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Tom Miller
December 9th, 2011 by Tom Miller

Final Thoughts: Perfecting the Phantom Stock Plan

If you’ve hung in with me the past couple of months you know I’ve sung the praises of phantom stock for private companies. If you’re new here you can start the series here.

Today, some final thoughts (or final for now, anyway).

Phantom stock plans can be, without a doubt, one of the most important steps you ever take in assembling the team of people who will take your company to new heights. However, there’s something more important that getting the right structure. You need to create the right mindset.

If you create a “perfect” plan but don’t establish the right mindset your plan will flop. You’ll wonder what went wrong with the plan. But it won’t be the plan’s fault. It will be yours. Ultimately, it’s your job to see that the employees not only understand the plan but that they are inspired by it.

Mindset relates to the perception of the plan in the minds of participants. When you make Sally a participant in this plan she should feel like she was just made a partner in the company. She should understand that her financial future is tied to yours (and vice versa). She should realize that you trust her to help produce the results that will create value for both of you.

Always position the plan in a positive light. Explore and discover ways to make your plan one of the highlights of your relationship with your key people. You’re investing in them. Make sure they know how much you value their efforts and how much you trust them to generate great results. Your phantom stock plan is a symbol of your commitment to a partnership relationship. They aren’t getting actual stock but they don’t really want those headaches anyway. They want to know that they have a chance to participate in the value they help create. A phantom stock plan, properly designed, can do just that because it sends the right message about the future:

We’re building a great company.

We’ve got the right people.

We’re united as partners in our financial success.

Let’s go make it happen.

If you’d like a copy of the complete series, click here.

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Posted in Business Growth & Compensation, Business Growth and Rewards, Compensation Planning, Current Pay Trends and Topics, Incentive Planning, Key Talent Compensation, Phantom Stock, Uncategorized | 2 Comments »

Ken Gibson
November 21st, 2011 by Ken Gibson

Keep Incentive Plan Design Simple

Complexity can kill any value sharing arrangement.  Some reading that sentence are nodding their heads knowingly right now.  They’ve experienced that complexity and watched failure overcome what seemed in the beginning like just the right solution to plan design.

Companies run into the complexity problem most commonly when they try to manage behavior through the incentive plan.  They construct metrics and measures that are intended to focus the employee on specific business drivers.  By the time they construct those metrics for every category and tier in the company, they have a monster on their hands.  It’s usually about that time that our phone rings.

As you approach incentive plan design, keeping it simple has to be an overarching aim that guides the process.  To accomplish this, think in terms of deciding between two basic plan types and three basic measurement categories.  Then plan to “weight” the measurement categories by tier of employee to address the variance in impact at each level of the workforce.  Here’s what I mean.

Two Plan Types

When building a short-term incentive, a company will need to decide whether they want to use a profit-based allocation model or a targeted KPI approach.   In simple terms, a profit-based approach will focus everyone in the workforce on the profitability of the company and a pool will be used to generate payouts once a certain threshhold of profitability is achieved.  The KPI approach focuses the attention of an individual or team on defined performance indicators or intiatives which, if achieved, will drive greater profitability, revenue, EBITDA or whatever other key outcome you measure.

Each of these approaches are discussed more thoroughly in an article and/or webinar on our website.  I will refer you there for greater detail.

Three Measurement Categories

Most plan types can be managed well by “weighting” how much of an incentive will be tied to company performance, how much to team or department performance and how much should be based on individual performance.  The weighting each of these is given depends on the sphere of influence of the participating employee.  For example, tier one employees (executive level) might have a weighting something like the following: 75% company, 0% team, 25% individual.  A second tier (directors) might be allocated as follows: 25% company, 50% team, 25% individual. And so on through the tiers.

The three measurements approach allows you to have one plan while making room for adjustments to be made by category of employee based on its ability to impact company, department or individual outcomes.

Long-Term Incentives

Just a word about long-term value sharing.  The approach described above can apply to LTIPs as well, but is most commonly used for short-term incentive plan design (payouts for performance in a period of 12 months or less).  To effectively design a long-term value sharing arrangement, you will need an additional planning tool; a decision tree process that helps you ask the right questions and arrive at a suitable plan model. Ultimately, there are about nine different long-term value sharing approaches you could adopt.  Questions such as “are you willing to share equity?” lead to one conclusion or another about which plan type will be most suitable for your organization. To learn more about the decision tree process access the VisionLink article entitled: “Long-Term Incentive Plans–Which is Right for your Company?”

