Episode 18: Pay Day Activities: Rewarding Accomplishments and Value

Posted by John Berry on 11/15/2023

Description

Compensation; it’s the value of value. On this episode of Veteran Led, John Berry emphasizes the importance of establishing an organizational compensation structure for your business. Compensation is much more complex in the civilian world than the simplified approach taken in the military – it’s a business tool. John will explain how the right compensation structure can attract top talent and work as a competitive edge in the long-run. John will describe how to take a meritocratic approach to compensation, and why individuals should be paid based on their accomplishments and the value they bring to the organization. 

Transcript

Welcome fellow veterans. From the tip of the spear to in the rear with the gear, I went from active-duty Infantry to reserve-component logistician. I’m your host, CEO, entrepreneur, trial lawyer, and Lieutenant Colonel Retired, John Berry. The military lessons that I learned helped me grow an eight-figure business that has maintained consistent annual double-digit growth, landing on the Inc. 5000 list of fastest growing companies in America every year for the past seven years and has allowed me to continue to serve America’s heroes. 

Welcome to Episode 18: Payday Activities. This episode will be more valuable than your last direct deposit.  

Payday Activities. Once upon a time in the military, there was an actual payday, where you would perform administrative activities, and at the end of the day, you actually got paid. Today, it’s all electronic deposit. But your pay, or at least your base pay, is based on a chart. On one side of the chart, we have your paygrade on the other side of the chart, we have your time in service, and somewhere on the chart is where you land and that’s what you get paid, and the money is always there because it’s supported by the government.  

In the civilian world, it’s a little bit different. And of course, if you’re familiar with the VA calculation, I should bring that up for those of you that are veterans that are disabled, you understand exactly what I’m talking about. Perhaps you’ve got a 50 percent rating for post-traumatic stress disorder, 20 percent for left shoulder, 20 percent for right knee, 10 percent for tinnitus, 10 percent for hearing loss. And now you’re over a hundred percent, but yet your VA disability rating is lower than a hundred percent. 

Why does that happen? Well, that’s, that’s a discussion for another show, but for today, we’re going to talk about military comp and civilian comp. Civilian companies don’t have the guaranteed money. And so, when we look at compensating our team members, we have to be cognizant of the fact that the money has to be there before we can actually pay it. Civilian compensation, unlike military compensation is not usually backed by the federal government. Your company has to earn the money to pay the team members. Now you can take out loans, but long-term sustainability requires that you actually earn the money that you pay out to your team members.  

So how do you do this? Well, the first thing is, every team member you hire has to have objectives, key performance indicators. They need to know whether they’re winning or losing every week, every month, every day. And the key performance indicators determine whether they are a superstar or an oxygen thief. And the way we do this is we make sure that every team member has a scorecard, they have metrics, they understand what those metrics are, and they understand what the minimum standard is, and what bonus level eligibility means.  

Now, we also have to understand that our compensation structure doesn’t just apply to one or two people, we have to develop one for the entire organization. Generally, this looks like a series of salary bands for different types of positions. Finally, it is important to have a meritocracy. What that means is, individuals on your team are paid based on merit, based on their accomplishments, based on the value of what they do, not based on some pay chart for someone, you know, some O6 who’s been around for 30 years, who really isn’t doing anything anymore. 

You can’t afford to do that in the civilian world. And also in the civilian world, you have to pay at market value or above. If you look at the military positions, generally speaking for the level of sophistication, especially for some of the specialty branches, they’re getting paid way below market value, but they’re willing to do it because they’re serving their country. 

It’s different in the civilian world. If you pay someone below market value, they’re probably going to want to raise or they’re not going to take the job at all. And I was very dumb when I first started doing this. I thought, well, you know, I’m taking a risk. I’m growing the organization. If I can get other team members who will work below market value, I’ll pay them all the upside and the bonuses at the end of the year. 

But team members didn’t want that. The good team members seem to want the security and the stability, and they wanted to get paid what they were worth upfront. And so I had to make sure that I was paying at market value or above, as the saying goes,” Pay peanuts, get monkeys.” If you want good talent, you’re going to have to pay at market value or above, but you have to pay something you can afford to pay. Don’t pay an astronomical amount. 

Let’s delve into bonuses. Bonuses are additional pay on top of a salary for performance. And when I first started, I believed in discretionary bonuses and that was a horrible idea because I would pay someone a discretionary bonus and if I paid everybody the same, the higher performers would be like, “Wait a minute, I did better than Johnny. Why are we getting the same bonus?”  And then of course, Johnny’s saying, “Well, Sally got a higher bonus than me. We’ve both been here the same amount of time. We do the same amount of work. This isn’t fair.”  So discretionary bonuses just are not good.  

