Balancing the Books: Understanding Compensation Trends at Year's End

At the close of the calendar year, or for some, the end of the fiscal year, you, as a planner, are tallying the actual compensation expenses for the first 11 months and adding December's projected expenses to create an annual year-end forecast. You are likely encountering one of two scenarios:

Compensation Expenses Trending Favorably Compared to the Target:

This can be seen in both a positive and negative light by operations. While saving money for the company is beneficial, an understaffed contact center that results in slow response times and poor customer experiences is not desirable. Conversely, if the contact center stayed under budget and still managed to provide excellent response times, leading to improved customer experiences, then both you and the operations team should be commended and rewarded!

 It's also advisable to consult with the Finance or Accounting team to see if the contact center can accrue any expenses this year, so the following year starts off favorably as these expenses won't recur. Remember, this must adhere to the matching principle, which requires expenses to be recorded in the same accounting period as the revenues they generate. Note that you cannot accrue January and February's compensation expenses in December of the previous year. This is a consensus I've reached after asking the same question to all the finance departments I have worked with during my career 🙂.

Compensation Expenses Trending Unfavorably Compared to the Target:

Again, this is not inherently good or bad and requires context. For example, missing an aggressive target that prompted the hiring of additional frontline staff to maintain customer experience standards might be a worthwhile trade-off. However, increasing labor costs without improving customer satisfaction metrics is less favorable. As a planner, conducting a year-end review to identify the causes of the overage is crucial for planning the next year. Don't be too self-critical about exceeding your compensation target; no planner has a flawless record. If they did, it would suggest their targets weren't challenging enough. Aim high!

Whether compensation expenses trend favorably or unfavorably against the target, the key lies in understanding the context and implications of these financial outcomes. As a planner, your role is pivotal in analyzing these trends and making informed decisions for the future. Remember, both scenarios offer valuable insights and learning opportunities. As the year wraps up, it's a fitting time to reflect on these lessons, plan for the next cycle, and also to take a well-deserved break.

On a personal note, I'll be taking a break from writing during the holidays to spend time with family and friends. Wishing you and your family a happy and safe holiday season! See you next year!