Once a long-term plan design is determined, a “simple” approach should still be applied.  The three measurement categories approach will help you do that.

In the world of compensation design, as in so many other things, “less” is often “more.”  Keep it simple.

 

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Posted in Compensation Planning, Current Pay Trends and Topics, Incentive Planning, Key Talent Compensation, Uncategorized | 2 Comments »

Ken Gibson
November 11th, 2011 by Ken Gibson

Incentives as an Act of Mistrust

The heart of a competitive advantage in an organization is a culture of confidence.  Such an culture emerges in companies that have developed success patterns to a point of such sustainability that the “flywheel effect” has kicked in, as Jim Collins describes in his book Good to Great.  There is momentum and your people know it; they know it because they are in the midst of it–in fact, they are the ones making it happen.  Such a business has a competitive advantage because a culture of confidence is not “copyable.”  It is an outgrowth of having all the human elements working in a unified, passionate fashion within a company.  Think Disney. Think Apple. Think any great company.

The best word to describe the mindset of the workforce within organizations that have developed such a culture is stewardship.  The dictionary describes a steward as “a person who acts as the surrogate of another or others.”  In business, it implies that employees act in the best interest of owners; more than that, they do the things ownership would do because they think like owners.  They think like owners, in part, because they are treated like owners–not because they necessarily own stock but because they have some kind of stake in the company’s success and a shared value system.

Organizations that adopt a stewardship approach to managing their people nurture trust and confidence in their employees by focusing more on  desired outcomes and results than methods and behaviors.  They communicate standards and values, vision and strategy, roles and expectations.  Then they communicate a sense of partnership in the way they share value with those that create value.

Such businesses inherently understand that they can’t use incentives as a tool to manipulate behavior or to reinforce methodology.  It’s not that they ignore those things, rather they recognize that pay is not the way to enforce the spirit of stewardship they want to engender.  To use incentives to “force” certain behaviors is the ultimate act of mistrust.  It undercuts the core sense of personal responsibility and accountability that a workforce must achieve if the “flywheel effect” is going to be realized.  Mistrust erodes a culture of confidence and pay, done improperly, creates mistrust.

To take it one step further, companies that have a culture of confidence don’t even think in terms of rewards as incentives.  Instead, they set up short and long-term value sharing agreements with their associates and consider their relationship to be a partnership, not employee or employer.  Value sharing is about reinforcing outcomes, not forcing behavior.  It’s about recognizing the contribution of all stakeholders in an organization’s success through effectively crafted pay programs.  It’s about stewardship not just employment.

So, as you consider where you are in your journey towards a future company that is not just good but great, avoid eroding your culture of confidence through any act of mistrust–especially as you build rewards strategies. Instead, use them to reinforce the line of sight you want to create between vision, strategy, roles, expectations and pay.

To learn more about a specific type of value sharing program that will encourage the stewardship mindset just discussed, tune into our next webinar broadcast entitled: What Think Ye of Phantom Stock–Does it Work?

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Posted in Business Growth & Compensation, Business Growth and Rewards, Compensation Planning, Current Pay Trends and Topics, Incentive Planning, Key Talent Compensation, Managing Talent, Uncategorized | 1 Comment »

Ken Gibson
November 2nd, 2011 by Ken Gibson

Ask the Right Questions

Great compensation solutions come to those who ask the right questions.  It’s as straight forward as that.  And there is a cascading sequence to an effective questioning process as it relates to compensation development and design.  Let’s explore what that might include.

Stage One

The first level of inquiry has to do with broad strategic issues.  Since compensation is a “strategic” tool, not a “tactical” one, the questions must start here.

  1. What is the vision of ownership for the “future company?”  In what ways will the company be different three years from now than it is today?  (Be as specific as possible.)
  2. What are the potential barriers that could keep that vision from being fulfilled (external and internal)?
  3. What key opportunities and initiatives have to be seized and effectively implemented if that vision is going to be realized?
  4. Who are the  people that will drive those opportunities and are key to overcoming the barriers described?
  5. Do you have all the people in place now you will need to realize the vision you have described or will new people be recruited?

