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Year-end agency employee compensation decisions

This SAGA Member Webinar is available only to individuals with active memberships. Login or join to gain access.
Webinar presented live on November 29, 2023

The end of a calendar year typically brings with it a flurry of activity for clients as you try to wind up work in time for a holiday break. You may also be talking with your accountant about timely tax issues to minimize the amount you owe to the government.

At the same time, your employees probably have their eyes on year-end bonuses and annual raises.

In this webinar, Chip Griffin takes a look at how you should approach year-end compensation decisions with your employees. Holiday gifts, annual bonuses, COLA and merit increases, and even holiday office hours will be discussed. He also looks at how you should handle your own compensation as an owner at the end of the year (and in the year ahead).

It is best to have a plan of action rather than handling these decisions on an ad hoc basis, and this webinar will help prepare you for an approach that works for your agency and its team.

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The following is a computer-generated transcript. Please listen to the audio to confirm accuracy.

Hello and welcome to today’s webinar on Year End Agency Employee Compensation Decisions. I’m your host, Chip Griffin. I am the founder of SAGA, the Small Agency Growth Alliance, and I am delighted to have you here with me today for something that I know is on the minds of a lot of you as we creep up into almost December now, which is kind of crazy to think about.

This year has really flown by, as I’m sure most of them do. Before we go ahead and jump into the actual substance of today’s webinar, I do want to go over a few housekeeping items. First of all, the full webinar replay will be available in the library on the SAGA website, so feel free to check it out there.

If you’re watching this on replay you won’t be able to participate in the Q&A, but if you are live, you can use the Q&A function on your screen to ask questions. It should be, I believe, at the bottom of the screen, and you can simply ask your questions throughout the course of today’s webinar and after my main presentation I will take the time to answer as many of those as I can. If you’re watching on replay or you are here live but don’t want to ask your question publicly, feel free to email me at chip@small agencygrowth.com and I will do my best to answer your question in a timely fashion. You also are free to use the Slack community.

If you joined there, you can ask questions not only of me, but of other agency owners and get answers from your peers. So I’d encourage you to join that SAGA Slack channel. It’s under the resources tab on our website. If you talk about this webinar on social media, I’d encourage you to use the hashtag agencyleadership so that it’s easy for other folks to discover.

And then finally, if you’re Interested in any of the resources that I mentioned today, or want to dive deeper on many of the topics that I discuss, you can do so at smallagencygrowth.com. We’ve got a pretty powerful search feature on there that will let you dig into podcast episodes, articles, webinars, all sorts of things that I’ve done in the past that will allow you to go very deep on the topics that we discussed today, as well as other things that may be on your mind as an agency leader.

So, let’s talk about what we’re going to be covering over the course of today’s discussion. First, we’ll be talking about some of the current compensation trends at agencies that I’m seeing in my conversations with agency owners. We’ll talk about the truth about competitive compensation because it’s not probably exactly what you think it is.

We’ll have a discussion about compensation strategy and why you need to have one. We’ll talk about compensation reviews and performance reviews and how they are different, but also how they interplay with each other. We’ll talk about cost of living adjustments and merit increases in pay that many of you will be thinking about this month, or at least in the months ahead.

We’ll talk about annual bonuses. Again, I know many of you are handing those out either this month or next, or perhaps later in Q1. We’ll talk about non cash rewards because the way you compensate your employees is not just about the dollars or, or whatever currency you operate in, that you’re handing out on a, bi weekly basis.

We’ll talk about holiday gifts because it is that time of year as well as holiday hours because those, both of those things are part of the overall compensation that somebody receives and so part of the decisions that you need to make. And finally, we’ll talk about how you discuss compensation. with your team members.

So with that, that’s obviously action packed and we will be, spending a bunch of time getting into that. So let me get into it. So we have plenty of time for Q and A at the end. And so we’ll start with this discussion about, compensation trends, because I’m getting. Probably more questions in the past two or three months, than normal from folks who are asking about, you know, what should they be paying their team members?

What should they be paying prospective hires? They’re, they’re concerned about how much prospective employees are asking for in terms of compensation. And they’re saying to me, is this reasonable? Why are people asking for so much? And so I would say part of it is that it’s, it’s still an employee friendly market.

when it comes to agencies. So most agencies I know who are hiring are still having a challenging time. It’s not as hard as it was a year ago. So there is some degree of improvement that’s taking place. There is more talent available, at this point in time, but, but employees still understand that they control a lot of the levers here.

And so they know that they’re in a position to get more when they ask for more. And that’s true of both prospective and current employees. So it is causing pressure on agencies to look at them and figure out how are we going to make these numbers work. And inflation is driving some of this push from employees, but it’s also driving the concern that a lot of the owners I’m talking to are having because they’re saying, look, all of our expenses are going up.

And so we can only do so much within our current structure to compensate our team members. And even if we want to pay them more, we’re not sure that we can afford to from a cash perspective. At the same time, a lot of the, the newer generation of workers are coming into the agencies and they, they are asking for, with a straight face, much larger raises than I would have ever imagined asking for when I was at that point in my career.

