Using Incentive Compensation Programs to Drive Cultural Change at Cox Communications
Cox Communications, Inc. (CCI) is proud of its long history of promoting local decision-making through a general manager model. Like cowboys driving their own herds, each general manager achieves success in his or her own community in individual ways. However, with increasing competition in the telecommunications industry, there comes a point when all the cowboys must be called back to the ranch. Was there a way to leverage the best of our traditional maverick style, yet blaze a new, more synergized frontier? Was there a way to focus employees on common goals reaching beyond each location across the company?
In 2005, CCI became a privately held company. The president of 20 years retired and the COO assumed the president's role on January 1, 2006. Traditionally, CCI has been a highly decentralized environment, but is becoming increasingly focused on using shared services, common systems, standardization and leveraging economies of scale. CCI has offered various incentive programs for many years, but needed to shift the focus of these programs to support the shift in management.
CCI took a major step toward standardization with the creation of Career Framework, a common company-wide job structure and compensation management approach, during 2005 and 2006. The next phase of standardization was the Variable Pay Framework (VPF) that began in 2006 and is scheduled for completion at the end of 2008. The VPF represents a significant milestone at Cox in cultural transition with a common platform for rewarding employees performing similar roles across the company with common performance measures. The overriding objective is to develop consistent variable pay plan solutions that leverage successful practices—both internally and externally—yet still recognize unique requirements by market segment and job function.
Addressing the Business Needs through the Variable Pay Framework
Senior leaders across the company expressed four key themes: the need for consistency and standardization; flexibility; governance and compliance; and enhanced performance focus.
Over 400 variations of like plans were estimated to exist across the company. There was a need to minimize potential risks because of widely differing plan designs driving inconsistent behaviors across groups of employees who should be doing similar things to achieve common goals. Similarly situated employees were treated differently, but should have been earning equivalent rewards for comparable performance. CCI also needed to minimize redundancy in IT and processing costs associated with variable pay calculation and payments, but needed to develop a consistent approach before investing substantial resources to automate administration.
Implementation and VPF Process Execution
CCI created the Variable Pay Framework that is defined as an overarching set of plan design rules and standards communicated via a Variable Pay Play Book, advocating a standard design process and governed by a cross-company, cross-functional Variable Pay Council.
The project kicked off with a review of all variable pay plans across the company. Plans were collected and an inventory of plan design features was developed. Corporate Compensation created two cross-company teams to facilitate creating new solutions. One team handled sales commission plans and the other handled customer care and field service plans. Corporate Compensation handled management incentives and gain share plans. All new plan parameters and templates were outlined in a Variable Pay Play Book communicated via Web portal.
|Old Plan Type||New Solution|
|Multiple local management incentive plans||One Universal Incentive Compensation Plan|
|Multiple customer service/call center incentive plans||One plan template for all locations|
|Multiple telephone sales and retention plans||One plan template for all locations|
|Multiple field service incentive plans||One plan template for all locations|
|Multiple professional sales commission plans||One plan template for each sales job with some common components and some optional components|
|Multiple local gain sharing plans||One Universal Incentive Compensation Plan|
Incentive risk levels for all jobs
- Professional sales jobs have pay-at-risk
- Customer care and field service jobs have an add-on bonus with limited risk
Performance measures for all plans
- Customer care jobs have pre-defined metrics and weightings (i.e. they do not vary by location)
- Sales jobs have some pre-defined metrics and some options (options support differences in location strategy)
Payout mechanics for each measure
- Jobs with multiple measures use multiple payout mechanics (mechanics used are commission, bonus, scorecard and matrix)
- Plans with low risk are typically paid using a scorecard
Payout frequency and measurement period
- Plans with a high level of risk are paid and measured bi-weekly or monthly
- Plans with low risk are paid and measured quarterly or annually
The new model provides a balance between standardized parameters established by the design teams and local choices. CCI created a Variable Pay Council to provide direction regarding on-going maintenance and updates to the VPF and to manage the standardized parameters.
|Performance measures for each job||Performance measure weightings for sales jobs|
|Performance measure weightings for customer care and field service jobs||Selection and design of formula mechanics (i.e., scorecards, commission rates, etc.)|
|Total target cash compensation levels by job by system||Changes to formula mechanics (in accordance with Play Book requirements)|
|Targeted pay mix by job||Performance periods|
|Gainshare plan requirements||Payout frequency|
|Salary management requirements||Goals/targets/quotas|
|General rules for all variable pay plans||Plan costing and modeling|
|Governance model||Plan documents (using guidance from Play Book)|
|Proper use of earnings codes||Employee communication approach|
|Plan policy and legal language||Accuracy of final payout calculations and processing of payments|
Keys to Success
CCI’s Variable Pay Framework had significant, visible support from the senior leadership team very early in the process. The process also incorporated high involvement from key field leaders. Design team members enjoyed sharing business perspectives and learning from each other. CCI continues to modify the VPF as company culture evolves toward greater degrees of standardization across all aspects of the business. For any company considering this type of change, start with the end in mind. Give business leaders a chance to participate in creating the collective mind shift, which is more evolutionary than revolutionary.
While it has been a lengthy and complex process, the VPF has had a positive impact on CCI. Leaders at all levels can confidently deliver common messages about company, location and department performance objectives and employees know that their colleagues across the company are hearing similar things and receiving similar rewards. CCI has achieved a higher degree of competitiveness in both base and total cash compensation levels. Employees recognized this change with a 15 percent increase in favorability for perceptions of pay levels in the most recent employee opinion survey. As the VPF continues to evolve, leaders across the company will continue to have more opportunities to explore similarities, as well as unique differences in operations. The VPF will continue to capitalize on the first, while remaining flexible enough to recognize the latter, just as our culture continues to strive for balancing both.