Employee compensation essentials for agencies

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Chip Griffin: Hello, and welcome to another Agency Leadership webinar. I am your host, Chip Griffin, and I am very pleased to have with me today, Patrick Rogan. Patrick founded IgnitionHR, and I’ve been fortunate to work with him both in that capacity as well as, in our previous lives with another employer and and I think there’s going to be a lot of good insight that he has to offer on agency employee compensation issues today.

Patrick works with agencies, professional services firms, non profits, and lots of other folks to provide outsourced HR services and advice. So Patrick, you know, what else would you like to share about your background here?

Patrick Rogan: Yeah, that’s it. I’ve been going on five years. I’ve been supporting a variety of different organizations in different capacities, all in the people space.

Have a lot of, interest in this area, love solving problems, and I’ve been fortunate to work with just some great organizations, so absolutely love it, love what I do.

Chip Griffin: Fantastic, and I, I love having you here because compensation issues are a question that I get a lot in my consulting practice with agencies, and of course we’re creeping up to the year end, which is a time where people are thinking about, you pay raises and bonuses and compensation generally.

So I think it’s particularly timely to cover it, but we also have some, you know, not really late breaking news, but news about, you know, some issues related to compensation that we’ll cover too. Before we jump into the topics of the day, I just want to let anyone who is listening, know that you can use the Q and A box here on the webinar to ask your questions live.

We’ll do our best to try to get to them over the course of the next hour if you have thoughts or comments that you’d like to share, you can always email me also at chip@agencyleadership.com. I will not be looking at that during the webinar, though, because my attention is focused squarely on Patrick and his expertise, as well as your questions in the q& a box.

So, so with those, those housekeeping issues out of the way, let’s go ahead and, You know, why don’t you share the news that we have about salary history? Because this is something that’s now affecting, I think, 17 states in the United States, if I’m correct.

Patrick Rogan: Yeah, yeah, 17 locations and, it’s, it’s growing.

It’s funny, the last time I wrote about this was in 2018. And when I checked, what I wrote then, there were four less. So we’re clearly moving in the, in the right direction. This is something that, that I’ve had a lot of passion over for a number of years. I’m excited about talking about it.

Chip Griffin: So what is the news?

Patrick Rogan: So the news is, a growing number of states are forbidding employers from asking prospective employees what their salary history is. And this is something that I think makes a lot of sense on a number of different levels. It’s something I’ve been working on in organizations that I’ve been supporting for years.

For a long time, I would get a lot of pushback from either the organization I was in or the organization I was consulting in because it was like, look, I need to know what this person’s making so I can decide what I want to pay them. The problem with that is, We have and have had for a number of years a significant income disparity, particularly with women and minorities.

And it’s been perpetuated by basing future salary increases on prior salary amounts. It kind of keeps everything sort of in lockstep. And by taking that variable out, then employers can actually use better business practices and pay employees based upon A, what their budget is and what they can afford, B, how they’re paying their existing employees, C, to some degree what they know the market will bear.

And then it kind of takes that whole piece out of the equation. So it’s, I think a huge step in the right direction from a business perspective. I think it makes a whole lot of sense because if an organization doesn’t know what they should be paying their employees, then I think now’s a great time to take a step back and figure out the answer to that question.

Cause once you have that question, it really makes a lot of things run easier.

Chip Griffin: It does. And I mean, I’ll be honest with you, over the course of my career, I have frequently had that as one of my standard questions when I’m going through the hiring process, I just, you know, sort of, you know, almost even casually just say, you know, can you let me know how much you you’re currently making?

Because for me, so for me, it was a couple of things. It was a little bit less about how much can I pay you and still get you? I mean, that, that certainly was a factor, but part of it was I wanted to make sure that, you know, this wasn’t a position that was, in particular going to be a big, salary drop for them.

That’s, that’s always been a concern of mine. I don’t like to see someone coming in and having a big pay cut because, you know, that suggests that, that they may not be happy with that level of compensation. So that’s why I used to get to it. But, you know, obviously with this many states now, Going down this road.

I think it’s smart for folks to come up with a different approach. And what you said about focusing on what your budget is and what you should be paying for that position. What’s the value of that position? I mean, that’s really how you should be deciding salaries anyway, because particularly in the agency space where you’re reselling time.

If you’re not able to sell that time profitably, you know, it almost doesn’t matter what the salary is of that employee.

Patrick Rogan: Exactly, exactly. And I think Even the very large organizations that have these very defined Compensation strategies at the beginning of that strategy and virtually every organization is what can we afford to pay, you know?

And if you don’t know that you shouldn’t be recruiting So that’s kind of that’s kind of where it all starts and I think It’s helpful if you can get a hold of some salary data. There’s a lot that’s available for free. That’s good. But I don’t think that should be the primary driver. I do think the primary driver should be from, an internal equity perspective.

What are you paying in comparable roles? What’s your budget? What makes sense for your organization? You don’t necessarily have to have formal salary ranges. It helps, but I think if you know about what it is you want to pay for a position, I think then you’re in a much better position when you’re talking with a candidate to say, Hey, Look, it’s, it’s okay for you to ask them what is your salary range that you’re looking for?

And they may ask you the same question and I would encourage you to share it. But if you don’t want to share it, you don’t, you don’t have to share what your salary ranges except for certain states where you do. And I can provide a link with information on that. But in general, I think it’s just have a healthy conversation.

And if you know, headed in up front, if you guys are in the same ballpark, continue forward and see if you have the right candidate and then, and then make it work. But the good news is that, that I also wanted to mention, I meant to mention this earlier, is that we’re seeing, we’re seeing some progress.

So there’s been some, recent data that Boston University, pulled together and they’re finding that in locations where organizations are not allowed to ask salary history, that the income level for African Americans that change jobs is going up 13 percent and for women it’s going up 8%. So that’s kind of like, cool.

This is like, I thought it would work, but it’s good to see the data that supports it.

Chip Griffin: Right. So, I mean, practically speaking, then, you know, how do you advise employers to be, you know, making sure that there’s some alignment on compensation early on in the process so neither party is wasting their time during recruitment?