Stage Two

With a clear and compelling vision in mind, you are ready to address level two questions.

  1. What is the business model of the company; the performance engine that keeps revenue flowing and will fuel growth?
  2. What roles are in place to support that business model and what expectations have been set for those roles?  (Presumably these are some of the same people mentioned above.)
  3. If you implement a compensation strategy that works, how should the outcomes produced by this group be improved or changed?

Stage Three

Now that we have addressed the vision and business model, we’re ready to talk more specifically about compensation related issues.

  1. What do you believe people should  be paid for primarily?  Time spent working? Outcomes (if so which?)?  Knowledge and experience?
  2. In what ways are you paying people now that is supportive both of that philosophy and the business model you described in stage two?
  3. How and to what extent should people be paid for maintaining the present performance engine of the company?
  4. How and to what extent should people be paid for innovation and contributing to the future growth of the company?

Stage Four

With a working pay philosophy established in stage three, we’re now in a better position to be more granular in our compensation questions.

  1. Where do we want to set salaries vis a vis market pay?
  2. Where do we want total compensation to be vis a vis market pay?
  3. Are those answers the same for each tier of employee in the company?
  4. Do we want to share equity?
  5. If we don’t want to share equity, do we want some level of pay to be reflective of company value?
  6. If we don’t want to tie pay to company value, what financial metrics do we want it tied to?
  7. What balance should there be between short-term value sharing (performance over 12 months or less) and long-term (performance over 12 months).

Certainly, there are still many more questions to be asked and answered before your compensation strategy will be ready and complete.  However, hopefully this list gives you a sense for the train of thought that should inform the compensation discussion in a company that wants to grow and realize ownerships’ vision for the future.

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Posted in Business Growth & Compensation, Business Growth and Rewards, Compensation Planning, Current Pay Trends and Topics, Incentive Planning, Key Talent Compensation, Managing Talent, Uncategorized | 1 Comment »

Tom Miller
October 31st, 2011 by Tom Miller

Should Private Companies Let Employees Own Stock? Part 9

So you’ve selected a plantom stock plan type for Sally—full value grants, deferred stock units, or phantom stock options. Or maybe you’ve done a combination of two or more—which may be the right thing for your company. What’s next?

Now you need to fine tune the plan provisions. These are what I call the “Level 1″ decisions. They impact the ultimate cost and value of the Plan. These decisions include primarily:

  • Vesting schedule
  • Payment date
  • Payment terms

Select a vesting schedule for full value and option awards. Most plan schedules run from 3-5 years. Then, determine the year in which they’ll be paid out. (It doesn’t necessarily have to coincide with the vesting period.) And over what period of time do you want to pay them out? In a lump sum? Or over 3 or 4 or 5 years?

Level 2 decisisons include the discussion of alternative payment scenarios : change-in-control, separation of service, disability of a participant, death,
termination (for cause or not for cause), and so forth. The plan will need to be pulled together into a document that outlines what will occur under each of these circumstances. You’re going to want some help with these issues. Seek advice from someone who’s had experience dealing with these plans. He or she can help you see the pros and cons of these important decisions.

There’s one more major Level 1 decision: how many grants to award to your team. I’ll cover that next time. Stay tuned.

Posted in Phantom Stock, Uncategorized | No Comments »

Ken Gibson
September 23rd, 2011 by Ken Gibson

“Superstar” Compensation: Solving the “Jobs” Problem and other Benefits

It appears a contributing blogger to Fast Company has been channeling VisionLink while employing an interesting analogy from the sports world.  I like his thinking and it is certainly compatible with what we’ve (Tom Miller and I) been preaching in our blogs and elsewhere for some time.

In his article, Kevin Kruse offers this insight:

“Last month, NFL quarterback Michael Vick signed a new $100 million contract with the Philadelphia Eagles, making him one of the highest paid athletes in football. When the contract amount was announced, it was not immediately apparent (unless you dug a little deeper) that only $40 million is actually guaranteed. This ‘base pay’ is only 40% of the compensation package, leaving 60% at risk, based on performance.  In even simpler terms: for every $1 of base pay Vick can earn an extra $1.50 based on results.

