The Compensation Equation

Compensation is a necessary element of every business, and it can be an emotional topic for any employee. While the employee is concerned about getting the right amount of return for their efforts and their quality of life, the managers of the business are focused on how they can best budget and allocate their available resources. Regardless if you are a manager or an employee, the compensation model MUST be done correctly, meet your expectations, and have little question of how it will operate. If the model is built incorrectly, or if one of the parties doesn’t fully understand it, there can be problems. BIG problems. 

We work with agronomy clients nationwide. As a result, we have worked with many different approaches to compensating employees. Compensation is a challenging element for any business. The ability to balance profitability and maintain your attractiveness to potential employees is a critical component to any agronomy operation. Therefore, it’s no surprise that compensation is one of the most common topics our recruiting consultants get asked about. Questions like, “What is a competitive compensation range for this role?” and “How should we structure the compensation and commission for this position?” are key considerations for your hiring and long-term retention process.

A Deep Topic

The topic of compensation and the strategies that go into it can make for an entire series of books. However, we can summarize a good approach to compensation by taking a fairly common sense approach, with particular attention paid to three major steps.

The first, and perhaps most important, step is the base compensation. The primary guidance we give our clients in regards to base compensation is to pay competitively. If you want top talent in your area, find out what your competition is paying in similar roles and put your range at, or a bit above the nearest competitor for a like position. While this alone doesn’t guarantee people will come running to you, it at least “keeps you in the hunt.” Once you’ve determined the best range for the position, you still need to consider what employees in this role might consider for the “next step.” As an example, retail agronomy sales people often see the next step as a territory sales manager role with a seed, crop protection, or fertilizer organization. With this in mind, you should seriously consider what these organizations could be offering your employee for these roles. Will your base compensation strategy keep you competitive with these roles in a few years? Does your plan lay out a progression of compensation and/or responsibility to keep you competitive with that “next-step” role?  The closer your compensation package is to the compensation of those “next step” roles, theoretically, the less sales-people you should lose to those “next step” companies.

Incentive Plans

The second compensation component we discuss with clients is incentives. There are many approaches to building an effective incentive compensation structure. When discussing retail agronomy roles, we use a rule of thumb that starts with a goal of total compensation being  split roughly two-thirds base compensation and one-third incentive for your mid-point sales people.  For your top-end employees, they should make enough in incentive to be at a 50/50 ratio of base to incentive compensation. This split works for about all roles from applicator through sales and up to president of the company.

Regardless of your goal, your incentive plan needs to include four key components: Who, what, how and where. Once you have your plan outlined, just ask yourself the following four questions:

  • Will this plan motivate the right people? Have you defined WHO you are targeting with this plan and which employees can participate?
  • Will this plan accomplish WHAT I want completed?  Are the goals and performance objectives clearly laid out?  This could be things like increased sales, move specific products, improve operational performance, improve safety, etc.
  • Will this plan incentivize them to do things HOW I want them done? Does this plan motivate people to accomplish these goals in the manner I want them done? Or is it sell any product and get the sales at any cost?
  • Does this plan outline WHERE the employee can earn their incentive? Make sure there is no gray area in your plan. Is there a specific boundary or timeline?  Is it tied to a specific facility? If yes, then properly document these items in your plan to prevent confusion and disgruntled employees later on.

The key is to tie incentive compensation to measurable goals and the measurable activities must be clear and simple. Properly designed incentives are a win-win for the employer and the employee. The employer gains additional sales or profitability, while the employee is driven to do the desired activity and earn additional income. Unfortunately, one practice we see all too often is the strategy of “capping” the incentive plan. This is NOT a win-win. While placing a “cap” or maximum potential on a bonus plan may seem like a wise business decision, it most often results in a very negative effect — capping the sales effort. Placing a cap on a salesperson is one of the quickest ways to reduce sales activity (once goals are met) and cause that employee to say “well, I’ve hit my goal, so there is no need to work I have been until the next sales cycle starts.” In fact, they will likely use that spare time to seek employment with an organization that enables them to earn an unlimited amount of income. Avoid incentive caps if at all possible. Odds are your competitors don’t have a cap, and retaining your top sales people may depend on it.