Is it simply by the employer being more forthcoming, or is there another approach that you’d recommend?

Patrick Rogan: So, my recommendation is to spend a little bit of time and actually put together a salary range, so you kind of know about what you want to pay. I think it’s fine in the conversation with the employee to say one of your questions say hey Listen, our range for this position is x to y , does that fit within your range of positions that you’re looking at?

You’re not making any commitment, but you’re just saying this is kind of where we are And if the employees perspective employee says well, no, actually that’s not in my range Then you know what why waste anybody’s time. They’ve self selected out of the process If, if an employer is not comfortable with that model, then I think the next best thing is to just ask the employee, I would say pretty early, a prospective employee pretty early in the process.

What is your, what is your range? And usually it’ll be a broad range. And if it falls within that range, I’d continue the conversation.

Chip Griffin: Yeah. And I do think it’s important to, to try to get some of that alignment early on in the conversations, because I’ve seen over the years, far too many recruitment conversations go on for too long because there wasn’t that alignment.

And so, you know, one party saw the title. And so they assumed that compensation would be at a certain level, the employer. didn’t have that same assumption. And so you, you then get to the finalist stage and you’re like, whoa, whoa, wait a minute. That’s, that’s not going to work for me. And so that’s not good for anybody.

Patrick Rogan: Yeah. I think, you want to avoid sticker shock. I think if you can set a reasonable expectation at the beginning of the process, you don’t want to get too granular because the employee doesn’t, the prospective employee doesn’t know what are your benefits compared to their current benefits. Bonus structures, there’s all other types of compensation that fall in there that, you know, might impact what that number should or should not be.

But if it’s in the range, then find out early, so you’re, to your point, you’re not wasting your time. And then you can kind of fine tune it later on, figure out the person’s a fit, and go ahead and invest the time.

Chip Griffin: Right. And we could probably do a separate webinar on the importance of understanding what questions you can and cannot ask in an interview process.

In fact, we probably should at some point, because you and I have seen a lot of those. go off the rails over the years. But, but this is something that as an agency owner, if you’re listening into this, you should make sure that anyone on your team who is doing interviews, particularly if you’re in those 17 states knows that this is something that they need to take off their standard list of questions.

Particularly if, if like me, this has just been something you’ve been doing for, you know, 10, 15, 20 years and, and you don’t think twice about it. Right. I totally agree. All right. So, so that covers the, sort of the, the new news, if you will, but there’s a lot of other questions that we’ve gotten from folks, either in the lead up to this webinar or that, that you and I have heard from agency owners in the not too distant past.

So let’s, let’s start trying to tackle some of those and, and let’s start with some of the ones that are sort of specific to 2020. You know, obviously things have changed for a lot of agencies. There are a lot. more agencies having employees work from home, full or part time, right? As a result, some of the employees have even ended up moving to a different part of the country because maybe they need to be closer to family because in, in the environment we’re living in, you may need help with childcare.

And so, you know, moving, moving back to where you have relatives can be helpful. So, so there’s, there’s a lot of change going on. And as a result, I’m getting a lot of questions from agency owners about how this should impact how they think about salary and benefits and, and all those kinds of things. of things.

So let’s, let’s tackle a few of those. So, so if I’ve got employees who are, you know, either newly working from home, or I’ve decided to go to a work from home model as I, as I hire new folks, what should I be thinking about in terms of, of their expenses for keeping a home office? You know, certainly we’ve, we’ve seen a lot of employees have to upgrade their internet or you know, some of their other technology at home, there’s, there’s a lot of things that, you know, maybe get a new chair at home if you’re, you know, because, you know, maybe if you were only spending an hour a week doing work at home, you’d be doing it on the couch or something like that.

But now if you’re doing it 40 hours a week, you need a proper setup. So, you know, how should agencies be thinking about, you know, helping their employees with some of these expenses or, or should they just say. I mean, good luck. You’re on your own.

Patrick Rogan: Yeah. Yeah. So I think this is, this falls into that category, more of what I should do versus what I have to do.

So from a, from what I have to do perspective, I’m not aware of any federal regulations that require employers to compensate employees from working at them, except for, I think there are about a half a dozen States actually that do have some specifics that there are some, there are, there are some laws, but in general, it’s not something that you have to do.

From a legal perspective. From a business continuity perspective, I think it warrants some consideration. I mean, if you want your or, you know, if you want your organization to operate effectively, just as if your employees were in the office, you would want them to have the right systems, tools and processes to effectively do their job.

So If they have to work from home now, I think it would be in the employer’s best interest to make that as easy as possible. And if it’s something most organizations now will offer to pay for, you know, a percentage of the, the internet, monthly internet charge, you know, maybe 50 percent of the internet charge and, and 30 or 50 percent of the cell phone charge, because that’s equipment, you know, that the employee, is using.

Again, Do you have to do that? No, but well, actually you would like if you’re paying someone close to the minimum wage, and then they have to buy equipment to do their job, then now effectively, they’re making below minimum wage, but not not many. I don’t think the people on this call are going to be in that situation.

Chip Griffin: If you’re an agency and you’re paying your employees minimum wage, there’s probably another. That’s a whole nother issue that we ought to be looking at there. But But you’re right, but I mean, you know, some of that underscores the importance of making sure that you’re, you know, connecting with local advisors who know the rules in your state or jurisdiction so that you make sure that if you are in one of those few jurisdictions that does require it and it’s not just a best practice.

You should know that. So, you know, and so that’s a good caveat for everything that we’re talking about here. Make sure that you’re talking to, HR advisors, legal accounting, all that to make sure that you’re doing, doing right by the jurisdiction in which you’re operating.

Patrick Rogan: Sure. And by the way, I know a lot of agencies are based in New York city, and that is one of those New York is one of those states that does require it.

So, but I think the bigger picture is, Let’s not handle this as like a one off. I think if an organization does not have a work from home policy, now would be a good time to put one in place and kind of get everything down on paper so you can set expectations and staff will know what their responsibilities are, what they’re not.

