices with more attention to base salary, incentives, and long term compensation. We make sure the whole strategy creates retention and better returns for the organization.
A compensation plan has to be internally equitable, externally competitive, and defensible in the event of an audit or compliance review, and all our plans are structured with those three elements in mind.
Scott: What kinds of companies do you help, and how do you do it?
Bruce: On the consulting side, companies typically first approach us because they don’t have a good handle on their base salaries, incentive compensation, and long-term benefits like ESOPs and stock options. They come to us to help them understand where they need to go.
Typically these are companies with more than 50 employees, where it is becoming harder to track their standard practices, and they start looking for more ways to invent and retain their employees. Our sweet spot is between 50 and 10,000 employees. Beyond that, companies tend to work with large national/international compensation consulting firms. We’re kind of mid-market.
Scott: How long have you done this and how did you get started?
Bruce: I’ve been in it since 1986, 30 years next year. The consulting business was started in 1973 by our father. I came on board in 1986, and my brother Blair joined in 1999. The software company, DB Squared, started 10 years ago with our partner Dale Oliver.
Scott: Do you specialize in any particular industries or company sizes?
Bruce: We’ve concentrated on banks, credit unions, and other financial institutions. We’re pretty heavy into cities, counties and state organizations where they are looking for good structure. Beyond that we’ve worked in transportation and logistics, non-profits, manufacturing, utilities, colleges, school districts, and libraries. Compensation goes across all sectors.
Scott: What are some of the most important trends occurring right now in compensation?
Bruce: With the labor supply turning over and the economy improving, it is pushing base compensation and other benefits higher. Companies are required to pay higher amounts to attract people.
The government has layered on some strong regulations. Those are causing some executives to lose some sleep.
Obamacare has put stronger pressure on overall labor costs. It has impacted us because organizations are looking more at their overall compensation and benefits packages. It makes us get more into the benefits side to see what’s appropriate and what isn’t. They’re looking at more non-cash products. Executives and owners are saying they want a total package that drives people to create the returns they desire.
Scott: How does having a strong compensation strategy help companies?
Bruce: You really need to have a solid compensation and benefits philosophy statement, and the strategies come after. When you have a statement approved by the board, you’re not creating your comp and benefits plan one year at a time. You have a path or map. It creates an environment that says ‘we’re serious about retaining and attracting strong people, and are committed to creating an overall package to be competitive and pay fairly.’
The result is you have a more talented, motivated group because employees know they are receiving a competitive package and the company is paying attention to the most effective way to manage salaries and benefits. It creates stability and potentially a competitive advantage over companies that are only looking at salaries and benefits one year at a time.
The third area is long-term benefits that will hold employees long-term given they’re performing well. It creates a roadmap or path to follow.
Some say we’ll pay below market and create an incentive plan that supersedes base salary and bonus. Some say we’re going to be a leader, an employer of choice, and pay above market salary and benefits so there will be a waiting list of good people wanting to work for us.
Scott: What about credit unions and banks?
Bruce: In the past, the credit union philosophy was a little different from banks because of the member philosophy. What I’ve seen is credit union and bank philosophies merging a little bit because credit unions have opened their membership. Now they’re a little more similar in their strategies.
Both are interested in creating environments where employees are interested in coming to work. They are creating more incentive compensation all the way down into hourly levels because they are trying to build incentives into their products and services.
With executive management, there are more retirement incentives to try to lock the next generation of leadership into the long-term future of the organization.
Scott: What are the key components of an effective compensation strategy?
Bruce: You have to start with a compensation and benefits philosophy statement outlining your desired results. The next step is to review current practices to get a baseline of where an organization has been.
Then you develop job descriptions and determine their internal value, pull marketplace data, and integrate the current pay and market pay to get the base salary pay ranges for each position. Next, we look at incentives and short and long-term benefits to arrive at an overall package.
Both the organization and employees feel good because the compensation program is very transparent. Employees feel like the organization is paying attention to their welfare and trying to create a return to shareholders that everyone feels good about.
Read more analysis from McClymonds at this link.