And another mistake that I made was if we had money in the bank at the end of the year, I thought it was profit and so, I would use that in my calculation for paying bonuses. That was stupid. There were many years where we actually lost money and I was paying out bonuses for money that we really didn’t have. I was, we were not profitable. I still paying out bonuses because I was so dumb, I was looking at the bank account saying, well, you know, there’s, there’s another $30,000 in here, we’ll just pay it all out in bonuses. No. Bad idea.  

And one of the things that was probably most heartbreaking for me, is I can remember right before Christmas, we paid out bonuses and I, on my desk one day it was a sealed Christmas card. So I opened it, and it was from one of our staff members. And we had paid all the staff a great bonus that year because we had a phenomenal year. And I read the letter and it said, “Dear Mr. Berry, Thank you so much for your generous bonus this year. My family and I will have the best Christmas ever.” I read that letter and I felt horrible as a leader. I had absolutely failed.   

The right answer would have been for that team member to come home and say, tell his family, look, “I earned this bonus,” but instead I was playing the benevolent dictator. And now I robbed this team member of the opportunity to be proud of earning his bonus because I was being discretionary with the bonuses. I didn’t base it on metrics. I was just being generous, right? And that’s a different message. And what am I doing to develop that leader? If I’m not giving that leader the opportunity, or that team member, the opportunity to actually earn something that they can feel good about as opposed to receiving a bonus from the boss.  

Another area where I made mistakes with bonuses is one year, we had our metrics wrong. We were looking at it and we couldn’t figure out why the cash didn’t match up to one of the metrics. And so we said, well, I don’t know, let’s just pay it out. So we ended up overpaying the bonuses by a ridiculous amount. Later we learned where the glitch was, but the following year, the employees had expected that size of bonus again for that type of activity and it just wasn’t there.  

Make sure your metrics are right. And finally, you have to adjust annually for bonuses. In other words, what was an important metric in 2023 may not be an important metric in 2024. And what drove revenue in 2023 may not drive revenue in 2024, or it may just not be as valuable, and the bonuses need to be set accordingly.  

So, yes, bonuses are great. They can be great for morale, but base pay and salary should be salary. Bonus should be extra. It should pay for itself. What that means is, the bonus should be based on a monetizable metric so that you’re not trying to figure out how you’re going to pay a bonus. And once you have that in place, team members understand the standard, but it also drives behavior. It drives your team to strive to get the results that you want to get. And once you have those KPI in place and you can pay bonuses based on them, you will see better performance for your team because you’ve given them a target, something to strive for, and you have given them the high standard. And that’s what every team member wants, is a high standard for which they can be rewarded. 

Now, another thing that is completely different about military compensation is that in the military, we’re always growing leaders into position. We know that if we get a private, eventually that private could be a squad leader, or a first sergeant, and it’s going to take time, and we are going to invest in our leaders to ensure that they grow. 

But in a civilian company, you don’t have that luxury. You just don’t have the training time, and you don’t have the resources. So, if you’re a law firm like us, we can invest in training paralegals and in training lawyers, but we really can’t invest in training our IT team on specific IT matters or our Chief Financial Officer on how to become better in finance. 

We simply, that’s not what we’re good at so we need to buy that talent. And look, there is some talent that you should build and build internally. And that should be within your wheelhouse of greatness where your product lives. But for all the ancillary stuff that you need, you’re going to have to buy that talent. And when you buy that talent, it doesn’t come cheap, but you should set expectations. You still want to have the key performance indicators and you want to let the team member know, “Hey, we’re paying you a lot of money because we believe you can get results right away, and here are the expectations.” 

Now, that being said, when we have that and combined with some of the leaders who are given opportunities for leadership positions, it’s a little bit different because the leaders need to understand that there is a time to learn and then there’s a season to earn and you have to learn before you’re going to earn. And inevitably what happens is that leader, think about the new buck sergeant, right? Do they really know how to be an NCO? Well, maybe, but probably not. And they’re going to learn a lot along the way, right? They’ve been placed in that leadership position with the understanding is that they’re going to continue to grow. 

And yeah, they’re going to get paid a lot better when they’re a first sergeant, but as a buck sergeant, their job is to learn how to be a squad leader. Now, as a squad leader, they’re still getting paid the same, but their duty description and their responsibilities have grown exponentially. But they’re still getting paid the same, and this is their time to learn. Now they’ll earn more once they move up to become platoon sergeant, first sergeant, as, as they move through the ranks, they make more money, but there is a time to learn and there’s a time to earn.  