And then you’ve kind of decided what you can do as an organization. Leave room for flexibility down the road, you might need to make changes and amend and that kind of thing. But I think getting it down on paper is a huge step in the right direction. And I think particularly with the millennial population, they really want to know what the rules are.

You know, just let us know what the boxes we can operate in. And then, and then they tend to do that pretty well. So I would definitely recommend getting some, you know, a policy in place, which is easy to do. And there are a ton of templates out there.

Chip Griffin: Yeah, and look, I think in general for these kinds of things, having policies in place is helpful because it means you don’t have to waste a lot of time making one off decisions too, right?

So, you know, if you just put it in writing, it’s good clarity for the employee, but it saves you time, you know, in the long run because you’ve got it all down on paper and you don’t have to sit there and say, well, you know, I told Sally she could do this last week. I guess now I have to let Jane do that this week.

It, you know, you have. You know, the, the guidelines are already in place. Doesn’t mean you may not need to make exceptions from time to time, but a policy is, is a healthy way to get started.

Patrick Rogan: And you know, as you work out the kinks. Consider the fact that if you have employees who used to be in the office are now working in a home environment, and they can work in a home environment effectively, and a lot of employees, it fits them very, very well.

Then when it comes time to renew your lease, you may not need quite as much space. I mean, this could be the little bit you would pay on equipment and internet and phone costs could be clearly offset by what you would save on rent in the future. Now if you’re one year in a five year lease, you know, that’s it’s gonna be a long time for you to realize that. But if you’re four years in a five year lease then, you know There’s something to be saved here.

Chip Griffin: Right. And I think, I think there’s there’s opportunity and challenge in, you know, sort of the new work from home mentality because, you know, I, I love working from home. I’ve worked from home for the most or if not part of the last couple of decades. I enjoy it. I know a lot of people who do as well. At the same time, I know lots of people who do not enjoy it, and we immediately think of parents with young kids, but frankly, there are a lot of young people who don’t enjoy working from home because they want more social interaction, or frankly, because a lot of them, particularly if they live in larger cities, may have roommates and things like that.

They may not have a dedicated home office space. So I think agencies need to be careful. About leaping headfirst into full time work from home for everybody without thinking through some of those issues. But you make a great point that, that, you know, you may offset some of your infrastructure costs, in an office space.

And instead, you know, redirect those to help people in the work from home setting. Same thing with, you know, a lot of agencies offer mass transit subsidies and those kinds of things, you know, Obviously, you know, those funds can be redirected. So, you know, I’m not one who views work from home as, as a, as a cost savings necessarily for the, necessarily for the agency, because you’re generally shifting where your expenses go.

Because once we’re out of the pandemic, you’re going to want to get people together. And so that may involve travel costs and hotels and that kind of thing, which can be just as expensive, if not more expensive than an office lease.

Patrick Rogan: Yeah, yeah, yeah, I totally agree.

Chip Griffin: So, you know, what, what do you say to the argument that, you know, my employees are working from home now, they, they don’t have a commute, you know, I, you know, not only why should I have to help them with their expenses because, you know, their costs are lower, but also, you know, maybe they’re now, you know, not having to live in a big city, they’ve decided to move from San Francisco to Omaha, you know, should I be able to cut their pay?

I mean, this is. This is a question that I’ve actually seen some agency owners asking, you know, should I adjust downward the salaries of employees who are moving to lower cost areas?

Patrick Rogan: So, I think that’s, I think that’s fine in the scenario you just described, assuming that an existing compensation policy is in place that explains that and it’s clear and people know ahead of time.

I think kind of making these sort of decisions on the fly can be very tough for employees to understand and can create a lot of confusion in the workplace. One of the things I’ve noticed is that with a large number of people working from home now, I think that we’re sort of sliding into what’s probably going to be a lot of the new norm.

And I wouldn’t be surprised if a lot of the differentiation that we have today with salary based upon location is largely going to go away. I wouldn’t be surprised. I think there will always be premiums that employees by supply and demand will get in locations like the Bay Area and in New York City and a handful of other places just because it is so expensive to live there.

And you could have a policy that would stipulate that. So if you if you live in this, if you reside in this location, there’s going to be a differential X percent. If you reside out of this location, it’s going to go to Y percent. You know, I think it would be easy. Just set that up and make it clear for employees to understand.

But, but I think to do it on the fly, if someone, you know, went, moved out of New York city to Connecticut last week, you know, do I dockpay by 18 percent or whatever the number is. I think that would be a little tough. And I think, I think you might, have some hard feelings. The other thing to consider.

Chip Griffin: You’re being far more diplomatic than I am, Patrick, because I have to say, I think if you don’t have a geographic location based salary policy, now is not the time to say, surprise, you decided to move, I’m cutting your pay, right? That’s, that is a, that is a horrendous idea from an employee morale standpoint.

It will spread to other people. So that, that is not a good idea.

Patrick Rogan: The other thing is you should really strive for consistency. I mean, that’s the one thing I’ll probably mention again and again and again is consistency because I think it’s so important. And when you’re, when you have this issue pop up and let’s say for instance, we have an employee that is producing very well, has moved to a location that has a lower standard of living costs, and you’re thinking about dropping their pay. But this is a tough to find skill. This is a high producer, a rainmaker. This is someone who’s making huge contributions to the organization and would be very difficult to replace.

Am I gonna do that? Probably not right. I’m, I’m probably not gonna do that. But then now are you, are you doing that based upon performance then? Are you sure you wanna go down that road? I don’t think you do. I think to your point earlier, the policy makes it a lot easier. This is the way it is. And I think by establishing those expectations upfront, you can remove a lot of turmoil that you just don’t need in the workplace.

Not, not today.

Chip Griffin: Right. Right. And I mean, you know, I do think that geography needs to factor into some degree in how you think about compensation, because, I mean, obviously we think of the high cost areas, but at the same time, You know, a lot of agencies are tapping into support globally. And so, you know, just as, as you may need to have a bump up to work right in, in a high cost market, at the same time, if you are paying San Francisco wages in a very low cost portion of the world, that creates its own problem then, right?

