Building cannabis compensation plans

, Building cannabis compensation plans

A cannabis company’s perk package could mean the difference between attracting the employees and executives needed to grow the business—or losing that talent to industry competitors.

Compensation planning forces cannabis companies to take a strategic look at their hiring needs, develop a comprehensive approach around payroll and create incentives to reduce employee turnover.

Large, mainstream companies such as Target and Anheuser-Busch dedicate entire positions or teams to figuring out what to pay workers and what benefits to offer. Smaller companies typically tack those responsibilities on to their human resources or financial operations staff. Others work with third-party recruiting firms such as Viridian Staffing, a cannabis recruitment firm in Seattle.

Compensation and payroll are frequently companies’ most significant expense, Viridian CEO Kara Bradford said.

“We’ve seen companies rise and fall based on whether they’re able to pay employees or not,” Bradford added. “Designing a compensation model is really a combination of workforce planning and deciding what you’re going to pay those people who you need to run your business. That should be at the foundation of your planning process as a company.”

Key first steps

Bradford said a first step for companies wanting to develop a pay strategy is to map out every position needed to run their businesses. For retail companies, that might involve figuring how many budtenders are needed to properly cover a company’s square footage. Also, managers will be necessary to oversee staff, and buyers will be needed to acquire inventory, and so on.

From there, companies can classify the various positions in terms of whether the workers will be needed on a full- or part-time basis and be exempt or nonexempt from overtime and other rules outlined by the federal Fair Labor Standards Act. Those decisions help company executives decide:

  • Which employees can be paid an hourly wage.
  • Who should receive salaries.
  • Which employees should receive other benefits, such as bonuses and health care.

“You have quite a bit of setup before you start doing the research and pulling the pay data,” Bradford said.

After outlining your workforce needs and determining how to classify the positions, employers can determine whether they want to have the same broad compensation model for all their employees or different ones tailored according to the employee’s role.

“For example, you may have one model that is designed specifically for your office workers—people that are not plant-touching. And then for the technical positions in this industry—your extraction and cultivation positions—maybe you have a different compensation guide. If you are a vertically integrated company, you might have different categories for your retail workers versus your producer-processor staff,” she said.

A pay structure that includes a commission could make sense for retail or sales workers but might not be the right incentive for those who handle administration functions in an office. Profit and equity sharing would likely be essential for high-level executives, while lower-level staffers might appreciate flexible shifts, a small raise after a probationary period or paid time off.

Calculating pay

Salaries and hourly pay are typically the largest part of an employee’s compensation package. But calculating just how much to offer can be tricky for cannabis industry employers.

For some jobs, employers could look to free, public data from the U.S. Bureau of Labor Statistics to get an idea of what to offer. But the information is often broad—such as sales or marketing manager— and not specific to the cannabis industry.

Data from sources that aggregate pay information, including Glassdoor or LinkedIn, might offer more detailed information, but it often comes with a fee. Recruiting firms such as HempStaff, Vangst and Viridian might also share how much they’re seeing companies offer as part of what they charge for their services.

“Since we work nationwide, we can generally tell companies what the salary range for a position is going to be. A lot of our numbers come from our previous placements in different parts of the country,” said James Yagielo, CEO of HempStaff, a hemp and cannabis recruitment and training business in the Miami area.

Because the cannabis industry is relatively new—especially in states that recently set up medical and recreational programs—the pool of candidates with direct experience working with marijuana is limited. Companies often must offer above-average pay to attract those with experience running a dispensary or with technical knowledge with cannabidiol processing.

“That’s how you get those experienced people to move from a recreational state like Colorado or California. You have to entice them with salary, with benefits, with profit-sharing or with all three,” Yagielo said.

Wooing non-cannabis candidates

Attracting mainstream talent from related fields might also be costly for employers, because the perk package offered must offset some of the uncertainty tied to joining the emerging legal cannabis industry.

“Right now, for very high-level processing lead extractor chemist people, we’re looking at the $160,000 to $180,000 salary range,” Yagielo said. “They’re finding people to come over from companies like Procter & Gamble at those salaries. But that’s what you have to pay if you want a chemist that has an established job at an established company to take a risk and join a cannabis company.”

Cannabis companies often look to the wine and spirits and tobacco industries for candidates. Accur Recruiting Services, a recruitment and executive search firm with offices in Miami and New York, works with the alcohol and tobacco industries in addition to cannabis.

“I wouldn’t say the cannabis industry has a very unique way of constructing their compensation packages,” said Edouard Thoumyre, managing partner of Accur. “Even though cannabis is growing very fast, which makes it attractive, to be able to take those people away from the wine and spirits industry, they have to offer things that go along with what wine and big spirit companies offer.”

Employers often try to mirror the perks packages of the industries they’re trying to lure from, which could mean offering a high base salary. Some cannabis companies are developing key performance indicators, or KPIs, similar to those used by other businesses, Thoumyre said.

Typical KPIs might include sales or profit per employee as well as absenteeism. But KPIs also can be more specialized, depending on the company.

“When a brand has a premium feel and is a very strong brand, instead of having commission or bonuses that are tied only to sales, there are a lot of qualitative aspects that come into play to get your bonus, such as the quality of merchandising and the ability to keep price at the same level across retail stores,” he said.

Getting creative beyond pay

Current hiring by cannabis businesses is often driven in response to immediate needs companies are facing, whether it is adding salespeople to grow the brand or recruiting executives to lead new operations, said Christine Hodgdon, chief operating officer at Vangst, a Denver recruitment firm.

“Because cannabis is growing so fast and evolving and regulations are changing daily, there’s a lot of reactive hiring,” Hodgdon said. “Reactive hiring causes you to just do whatever you need to do to fill a gap or pain point. The more structure that cannabis companies undertake and the more planning ahead they do in workforce planning and analysis will allow them to design more creative compensation plans six months before they need the person.”

A thoughtful approach from companies around hiring could save them time luring needed workers by presenting the information candidates want to see upfront. Compensation plans could also save employers money by offering salaries that align with their budgets and industry standards.

In addition, a compensation plan offers an opportunity for companies to get creative with benefits beyond pay. Paid time off is increasingly offered by employers, as is health-care coverage and retirement benefits such as a 401(k) plan. Companies have just started to think about the type of long-term incentives they can offer in their plans to reduce employee turnover, Hodgdon said.

“I haven’t seen as much of those retention agreements coming through yet. I do think that will be a trend and some bigger players will start to implement those to make sure they’re keeping their top talent,” Hodgdon added. “Profit-sharing is a long-term incentive. Obviously, another incentive cannabis companies can start to offer is 401(k) matching at a vesting schedule. A lot of people will stay through the vesting of their match.”