They are much bolder in it. They are more inclined to ask more frequently. So the agency owners that I’m working with, if they have someone who’s only been in the workforce for a few years, it is not uncommon for them to, to come multiple times a year asking for raises. And so this is a struggle for agency owners who clearly want to retain their best talent, but at the same time, they don’t quite know how to handle this because it’s not how things were done in their day.

and, and part of the problem that we have is agency owners, agency leaders, executives, is that we are very disconnected from that point in our own careers. And so if I look back to when I was a junior account executive in the early 1990s at an agency, a small agency, and I look at what I made then, and I sit there and I say, geez, I can’t believe how much we’re paying juniors today.

Well, I went through an exercise not too long ago where I used the U. S. government’s cost of living calculator and basically punched in what my salary was as a junior account executive, and I compared it to in those dollars to today’s dollars. And it turns out that when an employee comes in, they’re asking for 50,000 straight out of college.

That’s not that different than what I got paid back then. It’s pretty darn close in the same dollars. And I was not certainly overpaid back in the early 1990s when I was making, I think, 23,000 a year. These are, these are things that we need to come to grips with if we’ve been disconnected from a decade or more from these positions.

So, yes, we have challenges that we see, but at the same time, we need to understand whether or not what we’re hearing is reasonable or if it is as inflated as we think it is. And probably, honestly, the answer is somewhere in between.

I think the biggest problem that we have though is that owners are seeing this pressure on the amount of salary that they’re paying, that it’s, it’s taking away from their profitability.

And it’s partially because owners are too often seeing this as a zero sum game. And I would say to you that part of the problem is that you need to make sure that your prices are going up for clients as well. Many agencies that I know are charging the same amount today that they were charging five or ten years ago for the same level of service.

And the reality is that inflation and salary increases, and all of these things means that it costs more to service. And so we are not increasing our prices. on a regular basis. And I have a whole webinar on how to do that both for existing as well as, future clients. If we’re not increasing prices, then yes, it is going to continue to eat away our profitability.

And so it’s going to make us resentful of our team members. We don’t want to be there. We need to pay competitive salaries if we want to keep the best talent. And we all know that as agencies, our talent really is our differentiator, not our differentiator from each other, like we often say, but it is what allows us to do the work for our clients. And if we have, if we have a subpar team, because we’re not willing to spend for it, that’s only going to hold back our growth.

So let’s take a look at how we we compare our compensation to what our peers are paying and this is something that I get asked about a lot. In fact, there was a discussion in the Spin Sucks Community about salary surveys recently, and this webinar was suggested as a place to go to talk about that.

And so I do want to make sure that I touch on this, which I was planning to do anyway, but I’m going to lead it at the top of this list because from a comparative standpoint. I get asked quite often, are there good salary surveys out there that we can use to figure out how much we should pay an account executive?

How much we should pay an account manager? What’s reasonable? How should we be moving them up in salary? And, and there are some surveys out there, but they are largely unreliable. And they’re unreliable for a number of different reasons. They’re unreliable because most of them don’t take geography into consideration.

And even though we are in an environment where most agencies are at least hybrid, if not exclusively remote, and so therefore hiring from a much broader pool than they were back, say, five years ago when everybody was, or most people were hiring in house employees. And so you knew the geographic market in which most of your hires would come from.

But geography still does play a role. And so a 50,000 employee in New York City is very different from a 50,000 employee here in New Hampshire. The buying power that you have with that in those markets is incredibly different. And so if you simply look at those things, it’s, it, it just stands to reason that what good talent in those places is going to insist upon is going to be higher if they’re in a New York City type of place.

So geography is one problem. The second problem, and this is something that we have as a real issue in the agency community, is that there is so much disparity from one agency to the next in what any individual role actually encompasses. And so there are some kinds of businesses where the titles have some standardization from one business to the other.

But agencies, more than most other places, has a giant gap. And so an account executive in one agency might be a very junior person who is simply following direction. But I’ve also seen agencies where an account executive is someone with five to seven years of experience who’s actually leading the day to day on a client account.

Those are two very different animals, but the title is the same. And so if you try to compare across titles, you start to run into problems. Now you certainly can address some of this by working with a local HR consultant who is able to do some compensation checks. There are obviously compensation consultants, which most of you aren’t going to consider because those would be far too expensive and, and usually used by corporate boards and that sort of thing.

But your HR consultant can help you with this by doing some checks in the various markets to try to get a sense as to what other agencies are paying, at least for people with similar experience levels, if not actual titles. But again, we all know that when we’re looking at, at job ads, online for other agencies, they are often written in a relatively vague fashion where, you know, it’s someone, we need three to ten years of experience and we, we kind of want this laundry list of skills, you may be doing this yourself.

It’s a challenge, right? And so if you’re putting these kinds of vague job offers out, job listings out there, if your competitors are doing that, it’s much harder to do any kind of comparison. And that’s only if they post any kind of salary range. Certainly pay transparency laws are in some states requiring people to list ranges, but often these ranges are fairly wide too.

You know, if you have a job that’s listed with a range of 50 to 75,000, what does that really tell you? It doesn’t give you a lot of the data that you would be looking for. So. I would say to you that these are all interesting pieces of data, and certainly there’s no problem with collecting as much of this information as you can, but to some degree you need to take it with a grain of salt.

And here’s why. Ultimately, how much you need to pay an employee is based upon what they are willing to accept. for the job that you want them to do. And so as much as you may say, well, this is what I want to pay. If you can’t find anybody who is willing to do the job in the way that you want at the skill level that you’re looking for, for that, then it doesn’t matter whether every other one of your competitors or perceived competitors is able to do that.