Because then you’ve essentially created a job block where, you know, someone’s going to do everything they can to stick around no matter what. Because, because their salary is so inflated versus what their local market is sustaining. So I, I do think that there needs to be some thought to geography when it comes to compensation.

But, but you need to be careful that you don’t look at it as, you know, purely a way to pad your own agency’s bottom line.

Patrick Rogan: Now, the other thing in the background, I was reading an article in Forbes recently, and they have some data that indicates about 44 percent of the workforce would take a 10 percent cut in pay if they could work remotely permanently.

Now that doesn’t mean we necessarily need to do that right away But I do think as we look more long range in terms of labor rates I think as employers we have a little bit more flexibility that something kind of keep in the back of our mind. If this is something that that larger percent of the population values then there might be some opportunities here looking long range.

Chip Griffin: Well, and I think you’ve, you’ve opened the door to a great conversation because one of the reasons, you know, why I talk about compensation and not salary is because people value different things. Right. And so, you know, the ability to work from home is something that some folks will put a premium value on.

There are benefits that historically have been offered by agencies and other employers, but that go into the decision making process. So my salary may be lower, but the overall package of benefits, whether that’s, you know, free candy at the office to, you know, healthcare to whatever, you know, those are things that all fit into the mix.

And so I think it is important that agencies be thinking about the total compensation package that they’re offering to employees and think about thinking about how to use that strategically to get the right talent. So, you know, if you’ve got a workforce that values working from home, you know, that’s, that’s something that you should be considering.

Patrick Rogan: Yeah. I mean, where you’re, what you spend is going to have value to your employees. You’re getting a return on that, you know, and there’s a whole host of other areas, you know, from a, from a compensation perspective, I think that employers need to do a better job focusing on because that way they can get a better return on their investment.

Chip Griffin: Right. And I mean, years ago, it was simple things like casual Friday. Right. Now, of course, it’s casual Monday, Tuesday, Wednesday, Thursday. Right. Things have changed since I entered the workforce 30 years ago. And, you know, suit and tie and all that kind of stuff. Now, if I show up somewhere in a suit and tie, people look at me and be like, What, what, what’s wrong with you?

Is everything okay? So, so I, so, so things do evolve and I think that when you’re thinking about compensation, you do need to look at it in the totality of things. Are there other things from a benefits perspective or a compensation perspective that employers should be thinking about as there is more working from home?

Patrick Rogan: Sure. Please excuse my dog in the background. Sure. UPS person. So I think, what it’s, it’s a wide field, right? So there, there’s a lot in the, in the total rewards space and looking at benefits specifically. You know what I always like to focus on first is what are the worst benefits and what are the best benefits?

So the worst benefits from my perspective are the benefits that we pay for that our employees don’t get value in. So basically we’re just throwing that money away. And obviously the benefits that I think resonate the best are the ones where where we provide those to the employees. And they’re like, Yeah, I really these these hit the mark.

This is this is what we’re looking for. And obviously you know, we strive for the latter. But I think right now, specifically, there are a couple areas that I’m hearing that are kind of rising to the top in terms of what employees are looking for. But I think before I talk about them, I think it’s important that we, as employers, take the time to To make sure we don’t guess on what we think our employees are going to want.

I think it’s important we have the conversation and say, Hey, listen, this is what we’re paying for for you. What value are you getting out of this? And what would you like to see differently? And I think doing that accomplishes two things. One is it helps you get to the right place so that you can hopefully be providing benefits that your employees are going to value and you’re getting an ROI from that perspective.

But the other thing that accomplishes is, which is really cool, is the employees are now part of the process. And while they’re not necessarily going to get to decide themselves, they do get to provide input. And from a morale perspective, I found that to be really, really powerful. So you kind of get two positives from having that conversation.

I think that’s really. where the, where the process, should start. Does that make sense?

Chip Griffin: It does. I mean, I think engaging employees on lots of things is very valuable. I’ve talked about it in the past on, on some of my live streams about the importance of, of bringing employees and decisions about the tools that your agency is using, for example. Not necessarily turning it into a, a democracy where everybody votes on it or anything like that, but, but getting input into these things can be useful.

And when it comes to compensation and benefits, They may come up with some really good ideas that you hadn’t thought of, some of which may not even cost very much, but may have a real meaningful impact on, you know, team morale. And obviously, that’s, that’s really critical to the success of any agency.

Patrick Rogan: So the the area of concern right now with benefits that I’m seeing is that We’re getting ready into the, you know, getting our data if we haven’t already for open enrollment.

And when you look at the utilization numbers in general, most organizations are doing pretty well because most employees have been putting off anything they can from a medical perspective. So the usage numbers that the carriers are seeing are like, well, this is, this is pretty good. Carriers know that’s going to eventually catch up.

So I think a number of organizations are going to see bumps. In their health care costs in their premiums, going forward. And a lot of that’s just coming to fruition right now. So that’s a big concern that I’m seeing with a lot of organizations and a lot of organizations have to look at companies, agencies are going to have to look at the mix, right?

So what is the, what is the portion that the company’s paying versus the employees? And I think that’s going to be, you know, an area that we’re going to have to pay attention to. But there are a number of components of compensation that really don’t involve money. And one of the ones that I think kind of stands out is this whole PTO or flexible time off, whatever your organization calls.

And I think that’s, that’s an area that resonates well with a lot of employees. Obviously you need your employees to be working for a business to happen. I get that you can’t give them the whole year off, but I think giving employees a little bit more control out of PTO is something that is resonating well in a lot of organizations, and I’ve seen that work well.

I’ve seen a number of organizations go to the point of having employees decide what their time off is going to be, so their sick leave time and their vacation time is is decided by the employees. Now, The work still has to get done. So you have to make sure someone covers you while you’re gone, and then you cover other people when they’re gone.

But I think those are the models, particularly in the agency, business where you know people are used to looking out for each other and that kind of thing I think that’s an area that resonates pretty well doesn’t really cost Well anything it might save a little bit of money on your books in the long term because you don’t have to carry unused PTO going forward because you don’t, you don’t have that anymore.

You know, it might cost a little bit in terms of employees not being there But I think if it’s done smartly if it fits the culture I think that could be a key area and i’m seeing more and more of it in the work that I do.

