If you have your ear to the market then you have probably heard rumblings regarding incentive compensation regulation.  Did you know that there is discussion that the government might mandate how someone in the financial industry is incented and paid?  Yep, there is talk.

There is discussion on regulating variable compensation in the mortgage industry, and not allowing compensation to be tied to rates.  In the financial industry, there is talk of tying compensation to the life of the risk or liability.  This means that those that are in the 'high' risk sales will be compensated over a period of time of the risk, and possibly have a portion of the compensation held until the end of the risk period.  This is all new and very controversial.  One of the key questions is whether this will only influence those companies that took bail out money, or if this will be industry-wide.

The way we calculate compensation and what we calculate it on is changing.  I have to believe that those who have been studying the economy and the government bailout have been expecting this.  Evidently, they are considering regulations that would spread compensation out over the period of risk, if there is risk involved.  There are many organizations that currently do this, but the true impact cannot be gauged until the recommendations or mandates are released.  Companies that deal with high risk sales--where there is potential loss or liability associated with a sale (e.g. tied to rates or high risk activities)--will be the most vulnerable to the impact of these changes.

For those who work with compensation, you are well aware that these types of compensation changes tend to snowball and the effect can be felt for years.  Once these changes take root, it will not take long for other industries or organizations to take note and look at how these changes could be used to positively influence their own companies.  Some organizations will use these changes as a negotiating tool to hire top performers from organizations that change compensation, and some will use these changes as an opportunity to strengthen their bottom line growth.

One of the key functions of incentive compensation is to tie compensation to an income producing transaction (e.g., sale of a product or service).  Some companies already tie the compensation to the life of a contract or service, but based on the current economic market, there is the possibility that this will become more of a standard in incentive compensation.  Instead of the sales representatives or executives receiving an immediate compensation value, this may be pushed out to adjust for risk factors.  For example, if there is a window of 90 days for payment, the sales representative or executive may not get paid until payment is received versus when the invoice goes out.    

The winds of change are upon us.  There will be changes made to how companies compensate.  The question is whether you will be affected through mandated regulations or voluntary action.