Right? You can sit there and say, this is what I’m going to pay, but then the job just remains open. So you need to ask yourself, what is the cost for you to deliver service to your clients? And can you afford the salary within that? If you can’t, if you, if what the employees are asking or the prospective hires are asking is outside of the range that you need in order to be able to perform your work profitably and well for clients, then you need to look at whether your pricing is off.

Or if your expectations of these hires is off. In other words, should you be looking for a different role? If you’ve only got 50,000 to spend, should you be looking for a different kind of employee than the ones that you’ve been interviewing? If you have an existing hire, you certainly want to keep them competitive with others in the marketplace, but at the same time, at some point you may say, okay, well this person is overpaid versus their peers in other places, but then you need to ask yourself the question, do you want to keep them?

Because if you want to keep them at some point, it doesn’t matter whether they’re overpaid. Most people will leave if they’ve had their salary frozen for too long. So you need to think about those things, and can you evolve them into a different role that you can charge a client more? Are there things that you can do to advance them from a career perspective that will make their salary more justifiable because the results that they’re producing for you financially are now worth it in that new role.

And we’ll talk about some of that later on when we’re talking about career progressions because compensation and career progression are tied inextricably, in your agency and you need to be thinking about the two hand in hand and not as completely separate things. And I, all of this is to say that you need to have a compensation strategy.

It can’t just be a series of one off conversations where you’re winging it each time. And this is something that I know I did a lot when I was starting out with my own agency and I would sit there and I would just evaluate each individual circumstance on its own and just make things up. And so. What happens when you do that?

You end up with a whole mishmash of different titles and salaries, and there’s just no consistency across your organization. And when you’re at three or four employees, maybe that’s not that big a deal. You start to get up to 10 to 15 employees, it starts to become a bigger issue. You start to hit 25 or 30 employees, and now it’s a real issue, because now you’ve got people who are, you know, they’ve maybe got the vice president title, but they’re paid 40,000 a piece different.

And so that ends up. Usually coming to light amongst your team and causes problems. So you need to start early on in your agency, even when you just got a handful of employees to start thinking about salary bands. And what is your strategy with how you’re paying? And so if you’ve got an account executive, here’s the range.

And you start with this internally, just for yourself. And here’s the ranges that I’m going to have for these different roles. And here are the responsibilities that come with it so that I can see at least for myself, Okay. Here’s what it looks like for an employee to progress along in my business, both responsibility wise and compensation wise.

But now that I’ve got that for myself, now I need to start thinking about the transparency of that. And part of that is the transparency that, that may be mandated by legislation. And I’m sorry, I’ve got something beeping here. I don’t know. I’ve never heard that beep from my phone before. So, my apologies.

I think I’ve stopped it. In any case, you need to be thinking about, how much of that is required by law or regulation in your area to share. Most of the states who have paid transparency laws right now here in the U. S. require it primarily for job ads and in many cases it exempts employee or firms with less than 15 employees, which I know many of you may fall into that bucket.

So it may be that you’re not obligated to do anything from a paid transparency perspective. In some cases, you’re only required to disclose the range for a position if an employee or a prospective employee asks you about it, and that’s when you need to disclose. So, understand what the requirements are, but even if the requirements are not very strict for you, you should think about the value in being more open with your team and with prospective hires about these salary bands that you’ve created initially for yourself.

But now you can start sharing with them to show them progression and give them a rationale for why you’re trying to set their salary in a particular range. And if they say, well, look, I, you know, I want to be making more than 52,000, you can say, okay, well, here’s what you need to do to get there. Here’s the responsibility that I would be looking for in that next tier in our structure.

I would need you to be contributing in these ways beyond what you’re doing today. And it gives you that opportunity to tie together the value that they’re creating for your business with the value of the salary that you’re providing them. Because that’s where you end up in the sweet spot. If you’re in a position where you’re able to pay people based upon the, based upon the value that they are creating for you, you are in a much stronger position financially as an agency, but you’re in a much stronger position when you’re having that conversation with your team members, because you’re able to communicate it effectively. And they’re able to see that these are not just one off random conversations. And so we want to be thinking about how we’re doing that.

We want to be thinking about how do we do, the structure of their compensation in such a way that we’re consistent across the board. In other words, are we, are we a model where we’re doing just straight salary? Are we a model where we’re doing pay plus incentives, various kinds of bonuses, whether those are KPI based bonuses or profit sharing bonuses or that kind of stuff?

So we need to think about a consistent approach to how we’re compensating our team members. We need to think about what we’re providing in addition to salary. We’ll talk about some specific items, non cash ones. later, but also be thinking about the benefits that you’re providing, because if you’re providing a job with a salary and you’re including 50 percent health insurance, 100 percent health insurance, 100 percent individual health insurance, but no family piece, however, you’re structuring it has an impact in the calculation that prospective and current hires are making about whether or not they should accept what you are giving to them or offering to them.

And so you need to be clear about those things because you could have a very rich benefits package that would attract a certain kind of employee to come in at a lower salary level. Similarly, if you have employees who are much more, uh, interested in some risk taking for some higher reward, they might like a more incentive laden structure.