Chip Griffin: Well and and Time off is certainly something that employees value as part of an overall compensation package over the years.

I’ve had many employees say to me, you know, look, I’m, I’m not looking for a raise. I just want an extra, you know, five vacation days or something like that, because that’s, that’s where they put their value. One of the challenges that I think a lot of agencies have right now is trying to figure out how their conventional time off policies apply if they’ve got team members working from home and not just working from home, but really without the ability to take the same kinds of vacations and holidays that they may have in the past. So a lot of agencies I know are seeing employees accruing lots of time off and, and they’re afraid that, you know, once, once things open up again, they’re just going to have this deluge of employees trying to take advantage of, of the renewed freedom to travel and things like that.

You know, how should agencies be thinking about that?

Patrick Rogan: So I think it’s something that agencies should focus on, Chip. I think it’s important. My concern is less about them using big chunks of PTO in like kind of a use it or lose it. My experience has been in, in, in PR firms that employees tend not to do that.

And the, and the problem that exists that I’ve experienced is they just don’t take any time, right? So, so, so that’s a whole nother thing, you know.

Chip Griffin: And that’s a, that’s a huge issue with unlimited time off policies, right? It is. Which I am generally a fan of, but the research suggests that, that employees take far less time.

Absolutely. With policies like that. And so you, you almost then have to be in a position where you’re forcing people to take time off, which is an odd place to be.

Patrick Rogan: It is, but unless we get them to do that, then they’re going to burn out. Right. You need time off. So yeah, yeah, yeah. I totally agree. So yeah, nothing, there’s no, there are no silver bullets here that everything has pros and cons.

But I think as an agency leader, making sure that your employees are getting time away to refresh is key. And if you think in your organization having, you know, unlimited PTO would be a step in getting there, I would encourage you to take a look at it. I wouldn’t jump right into it. Still, there’s still need to be a policy.

There’s, you know, need to make sure that, you know, after five days, that’s work abandonment, if, and you know, there’s all those little pieces you have to, you have to put in from a policy perspective, but I do, I haven’t seen it work well, in other organizations and other agencies. So I would recommend organizations take a peek at it.

Chip Griffin: Yeah. And, and before we move on from work from home to the next topic, I do also want to make sure that anyone listening to this, if you’re, if you’re new to having employees work from home or, or a substantial increase for your agency, make sure that you’re, you’re vetting all of your policies and procedures, because a lot of things can be can be impacted from work from home.

It’s an issue that, it could affect your business insurance. For example, you may need to list employees residences as places of work to make sure that you have full business coverage in those areas. You may, you may have tax consequences. Some of these, some of these are even being litigated here in New Hampshire.

For example, we have a lot of people who live in New Hampshire, but. previously worked in Massachusetts. They’re now not going in to the office, Massachusetts, Massachusetts is still trying to tax them. So the state of New Hampshire has actually sued the state of Massachusetts over this. So there’s, there are some potential issues for you from a payroll tax perspective, there are potential income tax, implications of having people working from home health insurance.

When you’re thinking about what health insurance policies you have, if you’ve got people who live in different parts of the country, that could impact your decision because you don’t want to get, a carrier that’s fantastic for, you know, employees in your home market, but terrible for those who work remotely.

So, so make sure that you’re thinking through all of these things and consulting with HR, legal, and tax advisors, to get the proper advice. So you’re, you’re doing it correctly.

Patrick Rogan: Yeah, the tax one can be particularly nasty, because if you’re particularly if you have a partnership and you’ve established, you’ve now established a nexus in another state, then there are filings you may have to do and that’s just a whole, not my area, but I’ve experienced enough of the pain to know that it’s there.

Chip Griffin: Yeah, the whole nexus question is, again, you and I are not tax experts, but I can tell you I have had to deal with nexus because of work from home employees before. And it can be a nightmare, , particularly if you are surprised by it at the last minute. So, so think these issues through, talk them through with your professionals.

So we actually have a question following up on this. So the, the question is, we completely killed off our PTO during COVID. So now it’s unlimited PTO, but we’re also experimenting with four day work weeks, anything we should consider.

Patrick Rogan: So if it’s a four day work week, they should be 10 hour days if at all.

I mean, they still need to put the hours in, right? So, you know, I would, I would recommend that, I think that you need to, you need to be careful that you don’t have unintended consequences when you, when you set up these kind of systems. But I think if it’s working reasonably well, you know, keep it going.

But the other thing with the four day work week is you got to have coverage on that fifth day, like everyone can’t take the same four days. Right? And then you need to make sure there’s communication like the employees take the initiative to communicate coverage and not assume on the day when they’re not working that everything’s getting done.

They need to actually go this step further and make sure that there’s coverage and, you know, job sharing or different. There are different ways of getting at that. But I think that’s the. That’s a danger piece that I’ve seen with the four days. I’ve seen it work very, very well when there’s good communications and expectations are set.

I’ve also seen it work not well when the process hasn’t been defined and responsibilities haven’t been set.

Chip Griffin: Right. And this is, I mean, the, the four day workday week is something that I think is becoming a more popular topic of conversation. Generally speaking, not just in the agency community, but certainly a lot are looking at it as a, as a, as a possible way to address some of the additional stresses that come from working from home and finding better ways to delineate between work time and personal time.

Because, you know, most people who are working from home, particularly for the first time have difficulty creating those boundaries. And it’s difficult, and as an employer, you have to remember to respect those boundaries, right? So, just because you know that your employee is sitting on their computer at 7 o’clock at night doesn’t mean you should be insisting that they respond to you then.

You know, that’s, that’s a real risk that you can run into.

Patrick Rogan: Or 2 o’clock in the morning.

Chip Griffin: Or, well, two o’clock in the morning. That too. So, so let’s, let’s, let’s pivot to an area that I, I know we got a lot of questions about leading up to this, conversation, and always comes into conversation, particularly at this time of year, which is bonus and incentive plans.

Patrick Rogan: Yeah.