Now let’s talk about compensation for leaders. In the military we know why people want to be leaders. We want to be leaders because we enjoy the burden of command. We want the responsibility. We want to lead teams. We want to help people get better. We want to give our teams a better future.   

In the civilian world, it doesn’t work that way. There are a lot of individuals who want to be leaders because they want leader level compensation. They don’t necessarily want the leader level work. And so when you have the compensation discussion with those leaders, you have to find out why they want to be leaders and we usually find that out pretty quick.  

The way we do it at Berry Laws is, we have platoons, and the platoon leaders are responsible for the success of the team. And they may have team members who hurt the team who end up driving down the bonus pool. And now, as leaders, they either have to decide whether they’re going to fix the problem and retrain that team member or whether they need to exit that team member because it’s hurting their team and hurting the financial success of their team. 

One of the questions that I ask every team member who is interviewing for a leadership position is, aside from the monetary benefits and the pay raise, why do you want to be a leader? And I get all sorts of answers. There are only a few really good answers, and the good answers are the difference between someone who is going to be an authentic leader and someone who just wants a title, a raise, or some other benefit. 

And the best answers sound like, hey, I take a lot of joy in developing team members. For instance, I’m a parent and I have a child. I’m so happy when my child scores a goal or gets a good grade. It’s not so much because it’s about them. It’s about me. It’s about this feeling I get that I helped develop someone to do something great and I want more of it. I need that feeling in my life. I need to feel like I am helping others get up to the next level. For me, that is joy. That is happiness. That is excitement. And I get that answer and that’s my leader.  

Now, one other compensation issue that has come up is, can remote team members be leaders? Right now, we have offices in three different locations. We have attorneys in six or seven different states, and we have remote leaders. And the answer is yes. And the way I got here, I’m so grateful that I stayed in the reserve component because I ended up having a company command and a battalion command in the reserve component. I had the opportunity to lead soldiers when I was only going to be there once a month or as a battalion commander sometimes, I’d only see them once a quarter and I had to lead with very limited boots on the ground opportunities.  

You can have remote leaders and they should be compensated. They key is to ensure that when your boots on the ground, you are having those important discussions, that you’re making an impact. And some of the best discussions in the civilian world are compensation discussions. Letting your team members know that they are valued, but letting them know that they must contribute, helping them understand the standards that they must meet to reach the levels of compensation that they want is your job as a leader. And I would love to have that conversation with team members. How much money do you want to make? Let’s talk about how you can get there. Let’s talk about your career path. Let’s talk about how you can add value. How can I get you where you need to go? Because as a leader, that’s my responsibility. If I can’t pay someone enough, if I can’t give them the opportunities, then it’s my fault if they go somewhere else.  

I love the quote that “most men live quiet lives of desperation.” I believe that most leaders live quiet lives of frustration because they don’t have the conversations they need to have with their team. And if you want to not have that quiet frustration, discuss compensation with your team. Figure out their goals, help them get there, and be honest about overhead and the costs. There’s a huge misconception, if you say hey, we’re a $25 million company, people think the boss is taking home $25 million. And we all know that’s not true. You can be a $25-million company, and the boss is losing half a million dollars a year. It’s important that the team understands that you as a business operate under constraints. And that as a leader, you would give them everything if you could, but you can’t give them everything right now and you’re going to work with them to achieve the goals that they want to achieve. And that is leadership. Leadership is taking that team member from the place they want to be to the place that they want to go.  

After Action Review: 

1. Make sure that team members understand that their compensation is based on the value they bring to the organization, not based on some vague job description.  

2. Make sure that you are paying market value or above.  

3. Make sure that your bonuses are objective and quantifiable and not just the generous presents from a benevolent dictator. 

Three Down:  

1. Make sure that your bonuses are merit and accomplishment based and not just discretionary. 

2. Make sure your bonus metrics are right. Don’t be like me and have wrong metrics and end up overpaying and then having everybody mad at you afterwards.  

3. Compensation should be looked at and adjusted annually.  

Thank you for joining us today on Veteran Led, where we pursue our mission of promoting veteran leadership in business, strengthening the veteran community, and getting veterans all of the benefits that they earned. If you know a leader who should be on the Veteran Led podcast, report to our online community by searching @VeteranLed on your favorite social channels and posting in the comments. We want to hear how your military challenges prepared you to lead your industry or community and we will let the world know. And of course, hit subscribe and join me next time on Veteran Led.