But we’ll talk about that later because there are some, there are some drawbacks to that approach as well. And then finally, we need to make sure that we’re thinking about all of this in terms of acquiring and keeping the best talent possible, because how we structure all of these things, how we have our pay bands, how we structure our salaries and other compensation, that all goes to how easy it is to bring people in the door and then keep them in their seats for years to come.

So how we go about doing this is important as well. And so as we’re approaching the end of the year, one of the things that we’re thinking about when we’re making these decisions is performance reviews. Many agencies are doing performance reviews in the November, December timeframe.

Others will do the performance reviews on hiring anniversaries or those kinds of things. There’s no one right answer to this, but we do need to remember that performance reviews and compensation reviews are not exactly the same thing. We do want to pay people based on how they are performing, how they are contributing, how they are creating value for the business.

But, we want to be careful about turning a performance review into a compensation review. And this is something that many agencies do today. So if you right now are doing performance reviews, and then at the end of the performance review, you decide, based on this performance review, you’re going to be paid this amount.

And you’re doing it essentially as one conversation. That is problematic. And the reason it’s problematic is because the value of a performance review is to help people understand how they can step up to the plate and do more for the business, how you can explain to them what they’re doing well, how you can share with them what they need to work on, and how you can help them with their career progression to help them to understand what is the next step on the ladder within your agency to continue their advancement.

And so that performance review needs to be very substantive. But if you tie the compensation directly in that same conversation and that same process, then what they’re doing is anytime you say something negative, they see it as a way to hold back what you’re paying them. And so it causes them to pay less attention to any of that constructive advice that you might be providing.

So it’s really important that you have a, a separated process where you go through performance, you come up with a career progression plan, you do all of these things separate, you then button it up, and then with some gap in time, you factor those things in to the decision that you make about compensation.

And keep in mind that your compensation review is not necessarily just about, do I pay you more for the same thing, but am I giving you a new role? Because a promotion is a much better way to make a substantial salary difference for somebody than simply paying them a lot more for the same job that they were doing yesterday.

And we’ll talk more about how to think about merit raises and things like that, that are raises without a promotion involved. And so if you, if you have these as two distinct processes, not completely divorced from each other, But separated enough in time that the employee is viewing them as separate, activities, you will have much better results out of both of them.

In fact, it’s very common as agencies get larger, they’ll have a whole performance review process, and then all of those will be, you know, buttoned up, it’ll be completed by a certain date agency wide, and then the management team will review all of that in, in, reviewing the overall compensation budget that they have for the year ahead, and then make some decisions about how they’re going to allocate the available funds.

And so in that you have, you may have a month or six weeks in between the performance review and the compensation conversation so that you’re able to turn both of those into constructive, useful processes. So think about how you can time them for the best results.

So now we’re talking about those raises.

These are raises without a promotion involved. And when you have a raise without a promotion involved, they’re typically. Most typically, they would be COLAs or cost of living adjustments, in other words, trying to help people keep pace with inflation. but in some cases, it may be that you’re trying to increase it a little bit more because you feel like you need to do it for competitive purposes.

Perhaps you’ve seen a lot of other people advertising. Perhaps this employee has come to you and said, Hey, you know, I, I, I’ve got these friends and these other agencies, and they’re all being paid this for the same job that I’m being paid. That’s intelligence that you can use. It’s something that they’re hearing.

Perhaps they’re hearing it from a family member. Perhaps they’re hearing it from friends. And so they are going to be interested in, they’re sharing it with you. So now you need to process that and think about it. When it comes time to think about raises without a promotion, and just keeping people in their current slots, you need to think about what is a meaningful raise.

Because one of the problems that you run into is if you end up increasing someone’s pay by a very, very small amount, it ends up almost backfiring, because it’s sort of like going to a restaurant, and if you, if you leave no tip, perhaps the server thinks you just forgot about it. If you leave a 10 cent tip, It was an intentional decision.

And so you want to be careful that you’re not providing annual raises to your team members in such small amounts that they feel insulted by it. And so you want to make sure that whatever you’re doing is reasonable and you need to think about it in these terms as well. And, and I would ask you to take the amount, let’s say it’s a, you know, I want to increase pay by a thousand dollars a year.

Okay, maybe it sounds like that’s a lot of money, but let’s take a look and, and ask ourselves, what does that mean in their actual bi weekly paycheck that they’re receiving? And so I would encourage you to talk with your bookkeeper or HR person, whoever’s calculating these notes, and just ask them, if I give, if I give this raise in this amount, what does that mean in their actual paycheck?

Because if you give someone a raise and then they see that the direct deposit now is only up by 30 dollars every two weeks, that doesn’t mean a lot to somebody. And you want to make sure that you’re using these compensation increases as a, as a tool to make people feel valued. And when you make it too small an amount, they will not appreciate it in the same way.

And I would also say to you, if you look at it in, in terms of the overall agency, you may be being penny wise and pound foolish. Because you might be able to say, okay, I’ll bump this person up by a thousand dollars, but ask yourself, what would it cost you to bump them up by 2000 and make it. look better to them.

And so if you do this math, and obviously you’ve got to be careful because it adds up across all of your team members. And so if you, you’ve got 10 team members and you bump them all up by 2,000 instead of 1,000, obviously that’s a meaningful amount to you, but understand how meaningful it is. Understand what the real impact is to your business, because you want to make sure that you are rewarding the talent that you want to keep.