Chip Griffin: So, I mean, we could spend hours talking about bonuses and incentives, but, let’s start, you know, just, just sort of foundationally, how do you think about creating bonuses and incentive plans? And, you know, so big picture, what, what’s your general philosophy about them?

Patrick Rogan: So, I think it’s important that they not be done haphazardly, that it be clear, that they be simple, that as you’re putting together a bonus plan, it’s easy to calculate and that the incentives are in the right place.

My experience with financial incentive plans is that they will definitely accomplish something. Now…

Chip Griffin: that is a great way of putting it,

Patrick Rogan: it may not, it may not be what you were looking for. So let’s say, let’s say you’re in, give me an example. Yeah. Yeah. So let’s say you’re, you’re in an organization where you decide you’re going to do a bonus plan and you’re going to provide an incentive for bringing in new business.

So it’s a, it’s an organization where, most of the, the pursuits in the past have been done in a team. structure, and you’re going to now decide one person is going to get the bonus for bringing in that piece of business. Now there are obviously multiple pieces of business, so I figure maybe it’ll even out.

Well, inadvertently, you’re providing an incentive for your staff not to work together because only one person, you know, is getting an incentive for that. So there are a number of ways to get around that. So you can still have incentives. But you can, you know, you can double count, , the numbers. Like for instance, the total number of sales can be more than, that are awarded as an incentive is, is more than the total number of revenue that comes in.

Obviously you don’t do a dollar for dollar, , you know, exchange on that, but there are ways you can get around that. But I think you need to be careful that if you’re, if you’re in a team selling environment, that you consider options that reward the team. So, the other, the other example I see a lot is you have situations where you, you build a reward structure based upon bringing in new business and maybe you do it in a team model and that fits your organization better.

But if you know, if there isn’t a profitability component that falls into that, then you run the risk of, you know, doing all of this, bringing in all this unprofitable business, and that’s probably not going to get you. So that’s an example of an unforeseen consequence that you probably weren’t thinking about how you, how you, how you built that.

So I think it needs to fit with your organization, with your culture and with the objective you want to get. And you just have to kind of think it through to make sure you haven’t forgotten something and don’t end up, you know, at the, at a very different place than you, than you wanted to get to.

Chip Griffin: Right. I think you make a great point about

you know, thinking about what the potential unintended consequences are, you know, if you’ve got an incentive plan that is focused on profitability, you know, oftentimes that means that that people will be penny wise pound foolish, just to get the to get to the profit numbers that they need to get to if it’s revenue based, you know, they may bring in junk revenue just because it’s revenue.

You always need to think about, you know, what’s, what is the potential negative consequence from it? But let’s, let’s go even bigger picture here. Do you, do you favor formulaic bonuses that you can calculate or do you prefer discretionary bonuses?

Patrick Rogan: So I’ve seen both work effectively. I’ve seen less negative consequence less negative situations where discretionary bonus is.

bonuses are used effectively. , and I think that it kind of gives you a little bit more pivot space, a little bit more wiggle room. The formulaic ones, you really need to get them right because they do have the potential of kind of getting some odd places that you really hadn’t thought of before. So that’s, that’s my preference for, for that reason.

Chip Griffin: Yeah, and I’m, I’ll say I’m in the same place, and I have tried over the last 20 plus years, I have tried more formulaic bonus compensation plans than you can shake a stick at. Yeah. I’m not sure I could ever say that I had one that truly worked the way I wanted it to. It, they typically either under or overcompensate individuals.

So to the extent that I use formulas, I prefer to do it as, to create a bonus pool from which discretionary bonuses. are then granted. So you’re, you know, it’s still a way to, to have the team working towards a common goal, whether that’s, you know, profitability or revenue or something else. But at the same time trying to figure out, you know, how you then disperse it, it’s very difficult to do that well solely by formula because, you know, you just, you have to think through every possible scenario to avoid the unintended consequences and also get the right result.

Patrick Rogan: I used to work, work in an organization full of actuaries and they couldn’t figure out the right formula. So it might be impossible. I guess it can be done in some places if it’s a real simple model.

Chip Griffin: Right. So, and actually, so we, I’ll take this question first and then I’ll get to my next question. So this is a question that came in, from someone who’s watching. Have you seen LTIs as an effective bonus retention model in PR?

Patrick Rogan: I’ve seen it effective in other industries. I haven’t seen it in PR. But I think it, I think it could work first. First explain what an LTI is. A long term incentive plan. So it’s either, an incentive plan based in, compensation, future compensation, or, sometimes you’ll have an ownership component, that can go along with that.

And I think if you can work it out so that it’s an ownership component, I’ve seen that work a little bit better because there’s good data that supports. that owners of a business, tend to have a stronger desire for success than just regular employees. So if you can build an ownership piece, or a potential ownership piece into LTI, I think that, I think that works really, really well.

But it is a hook, right? It is a, it is a way that gives an employee an incentive to stick around. If they really want to leave though, And that’s the only thing that’s keeping them there that they’re not going to stay. So like, if it isn’t the right culture, if they’re not getting along with their manager, if they feel like they’re not being treated fairly, you could have the best LTI plan in the world.

That employee is out of there. So, you know, it’s limited what they can accomplish, but I think that where they come into play is when you have a group of employees who are high performing and then out of that group, you’ll notice the ones that I’ve seen that have a long term incentive plan.

They tend to just push a little bit harder. So it’s kind of like from good to better. It’s not going to work at the, at the lower end of the, of the scale there.

Chip Griffin: Yeah, I would agree. I would say that my experience is fairly similar to yours. You know, typically in the past, I’ve used phantom stock, for example, as the approach to this.

So, so rather than giving actual equity, which has all sorts of legal and tax challenges, phantom stock is usually an easier route to go. Obviously, again, talk to lawyers and accountants. We are not them, blah, blah, blah. So, you know, there’s the disclaimer so we don’t get sued. But, you know, whatever, whatever program that you have, it certainly can be effective in getting more performance out of those senior individuals that might be included in it because they now feel like, you know, the business is partly theirs in some respect, right? And you always work harder for something that you own, or own a piece of than merely being an employee, I don’t see it as a particularly good retention strategy, because it, it actually, from a retention standpoint, I’ve actually seen it backfire where, where it actually encourages someone who probably ought to leave to stick around in order to get it.