Benefits And Retirement

Our third compensation component is the portion that many organizations don’t leverage enough — benefits and retirement contributions. While the candidate or employee is focused on the base compensation and annual bonus/commission check, they often fail to realize that another 35% of their compensation comes in health insurance, vision, dental, company vehicle, 401K, disability and many other benefits. Some of our clients are moving to an offer letter that lays out the entire compensation package in great detail. Much like the sticker you see on a new car window, a detailed offer will help the perspective employee see all of additional items your organization can provide them. This step-by-step review of the actual compensation plan will help that future employee better understand that annual compensation is much more than what they see in their regular paycheck. This clarity and openness allows the company to showcase how much it is really paying the employee, above and beyond just base and bonus. Additionally, as another way to battle the “next-step” employers, many organizations provide an annual compensation report to all of their full-time employees. Often presented as part of an annual review process, this report clearly shows every benefit, bonus, tax, paid vacation day, etc., the company provided the employee throughout the year. This review can be a key component to retaining your employees. It’s not uncommon for a $50,000 employee to be shocked to see that they are actually a $75,000 employee.

Compensation strategies are different for every organization based on their available resources and business goals. However, one thing is true for any organization: Your compensation plan must be clear and understandable to every employee, and you cannot change the game (reduce expectations) once the cycle has started. Everyone needs to understand what they are working for, and how they are going to get there. If you incentivize them, then compensate them at the level promised. Incentives can provide some powerful momentum.

Compensation is an investment. Take the time to plan it out well, and you will be happy with the results.

Leave a Reply

Employees Stories

EmployeesAsmark Institute Dedicates New Training Center To Ford West
August 6, 2014
The Asmark Institute plans to recognize the retired industry leader's years of service to the fertilizer industry at the new state-of-the-art facility in Owensboro, KY. Read More
EmployeesSyngenta: ‘Take Charge’ Of Farm Safety
June 4, 2014
Syngenta and health officials warn of four health-related challenges in agriculture and how they can be managed. Read More
EmployeesHead Start Program Prepares The Next Generation Of Ag Retailers
April 7, 2014
Illinois Fertilizer & Chemical Association, in partnership with the Asmark Institute, are offering the Head Start Program to prepare students for work at ag retail facilities. Read More
EmployeesThree Keys To Employee Success
March 3, 2014
Increasing employee performance becomes much easier when managers follow these three simple things. Read More

Top 100 Articles

CropLife 100CHS: Driving Momentum To Help Farmer-Owners Grow
December 11, 2014
CHS Inc., the nation’s leading farmer-owned cooperative and a global energy, grains and foods company, must capture new opportunities to Read More
CropLife 100BRANDT, Verdesian Ink Distribution Agreement
December 9, 2014
The agreement grants BRANDT the exclusive right to sell and market Verdesian’s patented Steric chemistry in the Turf and Ornamental and eastern U.S. ag markets under the BRANDT Reaction product line name. Read More
CropLife 100CropLife 100: The Colors Of Custom Application
December 5, 2014
Although many color spray rigs are in the yards of the nation’s top ag retailers, the majority of them still come in only a few shades. Read More
CropLife 100Pinnacle Invests In Meridian Agriculture Distribution
December 4, 2014
Meridian will provide retailers with supplier-branded products and numerous opportunities to differentiate themselves from their competitors. Read More
CropLife 100CropLife 100: Entering A New Seed Era
December 4, 2014
The seed category has been re-vitalized during the past few years, and more good news (and varieties) are headed the industry’s way in 2015. Read More
CropLife 100CropLife 100: The Depressed State Of Fertilizer
December 3, 2014
Following downright giddy growth earlier this decade, fertilizer sales have fallen back down to earth the past two years. Read More