If you are not willing to pay what they are looking for, then what you’re effectively saying, and this may be okay, but what you’re effectively saying is that it’s okay if they leave for another opportunity. And so you need to decide, are you okay with that? And at some point you should be, right? Because there should be some number for every member of your team where you’re willing to let them go if they wanted to go above that number.

Know what that is for the individual team members so that you can balance out what’s going to make them feel good, feel appreciated, feel like you’re recognizing their work versus what actually makes sense for you from a business standpoint. And then finally, when you’re talking about particularly cost of living adjustments, think about whether you’re doing these across the board.

Typically what I will see agencies do is they’ll do an across the board cost of living adjustment, but then they’ll increase some employees above and beyond that. And so you might have, say, a 3 percent annual cost of living adjustment that you’re giving out this year, but then you bump up some employees, even ones who are not being promoted by, say, 5 percent or something like that for recognition of their work.

I would suggest that you never go below that cost of living level, because again, you start to get into that place where it almost feels insulting that you, you even bother, it’s almost better to just go to them and say, we had to freeze salaries than it is to go to them and tell them, you know, we’re going to give you a 0.05 percent increase in your salary. So, some things to think about there.

Now bonuses. This is something, again, many of you are thinking about right now, and so we need to think about how we approach bonuses. I would tell you if you haven’t thought about your bonuses for this year, you’re probably in the first type of bonuses, which is discretionary, because it means that you haven’t had conversations in advance about what kind of bonuses you’re going to be handing out or how you’re going to do them, but there are other types of bonuses as well.

You can do incentive based ones. In other words, if you’re able to keep the profitability of your clients within this range, you’re able to generate this kind of revenue or other really concrete, incentive or concrete task based, objective decisions that that can be made so that you can pay them based on that.

You can certainly do that. And then there’s profit sharing, which is a very abused term because profit sharing, I think, has some some very specific meanings when you deal with accountants and such. But profit sharing is is Broadly, in most agencies that I work with, they simply set aside a percentage of what they believe are their profits and they turn it into a bonus pool and then people either get a fixed amount out of that bonus pool or it’s used to fund discretionary bonuses.

So there’s a lot of different approaches that you can take to it. What I would encourage you to do is think about how you set the expectations for your bonuses over the course of the year. So, again, if you haven’t thought about bonuses until now this year, you’re really just, you’re doing some discretionary bonuses based on what feels right.

In the, in that case, you can’t set the expectations before, but you do need to be thinking about how you set the expectations after. And here’s what I mean by that. The bonuses that you hand out this year will impact the bonuses that you hand out next year. If I get a bonus this year of 5,000, the next year, at least in my mind, unless you’ve done anything to set my expectation otherwise, I’m going to be assuming I’m going to be getting at least 5,000 next year.

Because naturally, I believe as an employee that I’m doing at least as well, contributing at least as much next year as I did this year. And so you need to be mindful, particularly in up years, of handing out so much cash in your bonuses that you have now created an unreasonable expectation for the future.

To the extent that you have a, a really great year and you do want to reward your team for it. You need to be clear with them that this is an extraordinary one time bonus and not something they can expect in the future. Now, that said, most employees will still in their mind say, yeah, but we’ll continue to do well.

And so in their minds, they may continue to think that it’s going to look like that. So you need to make sure that you’re reinforcing this expectation over the course of time and you’re not allowing them to creep up on the end of next year and think they’re still going to get this outlandish bonus that they got in the previous year because it was just a fantastic one for whatever reason.

The other thing you need to think about is the timing of all of these bonuses, right? Because most agencies will hand them out either in December or January. But you have to keep in mind that most organizations that hand out bonuses like this on an annual schedule tend to have an increased rate of departure right after those bonuses are handed out. Because if you are a business that hands out bonuses like clockwork on a certain calendar basis, it encourages people who know that that’s coming to sit and wait and collect that bonus and only then go and look for their next opportunity. Or they may even have that opportunity, but negotiate in order to, start after they receive the bonus from the firm that they currently work at.

So keep in mind that that is one of the disadvantages to an annual bonus process is that it does at least slightly increase your, your turnover rate for employees in the months that follow, the annual bonus process. It’s one reason to consider doing more frequent bonuses. So you could do quarterly bonuses, for example.

And this allows two things. One is it pretty much eliminates that because you’re now handing out bonuses more regularly enough that there’s no real incentive to sticking around for a prolonged period of time and then leaving at a set point in time. So you built in more flexibility within the schedule.

But the other is that it allows you recognize things. more closely tied to when, the, the good work actually happens. So if I, if I did a great job in Q1 and really knocked it out of the park for a client under the annual bonus process, I wouldn’t really be recognized for that until December or January.

If I’m on a quarterly bonus structure, then I can recognize that, or I can be recognized for that in April. And so it can be more powerful to have the incentive and the reward, or the action and the reward tied more closely together in time.

You also need to think about how all these bonuses impact your cash flow as an agency, so part of this is about having that strategy, that plan for compensation, so that if you are going to be handing out bonuses in December, you’re setting aside money over the course of the year to fund it so that you’re not just hitting December and all of a sudden taking out a huge tranche of money without having any way to quote unquote pay for it.