And we, and we see this all the time in acquisitions, right? When a business is acquired, right? Typically, the seller of the business is required to remain for a period of time through what is effectively a long term incentive plan of getting earnouts and that kind of stuff. And, and quite often you see those founders then exit as soon as that.

program is up, right? So, so that shows they didn’t really want to be there in the first place. And, and why would you want to, you know, sort of force someone to be somewhere they don’t want to be? So, you know, I, I think that it, it can be effective if you’re just trying to get additional performance out of an individual and make them really feel vested in the business, but I don’t see it as a good, retention strategy.

Let’s see. All right. So we’ve got a couple of more questions that have come in here. So clearly we’ve touched a nerve with bonuses. Actually we’ve got one on PTO too that I missed before. So we’ll come back to that in just a moment. But, , so, this question is how would you structure a discretionary bonus plan?

Patrick Rogan: Well, obviously the, the first thing you do is you need to ask yourself some questions. So what are you trying to accomplish? Why are you doing a bonus plan? How are you going to fund a bonus plan? Is it going to come out of profits? What, you know, how is it going to be funded? What is it you want to, you know, how do you, how does your organization operate today?

What is your culture like? How is this bonus going to support that?

Chip Griffin: Let me ask you this. I mean, so, so should you have a plan at the start of the year for how you’re going to do bonuses? Should you just look at the end of the year and see how things have gone and come up with a plan at that point? And I would say that the latter is probably what I see more of in the agency space.

I have worked with agencies that do actually allocate You know, a bonus pool each month and set it aside, even I’ve seen that too often in a separate bank account, even so that it’s it’s truly segregated. But yeah, I mean, I guess in an ideal world, you’d certainly say know in advance. But, you know, realistically, you know, what advice would you give from that perspective as far as how far out you’re planning this and thinking it ahead?

Patrick Rogan: So I think in the agencies that I’ve supported. I think doing it at the end of the year is a model that’s the easiest to implement. I think the trick is you want as much transparency as you can for the determining who gets what right? Because that’s what the employees want to know. So upon what basis am I going to get my bonus?

And the answer to that I think should really vary upon how that organization works. If it’s a very team based structure where everybody has a different role, it might be very appropriate to have a team based bonus structure where basically everyone’s going to get the same amount or maybe you tie it to salary as a, you know, a percent of salary.

I mean, that could work as well too. But I think if it’s, if it’s more of a, individual contributor culture and we have more of whatever you want the most of if it’s new business or keeping existing business or innovation or whatever, you know, I think you just need to define what they are. And then if you need to skew it, and it’s not going to upset the apple cart.

If it’s a very altruistic type group, and it’s like one for all and all for one, then I think you want to keep it kind of similar. But if it’s like very different, and there isn’t as much in interplay and cohesion that kind of thing then you have more flexibility to do different roles that have different structures. But I think in general I like to see it funded out of profitability. And I think you have to leave it to the leadership to determine what the profitability is. But I do think it’s important that you communicate to the staff that this is basically how we’re going to make our decisions like remove some of that curtain there. Because you want it to be an incentive plan and too often what it ends up as a disincentive plan.

That’s the worst. You’re paying money and people are upset. That’s the absolute worst

Chip Griffin: And I’ve I have seen plenty of that. And particularly, you know if you’re an agency that that is struggling this year In some cases it’s actually better to forego bonuses than to give a really paltry one You know because because sometimes that really small bonus, it just sort of comes across as an insult as opposed to, you know, being honest with the employees and saying, look, it’s, you know, it’s tough times.

We need the cash reserves to, to make sure that we’re in a strong position for 2021 and beyond. And I think that goes to the point of transparency that you raised earlier. It’s really critical for agency leaders to be communicating to their team throughout the year, how the business is doing. It should, you should not get to the end of the year and be surprised that it either was

a blockbuster year or a bust, right? Through the course of the year, you should be communicating that. Whether you’re sharing actual numbers or percentages or not, doesn’t even matter. And again, that’s a, that’s a topic we could have separately, but they shouldn’t be surprised by it because, if they are, that’s where you tend to have those, those, negative impressions of the bonus because they didn’t realize the business wasn’t doing well.

And so, you know, they were expecting the bonus that they’ve always gotten, which was a lot bigger than what you were able to give this year.

Patrick Rogan: And I’ve seen, I’ve seen it be very formulaic in agencies. I’ve seen where like once a quarter, an email will come out and it’ll say, you know, you know, we’re off to a rough start.

We’re only funded at about 30 percent of what our bonuses were last year. And then like at midyear, Hey, we’re, we’re getting better. Yeah, we’re at like 50%. And then, you know, I’ve seen that work, but I’ve, I’ve seen it work just as well. Chip with, you know, look, we’re, we’re having a strong first quarter.

And, we’re, we’re encouraged by the performance of the organization. I think things are doing really well. And the second quarter was like, Hey, we’ve had a little bit of a bump, but we’ve got the rest of the year to build it back. So like employees, even with those kinds of conversations are, expecting that, okay, so the bonuses are going to be starting off really good. Now we’re having a little bit of a bump. And they kind of know to your point, when you get to the end of the year, there’s no sticker shock. It’s like, well, I thought we were going to get a huge bonus. We got this little thing.

Well, why’d you give me anything? You know, you don’t want that.

Chip Griffin: Right. Right. I was, I was planning on the down payment for my house. And instead, you know, I don’t even have a down payment for a Yugo. And for younger folks in the audience, you don’t know what a Yugo is. If you’re older like Patrick and I are, you do, and you get the joke.

But anyway, so let’s see, let’s hit some of these other questions here that we have in the remaining time. Does an LTI program negatively impact the ability to sell your agency in the future? And so an M&A is not necessarily your specialty, but you know, I asked for your opinion then I’ll share mine as well.

Patrick Rogan: Yeah. Yeah. I know you’re gonna chip in on this. I think if you do actual ownership, And you don’t set it up legally the way it’s supposed to be then absolutely that could be a problem. I do think like you mentioned earlier their phantom stock options, their other way of having ownership like models that don’t impact, selling a business.

