For New Incentive Schemes Allow 5-10% of Your Budget For Communication

Chris Dohrmann, Business Development and Client Solutions at Equatex, on the most effective ways to communicate incentive schemes to employees
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A new incentive scheme is a big investment for an organisation; it can take months to develop and is often costly to implement. Many organisations, however, are falling at the last hurdle and not communicating the plans effectively to their employees. Chris J. Dohrmann, Business Development and Client Solutions at Equatex, shares his advice on how to communicate incentive schemes so employees understand the true value of what they are receiving.

For organisations operating in competitive industries such as biotechnology and biopharmaceuticals, incentive schemes can help in attracting very select and highly skilled employees, such as chemists and engineers. A lot of time and expense is spent on designing and creating plans to attract and retain talent, but companies often forget that unless the individuals receiving the benefits truly understand what they are receiving, there is no perceived value. This doesn’t only apply to employees at a junior level; C-suite employees often have little grasp of what their incentive scheme entails.

Organisations are simply building very attractive products but then often forget to explain how they work. This is mainly because the departments that are responsible for creating the schemes may not have the resources to then advertise them to employees. For a relatively small spend, they are losing the impact of what is a very valuable service to their employees.

The cost of communicating a scheme needs to be worked into the budget at the outset. Organisations need to allow another 5–10% of the total cost of implementing the plan to make sure it is communicated consistently and effectively.

Organisations are simply building very attractive products but then often forget to explain how they work
- Chris J. Dohrmann

Communication shouldn’t be an afterthought. When the scheme is being formulated, it is a good idea to gather together small stakeholder groups and talk to them about what sort of clarification they may need. This information can then be part of the roll-out, and potential hurdles can be identified much earlier on.

The most effective way to communicate a scheme is electronically on a centralised platform, such as the organisation’s Intranet. It’s efficient; it’s cost effective; and communication materials, such as a video from the Chairman explaining the scheme or frequently asked questions, can be stored in a single place for future reference. Another effective way to communicate plans is through the use of brand ambassadors. Organisations can give them the tools they need to explain the plans to employees and then it evolves very organically through word-of-mouth.

Multinationals need to consider a few other factors too. Whether or not the organisation has a corporate language, employees like being communicated to in their native language. I always ask people what language they dream in and they usually say it’s their native language. So translating communication materials is essential. Multinationals also need to understand the culture in which they are launching schemes. In China, for example, equity-based compensation is still not particularly common as the concept of acquiring stock is still unconventional. I’ve heard stories of employees saving thousands of dollars who didn’t realise they had accumulated so much. Stories or analogies can help bring equity into a cultural context.

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Chris J. Dohrmann

Organisations need to understand they are communicating to a number of different constituents when they implement a scheme, from current employees to new employees, shareholders to regulators. In the case of say-on-pay, if organisations don’t enter that discussion with shareholders, issues can arise. If you lose a vote more than once, the whole plan may have to be re-evaluated and perhaps made less attractive. So it’s important that organisations spend time making their case to shareholders and proxy advisers.

The main goal of equity compensation is retention. The cost of hiring a new C-suite person could be four times the cost of their salary. If organisations don’t maintain retention rates, replacement costs go up. And replacing one key employee is more costly than putting together a nice communication piece. It’s always the people that organisations can least afford to lose; those with 20 years of experience who will train new members of staff. Those employees need to understand what value there is for them at the organisation.

My key piece of advice would be not to assume that when you are rolling out a new plan, people will necessarily understand all its details. Take a small group of employees and test their perception of the plan. What questions are they asking? Are they confused about anything? Look out for non-verbal communication as well. If you are assuming they understand, then you are running a tremendous risk.

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Communication team at Equatex AG
Equatex provides international employee and executive compensation plan services for today’s global enterprise, supporting clients with participants across Europe, Asia, Australia and America.

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