So set aside money on a monthly basis, either on paper or in a separate account or however you want to do it, working with your bookkeeper and accountant, but make sure that you’re planning for that expenditure at the time that you’re doing them. And that’s true whether you’re doing quarterly or annual.

and then finally I would suggest you think about whether an elaborate bonus structure or significant bonus structure is actually the best approach. It may or may not be. I personally am not a fan of incentive based bonuses because I, I think you tend to get exactly what you’re rewarding. So if you’re incentivizing revenue, you get revenue, but it may not be the best revenue.

They may not be the best clients. They may not be the most profitable. They may not be the easiest to work with. Flip side. If you incentivize profitability, you often encourage team members to be penny wise pound foolish. So think about whether bonuses are the right approach. If so, what kind of bonuses are the best approach to take?

You can find more. There’s, we’ve got at least one podcast episode and I think an article about incentive based compensation. and there’s a bunch of resources on bonuses that you can take a look at on the site. You may think about just having competitive salaries and not focusing on bonuses so much as a significant piece of the compensation pie.

Non cash rewards. So we think in terms largely of how much we’re paying someone in salary. What’s that check that we’re writing? But just as we talked about benefits earlier, there are other ways that you can compensate your team members. And so you need to know your team and what do they value? What do they want?

Sometimes it really is, as I say, just the thought that counts. It, it might be that it could be, you know, there’s just, I don’t know, someone really likes a particular band and so you buy them some concert tickets when they’re in town, you find a way to get them. You, maybe there’s someone who values time off.

And so, you know, you’re able to, to give out, you know, they did something, good over the course of the year and you’re saying, look, you know, here’s, here’s an extra week of time off or, or maybe, you I’ve seen some agencies where they’ll say, look, you know, we will pay for you to go take a vacation and basically give you a vacation budget. That’s particularly effective with team members who, you know, might not do a very good job of taking time off on their own.

And so you’re encouraging them to recharge their batteries, but you’re also doing it in a way, that, that rewards them in a more tangible way. for that activity. Maybe it’s someone who likes to travel and so, you know, you’re able to say, look, you know, we want to give you two weeks off next year so that you can go to Africa on safari, and we’re going to give you a budget to help offset your costs.

There’s a lot of things that you can do if you really know your team in order to compensate them in ways that are meaningful to them and may not even be all that costly to you as a business. Sometimes it could just be, you know, hey. Knock off early today, you know, just go home. Think about all of those little things, particularly if they’re not expecting it.

Most of us don’t like negative surprises. A lot of employees like pleasant surprises. And so if you say, Hey, you can have a long, an extra long weekend, you can have, you know, here, take this laptop. We’re, we’re, we’re getting rid of it here. You just keep it right. We’re going to upgrade you, but you can take the old one home so that you’ve got a personal device. There’s all sorts of little things that we have the power to do as agency owners that can make a real difference in our team’s lives, that they will feel and enjoy and appreciate, but it doesn’t have to be all about cash. So make sure that when you think about compensation, you’re thinking about the totality of the picture and understanding what that employee is actually looking for.

It could even be training, right? I mean, it could be something that actually helps you as an agency. But, but they would value. Maybe, you know, they really want to go to the PRSA annual conference or something like that. You know, part of your compensation might be saying, Hey, you know, we’d like to send you there next year.

So let’s budget. Let’s plan that. Let’s budget that in. And so some people will be really excited about those kinds of opportunities for professional development that effectively becomes part of their compensation, but also has a real benefit to you as a business because it helps to increase their knowledge, their exposure to peers and that sort of thing.

So think about those things and not just the paychecks.

holiday gifts. So obviously we are indeed at that time of year where we’re thinking about handing out gifts. And I think that one of the things that we need to be thoughtful about here, is having an actual policy. And in this case, I mean, not, not just your approach, not like I was talking about earlier.

We need to have a compensation strategy, but gift policies are actually valuable so that you can set rules up for how the team interacts with each other. And I, I encourage you to at least consider this and, and, It really depends upon your individual business and culture. But I think it’s valuable to think about whether or not you need to have any kind of limits or restrictions.

And in particular, one of the things that I used to do in many of my businesses was I would have a policy that, that none of the, the partners in the business or owners of the business could receive gifts from team members. And, and part of this came about because, there were some years where some of the employees seem to be, attempting to put themselves on the radar by being a little too generous with some of their gifts.

And I think that you want to make sure that you’re not creating a culture in which people feel like they need to pay tribute to the bosses. And so for me, that it just became easiest to say, look, you know, no, no gifts. or the other thing that you can do is, you know, very de minimis gifts, like 10 dollars or less to partners kind of thing so that there’s no, attempt at, favoritism or any possibility that someone would be perceived that way.

Oftentimes it’s not even intentional. Oftentimes it’s just, you know, this is, I feel like handing out I don’t know, bottles of whiskey or wine or whatever it is. And so you just you do it and you don’t really think about it. And so you need to be careful, though, that you’re not creating an environment in which your team members feel like they’re obligated to hand out gifts.

Similarly, you want to think about the same thing in terms of employees gifting to managers, employees gifting to each other. Be really careful that you don’t create a culture in which people feel like gifts are not a voluntary thing to be done for fun, but rather are a tax of some kind. Speaking of which, you need to think about when you’re giving gifts to your own employees, what are the tax implications of this?

And this is one that I see a lot of agencies slip up on. As usual, I will give my disclaimer that I am not a lawyer, I’m not an accountant, or any of that kind of stuff, so please consult your professional advisors before making any of these decisions. But what I will tell you is that in general, The gifts that you give to your team member are potentially taxable.