But I’m sure you have some thoughts on that as well.

Chip Griffin: I do. Yeah. I mean, you know, it, when you’re going through a sale of your agency, the, the buyer is going to look at all of your agreements, clients, employees, vendors, the whole thing. And, and so, so they will analyze each on its merits. Acquirers generally want stability from the staff.

So what they’re typically going to do when they’re looking at an agreement like that is trying to figure out if, if it’s going to help the employee remain with the business over time, because generally they want that stability, particularly of senior leaders sticking through the, at least the transition period, post sale.

So from that perspective, they would look upon it favorably in general. Although, you know, if it ended up through the sale that they were going to get a huge windfall and so therefore might not be motivated to work after that, that, that can be an issue. Now that doesn’t happen quite as often in the agency space as it does in other places where, you know, you get huge multiples, which is not typical when you’re selling your agency.

Sorry to disappoint you, agency owners who are on this, this webinar. You know, but it’s, it’s one of those things that will be looked at. as part of the whole picture. But as, as you say, Patrick, if it’s not done properly, that’s going to be a problem. , and so, that’s an area where phantom stock would certainly be preferable to an acquirer in most cases.

Although most of the time the acquirer is not going to actually buy the, the actual agency, they buy the assets. So it’s called an asset purchase agreement. So they’re not, they’re not, it’s your problem is the old owner to deal with all those equity issues and they’ll just craft new agreements with the team going forward. So, Bottom line, it depends.

Patrick Rogan: Our standard answer.

Chip Griffin: Exactly, exactly. The favorite answer of consultants everywhere. And, and the tagline for the Agency Leadership Podcast that Gini and I host. But, , alright, so we got another one here. How does unlimited PTO work with defined percentages of required billability?

So, if you’ve got an employee and you say, okay, you know, you need to be, you know, 90 percent billable to clients and only 10 percent on other stuff, you know, how would you see unlimited PTO feeding into that?

Patrick Rogan: I wasn’t ready for that question. I don’t know. I would say, you know, you might need some flexibility, in how you set it up.

I mean, at the end of the day, the employee has to get their work done. And, and you know, if they, you know, the worst case scenario is they take off huge chunks of time and they’re not producing, well, they’re not going to be around long anyway. So, , I’m not familiar with that particular model. So, so I’m not, I’m not sure exactly how that would work.

Maybe you can,

Chip Griffin: Yeah, I’ll, I’ll, I’ll speak to it. So, so first of all, I, I am not a fan of required billability. I think that you should have targets for your individual team members and, and you know, what’s your, what you’re seeking to achieve, at the same time, I think, you know, applying a, a certain percentage and telling the employee, this is what you need to target.

All you’re really going to do is skew their reporting so that they make sure that they hit that number. I can tell you that, that when I was a young pup starting out in a, in a PR agency, right after I got out of college, we had certain requirements as far as the maximum amount of time we could bill to certain clients.

We would always put that number on our timesheets, but we typically did more work than that because we didn’t want to get yelled at by the client because at the end of the day, we were the ones at the pointy end of the stick and we were going to hear from the client if they were unhappy. So. So we just, you know, did lots of extra work and, you know, put it down as a, 632 new business or whatever.

Cause we had codes that we would put on the timesheet back then. So, so I, you know, if, if you apply those, those artificial requirements on, on employees, they’re typically just going to spit back at you what you want to hear. And it doesn’t really achieve anything. So I would prefer you to have targets for individuals.

Have them report accurately and, and if it’s, if it’s falling outside of those bounds, try to figure out why. What’s the, you know, is it because you’re scheduling too many internal meetings? Is it because you just don’t have enough work for that individual? Do you have too much work for that individual?

Because at a certain percentage, you’re, you’re doing too much billable work because it means you’re not doing enough to, to participate in the growth of the agency itself. So, so bottom line is I don’t think that it’s necessarily a PTO issue, unlimited PTO issue. I think it’s really more of a strategic management question and how you look at billability of employees.

So, we’re just about to the end of the hour here. Patrick, do you have any additional thoughts or words of wisdom that you’d like to share about employee compensation with the agency owners who are listening?

Patrick Rogan: Well, I really think, you know, we talked about it a little bit earlier, Chip. I think the key piece is communication.

This is the, we’re all in the communications business, right? And I think communicating and setting expectations with employees is the most important thing we can do. Certainly having the, the, the backbone of the policies and setting expectations. I just think there’s so much anxiety right now that we’re all dealing with.

The last thing we need is confusion. So As agency owners, I think it’s important that we set those expectations with staff, make it crystal clear. And that way, if we get a little sideways one way or the other, we have a point to come back to to say, well, this is where it went sideways because this is where we said we were going.

So I think that’s the piece that stands out for me more than other. More often than not, when things go a little sideways, it’s usually because there were either misunderstandings or lack of communication.

Chip Griffin: Well, and I would add to communication that it’s a two way street. And so, as a leader, you need to be listening as much as you’re talking.

So, yes, you need to communicate to your employees what’s going on, what your plans are, those kinds of things. But you need to listen to them, listen to what their concerns are, particularly now. Listen to them for their ideas as you’re shifting the method of delivery or where folks are working or anything else about your business, because first of all, you’ll get great ideas.

But even if you don’t get great ideas, you’ll get some good insight so that you don’t miss step so that you don’t come up with the wrong compensation plan. It’s not going to prevent mistakes, but it will reduce the risk of them if you’re actually paying attention to what’s being said. So, Patrick, if someone wants to learn more about you or they’d like to reach out to you with some additional questions, how can they reach you?

Patrick Rogan: Sure, my email is Patrick@IgnitionHR.com.

Chip Griffin: And I’m assuming your website is IgnitionHR.com? It is. That was a loaded question, I already know the answer to that. But, in any case, well, Patrick, thank you very much for sharing your expertise. Thank you to all of the attendees for being here and for asking some great questions that fed the discussion.

And I look forward to seeing you all back here again soon.

Thanks, Chip.