Farm Credit Foundations is a shared HR services business that serves 7,100 employees (70% of the Farm Credit System) from 48 employers, including the AgriBank District, Northwest FCS, and the U.S. AgBank District. Amy Ilkka, Director of Workforce Management, was interviewed recently about tackling compensation issues in a down economy. Here's what she had to say:
Q. As Director of Workforce Management, what does your position entail at Farm Credit Foundations?
A. I have a dual role. Our Workforce Management team provides general human resources and compensation consulting to over 40 Associations and Banks across the Farm Credit System. I also spend a portion of my job as the in-house compensation leader for AgriBank, FCB, managing the internal reward programs.
Q. How did the AgriBank District fare over the past year in terms of employee compensation?
A. The AgriBank District entities have remained financially strong, unlike many other financial organizations who have not fared so well in this stressed economy. When large financial organizations slashed bonuses last year, froze or reduced pay, and let go a lot of folks, we didn’t experience that level of impact. We are not immune to the effects of the economic downturn, but organizations within the AgriBank District are well positioned to manage through it.
Q. What do you see happening this coming year?
A. In 2010, we’re going to feel it a little bit more, with less variable pay and lower merit increases. The challenge is how we communicate that to employees, particularly in a year when many are working harder than ever, given the environmental circumstances, and yet those circumstances bring less monetary rewards.
In recent history, the Farm Credit System has been doing very well. One of the things that I’ve been saying for the last 10 years as I’ve consulted with various Associations, “We won’t always reach the maximum payout levels on our incentive plans. The plans are called “variable pay” for a reason; they should vary.” Variable pay plans are not the entitlement they once were. Again, we’re not at a point that some of our competitors are, where they aren’t paying bonuses and are cutting pay. But at the same time, Farm Credit entities will likely have fewer dollars to reward their employees. My advice is to be upfront and set expectations early on – explain how the compensation programs are and should be reflective of the business environment.
Q. What can organizations do to reward employees in a down economy?
A. One thing organizations should be doing is rewarding those employees they most want to retain. It sounds very simplistic, but if you identify your highest impact folks and you put your dollars there, hopefully you’ll be able to retain them. An employee that is good is attractive to the competition in any economy. If (and when) things start to turn around, that’s when the fight for talent will really heat up. If the competition hasn’t been after your talent in the last 18 months, don’t become complacent. It’s important to continually ‘re-recruit’ your best talent in order to keep them.
Q. Outside of compensation, what are some other things to consider?
A. A lot of organizations have had to shift their business targets on their variable pay plans. We’ve traditionally focused on growth, new money and portfolio volume. Now we’ve had to take a different stance and put more emphasis on credit quality, for example. Obviously, making quality loans is a key driver right now versus growing the loan portfolio, and the variable pay programs should shift to match that the business focus. A lot of our Associations have done a good job with that shift already. It allows them to still reward their folks based on performance, and ensures everyone is marching in the direction that the business requires.
Q. What do you do when working with individual Associations?
A. Each organization has its own compensation philosophies. I try to arm them with what I know is going on in the market, keeping informed on base pay levels and variable pay trends. Then I help them take that information and utilize it to best suit their unique needs.
Q. Has the downturn bottomed out? Or do you foresee 2010 being more of the same?
A. Well, in general, for agriculture and Farm Credit, we often lag other industries as it relates to the impact of the broader economic shifts. So where other industries and organizations felt the impact in late 2007 and into 2008, Farm Credit has started to feel it more in the past six months. However, from a broader compensation standpoint, 2010 is looking better than 2009. We’re just probably more at the tail end of that trend. That being said, we haven’t dipped as far either, so we won’t have as far to recover.
I anticipate that a year from now we’ll be looking at a little bit brighter information when it comes to merit budgets and variable pay opportunities.
Q. Are there things employees can do to make sure they’re among those who are rewarded?
A. That’s a difficult question to answer. There are some managers that will look at this and say “All my people are good, so I’m going to give them all 3% because I want to keep things even and I can’t do more for one and less for another.” That’s a blessing and a curse when you have an organization that has long-tenured, good people. The most effective managers use even-limited merit and variable dollars to make sure the highest performers are truly being differentiated through the existing pay programs.
Q. Is there a silver lining in all of this?
A. The silver lining is that we have not and I don’t believe we will be impacted to the extent other financial institutions have been. Looking back, that is a positive thing. Going forward, things are slowly going to recover, and Farm Credit is going to maintain its position of strength. We’ve learned from past experience and we’re in a much better spot today. Other financial institutions and banks that had questionable lending practices, well, they may be learning their lessons over again this time around.
Q. What’s your best advice for Farm Credit organizations and their employees at this time?
A. Now more than ever, it’s important to know your compensation philosophy. The vast majority are pay-for-performance organizations. So if you’re performing, that variable pay should there, with some limited exceptions. It’s not going to be at maximum levels, but it’s still going to be pretty darn good. Almost every plan that I’m aware of has individual components to its design, so there is some ownership on the employee to continue to perform and be rewarded based on results. It just feels a little different because we’re going after different goals now.
Q. Any other advice for leaders regarding compensation?
A. Ironically enough, I always try to remind leaders that it’s not all about compensation. There’s a lot that goes into whether someone is engaged in her job or not. Try to leverage other forms of recognition, both formal and informal, and identify business opportunities to provide your employees the chance to have some experiences that they wouldn’t normally have. Those types of challenges help keep employees engaged. Leaders need to be just a little more creative in this environment to stay on top of talent management.
Take a step back and look at your organization’s total rewards package -- the health and welfare benefits, and the perks that employees enjoy. It’s a broader look that leaders can help their people consider. But when one piece of that gets hit a little bit more, it tends to get a little more of the focus, and that’s where compensation has been this year. Keeping the big picture in front of employees is an important retention strategy.
Most of all, communicate. Don’t be behind closed doors. Communicate directly and honestly; let people know where things are and what to expect. Tell the Farm Credit story, because even in a stressed environment, it’s a tremendous story.