A Family Experiment in Variable Compensation

By Kristen Hayer

If you want to stir up a hornet’s nest, introduce the topic of variable compensation.  You’ll find a tremendous amount of passion, frustration, obligation and entitlement on any team with a variable comp plan.  That isn’t just on the part of employees who fall under the plan, it’s also on the part of managers and company leaders.

My background is in sales, so when I had the chance to do an independent study project as part of my MBA, I immediately focused on variable compensation.  I quickly found that there are incredibly diverse opinions on the topic (notably a HBR article by Alfie Kohn on “Why Incentive Plans Can’t Work” and then a follow-up HBR article called “Rethinking Rewards” with reactions from experts to Kohn’s original article).  My experience as a leader of sales and success teams has demonstrated to me that incentive plans do work, but only if they are well-designed.

I recently had a chance to test some of the things I’ve learned about variable comp in our family.  I have a daughter who is eleven and she’s got a vacation planned that has her eager for some cash.  I was curious to see whether things would play out the same way they do on a typical success team if I applied my theories on variable comp to a plan for her.  Clearly, someone who is 11 (her only bill is her cell phone) has a different perspective than someone who is 25 (in San Francisco, can barely afford rent).  That said, I think my findings work across the board.

The Experiment

  • Situation:  We don’t scrimp on normal chores.  Our kid has to clean the bathroom, pick up after the dog, dust the house and keep her bedroom neat and clean to earn her allowance, and she pays us back 75% of that for her cell phone.
  • Goal:  Get a bunch of random chores done (our goal) and earn money for summer vacation (her goal).   We're talking washing windows, scrubbing the patio – all the things my husband and I hate to spend our weekends on.
  • Reward:  Cash, broken down by chore ($1-$20 per chore).  A $50 bonus if she finishes every chore on the list, to our satisfaction, by May 31.
  • Communication:  Initially, a family meeting.  Eventually, a list of the chores and the money earned by chore was posted on the fridge.

Why Should I Care About Your Kid, Kristen?

My kid is your CSM.  This family experiment reinforced in my mind the components that need to be in place for a variable plan to be effective.  Here’s what works:

  • Simplicity - Our kid likes that when she finishes a chore she knows exactly how much money she is going to make.  Nobody likes a complicated comp plan. You can either make your rent or not, pay for that vacation or not.  You should not have to be a spreadsheet expert to figure out how much you’re going to make in a month.  Is your variable comp plan too complicated?  Think about ways to streamline it.
  • Timing - This should coordinate with the overall goals of the organization.  In our case, we want all of the random, outside chores done before summer.  Our kid gets a $50 bonus if she finishes the list before May 31.  What timelines matter to your organization?  When do you want things done?  Make that a part of the variable plan and consider bonuses that are tied to timing.
  • Communication - Family meeting was a bust.  My husband and I presented all of the relevant information and our kid was like, “What!  Extra chores?”  The minute we got a written plan in front of her, she figured out that it meant more money and scheduled time to start weeding the front yard.  The difference?  Communication.  Figuring out the communication method that works best for your team is critical to the success of a variable comp plan.  People like both verbal and written plans.  Offer both.

The Results…

I’ll admit, we’re only halfway through our kid’s comp plan timeline.  That said, she’s already earned $25 from us, has convinced her grandmother to institute a similar plan, and is almost $50 up on her earnings for summer vacation.  11 is the new 25.  Take what I’ve learned, apply it to your success team, and design a variable comp plan that works for your organization!

The Success League is a consulting firm that works with executives who want to unlock the retention and revenue a top performing customer success team will bring to their business.  We transform support into success by building metrics, goals and processes that enable customer success teams to perform at their peak. www.TheSuccessLeague.io