December 16, 2014
King's Corner

Personal P&L

Kenway has a unique compensation structure. Every company does to some extent. But for a small company, we get pretty sophisticated by using custom applications and customized reporting and analytics to support our model and ensure proper implementation. On top of having these custom tools and processes, we spend substantial non-chargeable time, a significant opportunity cost, supporting said tools and processes. And it’s all in the name of fairness. One of our Guiding Principles is “to use a value minus cost formula for compensation.” So, it’s to honor this Guiding Principle why all these processes, solutions and effort exist.

What do we do? At the surface, it sounds simple enough. We evaluate all the inputs that comprise an employee’s cost. There’s the stuff that is unique to them (e.g. their benefits, their salary, etc.). And then there’s the stuff that is company overhead that gets allocated on a headcount basis (e.g. office management, workers’ compensation insurance, etc.) You add all that up for each individual and you have their total cost to the company. By dividing each employee’s hours worked into their total cost, you get their cost per hour. We then draw collaborative, subjective opinions about each employee’s value per hour. Here, things like degree of difficulty, level of success, efficiency, maintenance (as in, high or low) come into play. We look at the difference between their cost per hour and their value per hour, and the difference is allocated to them through their year-end performance bonus.

I explained this process a while back to someone outside of Kenway, and they said, “Wow. You guys have a P&L [Profit & Loss] for every employee. We need one of those.” I laughed and, thinking of the custom applications, reporting solutions and effort that goes into honoring our Guiding Principle, said, “No, you don’t.” But that, of course, was in jest. I am very proud that we do things this way.

Well, right now, this week, we are in the throes of it again. Bonus season. It’s hard. For example, the people who make more in salary must outperform the people who make less in order to earn the same bonus. Think about it. If two people are valued comparably at year-end, and they worked an equal number of hours, the person who “cost more” throughout the year is going to see a lower bonus than the person who “cost less” throughout the year. It’s the epitome of fairness. But it’s not typical. Many companies reward based on tenure and experience twice—once with a higher salary and again with a bonus as a percentage of that salary. We reward experience only once, when evaluating a salary, but that goes out the window when we evaluate value.

Anyhow, I’m not writing this to describe our process and solicit feedback on it. I’m not writing this to stake a claim that our way is better than others. I’m writing about it because this whole P&L process has got me thinking, what is my P&L in life? Not financially. In life. What Return on Investment (ROI) do I get for my efforts, and at what cost? Am I working on the right things? Am I spending time with the right people? Am I enjoying the time as it passes, or am I too focused on the potential of future return, and making too great of an investment in my present?

As I contemplate those questions, I feel pretty good about my answers. That hasn’t always been the case. Hearkening back to the Kenway compensation methodology, total value is based on the quantity of hours and the average quality of each of them. But each person’s real P&L, is the marriage of their Personal and Work P&Ls. It’s the ultimate work / life balance. I know that the Kenway compensation model allows our employees to make choices about the quantity of time they spend at work. Sure, lower quantity will result in lower compensation than if the quantity was higher, and that impacts their

Work P&L. But I hope it’s a conscious decision, offsetting any lost work revenues with “personal compensation,” where less time at work results in higher returns at home in their Personal P&L. A high Work P&L might be offset by a low Personal P&L at home. The inverse can also be the case.

As we approach the holidays, I wish all of you safe travels, large meals and relaxation with loved ones. And may you all boost your Personal P&L to the right levels.

How Can We Help?