Latest News

Seed/BiotechKaren Arthur Joins AgriThority As Seed Treatment Produc…
December 19, 2014
Prior to joining AgriThority, Arthur directed research and development programs, overseeing laboratory and field research, to build the Valent U.S.A. seed treatment portfolio. Read More
EquipmentJohn Deere To Sell Crop Insurance Business
December 19, 2014
Deere & Co. has reached a definitive agreement to sell its crop insurance business, subject to regulatory approval, to Farmers Mutual Hail Insurance Co. of Iowa. Read More
Crop InputsNufarm Fills Regulatory VP Position
December 18, 2014
Nufarm announced today that Rob Schwehr has been promoted to the position of Vice President of Innovation & Regulatory Affairs for Nufarm Americas. Read More
Seed/BiotechReport: China Approves Viptera Corn, U.S. Officials Awa…
December 17, 2014
Chinese authorities have informed some agriculture industry officials the government has approved U.S. imports of a type of genetically modified corn developed by Syngenta. Read More
FertilizerMonty’s Plant Food Brings In New Sales Rep
December 16, 2014
Monty's Plant Food Company has hired Warren Kearns as its newest Sales Representative for the South Carolina area. Read More
EquipmentHagie Wins 2014 CropLife IRON Product Of The Year Award
December 15, 2014
The self-propelled sprayer maker has a hit on its hands with the new STS Series model. Read More
Syngenta
Seed/BiotechSyngenta Sees China Approving Contentious GMO Corn Soon
December 15, 2014
Syngenta will make an announcement when it receives official documentation from China that Agrisure Viptera corn, known as MIR 162, has been cleared for import. Read More
Crop InputsVerdesian Life Sciences Names Vice President Of Communi…
December 15, 2014
Amy Bugg will oversee the execution of all promotional strategies for the corporate brand and the complete product portfolio. Read More
StewardshipFarmers, Retailers Attend 4R Certification 4U Workshop
December 15, 2014
More than 160 farmers and ag retailer attended the “4R Certification 4U” workshop December 12 to learn more about the 4Rs of nutrient stewardship, water quality research in the area and cost-sharing opportunities. Read More
Matt Hopkins10 Best New Agriculture Apps For 2015
December 15, 2014
These new agriculture apps are certain to help ag professionals do their jobs more efficiently in 2015 and beyond. Read More
ManagementARA Learnings, Retail Buying Intentions: Welcome To Cro…
December 12, 2014
This informal video program puts news and events effecting retailers into context, and features Editors Paul Schrimpf and Eric Sfiligoj. Read More
Seed/BiotechMonsanto Herbicide-Tolerant Technology Closer To Commer…
December 12, 2014
The final EIS moves Monsanto one step closer to the introduction of Bollgard II XtendFlex cotton and Roundup Ready 2 Xtend soybeans, paving the way to provide access to dicamba-tolerant soybeans and cotton. Read More
Seed/BiotechUSDA Issues Final Environmental Impact Statement On Her…
December 12, 2014
The USDA Animal and Plant Health Inspection Service (APHIS) is issuing a final environmental impact statement on varieties of cotton and soybeans that have been genetically engineered for resistance to several herbicides, including the one known as dicamba. Read More
CropLife 100CHS: Driving Momentum To Help Farmer-Owners Grow
December 11, 2014
CHS Inc., the nation’s leading farmer-owned cooperative and a global energy, grains and foods company, must capture new opportunities to Read More
LegislationARA Applauds CFATS Passage Prior To Holiday Adjournment
December 11, 2014
The streamlined bill provides a four-year authorization of the CFATS program and guidance to DHS on key issues of chemical facility security Read More
Seed/BiotechBayer CropScience’s ILeVO Approved By EPA
December 11, 2014
EPA has approved ILeVO, the only seed treatment that protects the root system against infections caused by the Sudden Death Syndrome fungus and has activity against dangerous nematodes. Read More
Biologicals in Emerging Markets Map.
Crop InputsBiocontrols Could Quadruple By 2025; Will Regulators Pl…
December 11, 2014
The European experience with GMOs offers caution — and a promise — for biologicals. Read More
Crop InputsBASF Donates $75,000 To Feeding America
December 10, 2014
The donation will support Feeding America’s National Produce Program, an initiative that helps with planning, transportation and logistics to ensure fresh produce deliveries to the 200 member food banks around the country. Read More