If it’s, as I understand it here in the U. S., if it’s under 100 and it’s not cash or a cash equivalent, like a gift certificate, then you’re okay and it’s not taxable. So if I, if I give someone a bottle of wine that’s under 100, I’m good. I don’t need to worry about tax implications. If, however, I gave someone a gift certificate for 50 or I gave them 100 bill, those things, even though I view them as gifts, would actually be taxable.

And so I would need to include it in there in the statement of earnings that we’re providing to our payroll company so that the appropriate tax could then be withheld from their next paycheck. So if you’re going to be giving gifts to your employees, make sure you understand what those tax implications are.

And generally speaking, if you’re going to give them a nice gift, let’s say that you’re, you know, you’re going to pay for a cruise for them or something, make sure that you are dealing with the tax consequences appropriately. So in other words, whatever you gift them, make sure that you’re also giving an equivalent amount of cash in their paycheck to cover.

The, the tax to basically true them up, if you will. And you can work with your bookkeeper and accountant and HR person. And they, they, they’re used to doing these kinds of things. They can help you do it the right way so that your employee really is getting the benefit of the gift that you are giving, but make sure that you’re not cutting corners here because you don’t want to inadvertently cause trouble for anybody by not handling them appropriately.

Also be thinking this time of year about team celebrations, parties, etc. Think about how much you want to spend on it. Think about what people will value. Certainly, I encourage if you’ve got the ability to bring your team together in person, it’s really nice to do a holiday lunch or dinner depending on what works best for you and your team. So think about those things and work them into it because it does make individuals feel good. Make sure that again, thinking back to what we talked about in terms of salary raises and that kind of thing, make sure it’s something that, that doesn’t feel like it’s underappreciating them. In other words, don’t take them to McDonald’s in all likelihood. Nothing against McDonald’s. If you’re looking for some fast food, great place. Not the place I would take the team for a holiday celebration because it comes across as you’re trying to, to cut corners. And so that doesn’t mean that you need to go and have a caviar and steak for dinner.

but it does mean that you need to be thinking about something that is appropriate and will be appreciated by your team. You can think about gifts of all kinds, whether it’s to the team or to individuals. you know, we’ve talked about some of those ideas in terms of the non cash compensation side of things.

But, you know, you might, if you have something that’s particularly meaningful to you, if your family is involved in some kind of business other than the agency or something like that, it certainly makes sense to to consider some of those things as gifts because it is the meaning that comes across more so than the financial value when we’re talking about gift giving.

So, and make sure that whatever you’re doing, you, you actually are, are doing it from the heart, not doing it because you feel like you need to check a box because it will come across as forced if you’re, if you are forcing yourself to do it. I’m finally how much to spend again. This is it’s more about the actual value, the perceived value, the appreciation for what you’re doing as opposed to the actual financial value of it.

Keep the financial value largely in the other forms of compensation and not in your holiday gifts. let’s see. I think this is the last or no, this is the next to the last piece. This is holiday hours. and so many of you will be thinking about, having reduced hours for the holidays closing for the holidays.

This is, in fact, part of the compensation that a team member receives. It’s sort of like, you know, school teachers who may get the summer off. That’s part of their compensation is part of how they they decide whether or not they’re going to take these jobs. I hear plenty of teacher friends who will say, you know, we, we like it because we get the summers off to either take off or spend with family or have another job opportunity or whatever. And so, you know, it is part of the compensation how you handle your holiday hours and it can be well received by your team if you do it well. I think the first thing is you need to figure out how you’re going to structure it so that you can set and meet your client expectations.

So if you plan to close between Christmas and New Year’s, as many agencies do here in the U. S., you need to make sure that you’re communicating that clearly to clients and, and hopefully they have the correct expectation, that you’re not going to be available then. At the same time, If the client has a particular need and it is going to be a problem, you need to figure out how to address that.

So, one of the things that, Gini Dietrich and I talked about on our Agency Leadership Podcast not too long ago was taking time off for Thanksgiving. And most agencies give the Friday after Thanksgiving here in the U. S. as a holiday. There are times, though, when you may have clients who have needs on those days.

I’ve had occasions where I did work for clients who were, doing some retail focused campaigns. You cannot avoid being involved on, Black Friday for those kinds of things. in the Solo PR Pro group, that I’m a part of, there was some discussion on Thanksgiving Day about who was working primarily for nonprofits and others who had Thanksgiving Day events.

And so you need to figure out with your own client base, what are their expectations for these timeframes and how are you going to meet them? If you have crisis based clients, you need to figure out how you’re going to provide appropriate coverage During those timeframes. So start there. Make sure you understand what those are and how you’re going to handle them.

The second thing you need to be thinking about from a holiday time period standpoint, before you think about your actual office hours and closing is how you handle end of year PTO requests. Because many of you are going to have team members who have either use it or lose it time or time that they can’t carry over into the next year.

And so every agency that I have ever worked in or with or had, under my own ownership has had occasional issues where you have multiple people who want to take the exact same days off at the end of the year, because they’re trying to burn through their PTO. Figure out how you’re going to use that and how you’re going to structure that so that you are able to make sure that you still have the resources you need to meet those client expectations that we talked about.

