Ask the Experts | How to Compensate Managers

Question: How should we compensate our managers?

Drew Cameron; President, HVAC Sellutions & Energy Design Systems, Inc.:

Interesting question. It’s a little generic, so I’m not really sure which department we’re talking about per se. But I guess whenever I talk about compensation, I always answer the same way: Compensation depends on the objectives that you’re trying to obtain, I would venture to say.

It’s going to vary by company and it’s going to be based on company objectives for position. So if you have a service manager or a sales manager or a CSR manager or an office manager or an installation manager, it’s going to vary based on that position. So it’s really hard to say based on the generality of that question – that it didn’t specify a specific manager.

But typically we’re going to recommend, in the EGIA world anyway, that we tie compensation to the objectives of the department and base it off of some level of performance based on departmental key performance indicators (KPI’s). That’s obviously going to include some level of salary, and then some level of performance-based components. And if you go into the EGIA Best Practices platform, there’s a video there that actually talks about pay plans. If you go in there and just search under the keywords “pay plan,” there’s about a 40-some-minute video that Gary has put together on this very topic.

But without having any more detail, that’d probably be the best answer I can give, which is, again: Salary, plus some level of performance-based components. And that would be tied to whatever key performance indicators for whichever department you’re trying to drive. And again, I wouldn’t make it an all-or-nothing proposition. If the departmental manager makes 80-85% of a stretch goal that you’ve set for the key performance indicator, then I would basically say, OK, there’s some level of reward, and then it ratchets up obviously based on the level of incremental increase above and beyond that 80-85% mark. And then if you go over 100% certainly that’s going to get you the highest level of bonus available there, and you can tie that bonus directly to the salary – maybe a percentage of the salary for each metric, or set it at a flat level for hitting each metric or each tier, if you will.

Without much more detail it’d be hard for me to say much more, but I’ll throw it over to Gary as well, because I know he’s something of an expert in this area.

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