Building Unified Financial Visions

That question probably crosses the mind of a CEO at least a couple of times a year–perhaps when a salary increase has been approved or a bonus is paid out.  What he or she means by the question is essentially this: “Boy, collectively I’m paying my top people over $1 million a year; what am I getting for it?”

Whether or not a compensation strategy “works” is a subjective measure I suppose.  To say it’s not “working” assumes we know what things would look and feel like if they were working.

From our view, a compensation program is “working” when it is drives business growth and the company can attribute that result to the productivity of its people.  A high standard?  Well, yes–but should something less be expected of the largest budget item a company will find on its financial statement? 

In that context, if a compensation strategy is not “working,”  its usually for one of the following reasons:

No Sense of Partnership–the company has not yet engineered  compensation strategies that instill an ownership mentality and engender a unified financial vision for growing the business.

Lack of Clarity–employees do not yet see where the company is headed, how it is going to get there, what their role is, what’s expected of them in that role, and how they will be rewarded for fulfilling those expectations.

Ineffective or Unclear Standards and Practices–the company has no established mechanisms for defining a compensation philosophy, building a “game plan” that strategically reflects that philosophy and then turning that plan into concrete rewards strategies that are measured and managed.

Lack of Engagement–the compensation programs of the company do not yet promote a level of execution that only comes once employees feel passionate about their contribution and what it will mean to them if the company achieves its goals

Lack of Productivity Measures–the company is paying out compensation but has no means of determining how much of the business’s collective ROI can be linked to its human capital as opposed to its financial capital. 

In summary, for a company to ever know whether or not its compensation strategy is “working,” it must first begin to treat it as an investment and not just an expense–and then be able to measure the effective return it is getting on that investment.