Really, really important to plan that far ahead. Ideally, it’s before today, right? We’re pretty late in the game for you to be thinking about that. Better late than never and just try to figure out how you’re going to cover them. In the future think about how you might, for example, overlap some of that time.

So one of the things that I did was I allowed the PTO to, to carry over on a degrading basis over the course of the, the start of the year. So you could carry over the full amount into January. And then, after that, you know, it would cut down to like, I think three or five days of additional carryover or something like that.

So it took away that end of year pressure that mixes in with the holidays and can be challenging for people to feel like they haven’t quote unquote wasted their time off. So just some things to think about there, make sure you’re managing that correctly. Now let’s think about what your own schedule is for your agency.

So, one of the things that I’ve seen work pretty well is for employees to be given flexible time off during the holiday period. So typically that would be the last two weeks of the calendar year. And so in those cases, what I’ve seen work well is basically saying to team members, you need to be reachable in the case of something that’s urgent, that needs to be done, but if you don’t want to take actual time off during those two weeks, then you can sort of, you can gamble. If something comes up, you’re going to need to handle it from wherever you’re at. And we don’t care where you are or that kind of thing, but you still need to be available. If you want to be completely dark and don’t want to check email at all, then you have to use PTO time for it.

So I personally like that hybrid approach. It’s what I used for many years. I think it can be very effective, but it does depend on what your client base is and what your team’s expectations are. I think it’s a lot easier to do it today where many employees are hybrid or remote anyway. It was a lot more challenging when people had all of their resources in a physical office.

And so it was a lot harder to meet those obligations from somewhere else over the course of the holiday. So think about that. At the same time you still may want to close, certainly you’ll probably want to close for actual holidays, but you’ll, you may want to close for the week between Christmas and New Year’s.

One thing I would say to you is be really careful that you are not doing this in such a way where you are taking pay away. I’ve seen some agencies close between Christmas and New Year’s and say we’re not paying for that week. Don’t ever do that. That even if you’ve got cash flow issues there are better ways to handle it than by essentially furloughing somebody for a week over the holidays.

So if you’re going to close, you’re still paying full freight for your team during that week. Otherwise, it is not the benefit that you’re making it out to be. and finally, make sure you’re leading by example. So if you tell your team, they’ve got to be in the office up until 5 p. m. on Christmas Eve, make sure that you’re still working then because there’s nothing worse than making your team feel like they are having to, to work much harder than you are, in such a way that, that it feels like you’re taking advantage of them.

and then finally, I will, I know I’ve gone a lot longer for my presentation than I usually do on these, but we’ve had a lot of ground to cover, talking about compensation with your employees. So this is now that you’ve figured out all of the things that you want to do, how do you have the conversation with your team members?

And the first thing is avoid those negative surprises. So if you know that you’ve got a year where you’re not going to be able to give big bonuses, you’re not going to be able to give a raise, it’s just, things are tight. Make sure that you’re communicating that in the months leading up to it. Don’t walk into a compensation conversation.

It’s the first time that they’ve heard that there’s any challenge with the business and that you’re not going to be able to hand out a bonus this year. And the more consistent you’ve been about things like bonuses in the past or raises in the past, the bigger a deal it is when you come in and say, you know, we’re not doing a bonus or we’re not doing a raise this year.

So make sure that you have, you’ve really communicated that and over communicated that up front. Secondly, be honest. If someone is already at the high end of their pay scale, tell them that. And tell them here’s what you need to do in order to move to the next level, and tell them that you have a plan for how to get there if they want to go with you, and it really does need to be tailored to each employee.

It doesn’t mean that you need to do one off conversations and just wing it. Like we talked about earlier, but it means that you, you need to adjust your conversation with each employee so that the decisions that you’ve made regarding their compensation are communicated in a way that’s meaningful to them.

And so if there’s someone who values some of the non cash compensation, lead with that, help them to understand all of the benefits that you’re giving them as part of their, their new compensation package that will help them meet their own personal goals. It might be flexibility. It might be professional development, all sorts of different, share with them what your plan is, what your vision is for the future. And by setting those expectations for where you go, that’s helpful. So if you have that outlandish bonus this year, make sure you’re communicating that that’s a one off thing. If you’ve, if you’ve had to pare back, if you can’t give a raise this year, set the expectation that you, your expectations, this is a one time thing that we’re going to turn it around.

Obviously, you don’t know the future, but that’s your plan. Really communicate this because you need your team members to understand where you’re coming from and what your plan is. It will boost their confidence in you and it will help them to accept whatever your compensation decision is more . I will tell you that you also need to remember that you need to listen.

And so if you’ve got a team member who expresses concern about, you know, the number that you’ve given them or for the bonus or for their salary, listen to them, hear them out. They may have a really good argument. And then feel free to say, look, I, I appreciate what you’re saying. Let me think about it and come back to you because it’s always helpful for you to take a beat, to pause, consider it, and then get back to them, say the next day, so that you’re able to, to process it and decide if they had a valid point that you need to be considering.

And finally, remember that each time you have this conversation, it builds on your past conversations and contributes to your next one. So make sure that you’re thinking about how you set the table for your conversation 12 months from now. So with that, that will draw to an end, the conversation today, the formal presentation.

If you are watching this on replay, this will draw the replay to a conclusion. But if you have questions, you can email me at chip@smallagencygrowth.com. And if you are here live, I will do my best to take as many live Q and A questions as I can.

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