“This ratio provides the proper risk versus reward for both parties. Vick will earn his whopping $100 million only if he stays healthy enough to lead the team for the next six years and only if he achieves certain on-field results. The variable amount in his contract must be ‘re-earned’ each year. This demonstrates that organizations are willing to pay a high premium for great performance.

“This athletic analogy describes the concept of variable compensation (a model where an employee receives a low base and dramatically higher performance bonuses), and how risk-sharing (in this case between athlete and team) can be applied to help encourage more hiring by employers at a time when job creation globally is arguably our biggest economic challenge.”

Kevin goes on to explain how this model is commonly used in commission arrangements for sales people in organizations, but should be more widely embraced throughout a business.  The concept puts ownership in the position of potentially sharing future profits, but the trade off is there is much less up front risk of tying up money in guaranteed compensation.

Many of those that have been unemployed long-term are concerned about taking positions that will set their pay scale at a lower level than they once enjoyed, diminishing their earning capacity when the economy comes back.  The “superstar” model allows a company to commit employees to a potentially lower level of guaranteed pay but with substantially larger upside potential than they earned through pure salary arrangements in previous positions.  It solves everyone’s problem and gives businesses greater flexibility in their hiring commitments.

Kruse closes out by saying:

“Critics of the variable pay revolution will say this is just a sneaky way for companies to pay workers less. But remember the Michael Vick formula: $1.50 of pay-for-results for every $1.00 of fixed pay. Applying this to a $100,000 a year salaried worker, a variable program might pay the worker $60,000 base (plus benefits) with performance bonuses up to $90,000 per year–more than their actual salary! Employees taking part in variable pay programs should be willing to give up $1 of fixed pay in return for at least $2 of additional at-risk pay.

“…Compensating employees like professional athletes can enable individuals to potentially earn more money while their employers reduce short-term risk and gain valuable intellectual and human capital. Done right, both employee and employer can feel good about their contribution toward stimulating job creation efforts.  The end result just might be more players on the field.”

I agree.

Posted in Uncategorized | 1 Comment »

Ken Gibson
September 21st, 2011 by Ken Gibson

“Speaking” of Compensation

I’m departing from my normal “educational” blog today and will be waxing more “informational” this time. Please forgive the slight deviation.

Many who have visited our blog or website have inquired whether we ever speak publicly on any of the topics we blog about.  We do.  In fact, Tom Miller and I have spoken in a number of forums nationally on a range of compensation topics and other themes that relate to driving business growth.  Here is just a partial list of the forums and events at which we’ve spoken:

  • CFO Magazine Convention
  • Inc. 500 Convention
  • Board of Directors Forum
  • SHERM Crossroads Convention
  • Pershing LLC INSITE™ Conference
  • M Financial National Conference
  • American Bar Association Tax Conference
  • Vistage Groups

If you belong to an assocation or other group that needs  speakers on topics that relate to rewards programs or other compensation issues, we are happy to entertain such invitations. Our presentation approach is educational but dynamic.  It is intended to help the audience understand that compensation is one of the largest and most important investments a company makes—and should generate a measurable return for shareholders.

In our presentations, Tom and I help paint a picture of how rewards programs can be used as strategic tools to help fuel growth in a business.  Special emphasis is placed on addressing compensation and business growth issues for business leaders such as the following:

  • The proper role and scope of incentive plans
  • How to measure the return on a company’s compensation investment
  • How to develop an “ownership mentality” within the workforce
  • What alternatives to sharing equity exist for private companies
  • Determining the right amount of compensation and how it should be paid
  • Which type of long-term incentive plan is right for a company

 

In addition to our speaking engagements, VisionLink broadcasts a monthly webinar nationally that any are invited to attend. Our next one will be held next Tuesday, September 27 (8:30 a.m. PDT) and is entitled: Sales vs. Performance vs. Growth Incentives. Feel free to register for that event or view our catalogue of previous broadcasts.

Thank you for indulging me in this departure and soft plug.  I hope knowing this will be useful to many of you.

 

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Posted in Compensation Planning, Current Pay Trends and Topics, Incentive Planning, Managing Talent, Recession Strategies, Uncategorized | No Comments »

Ken Gibson
July 31st, 2011 by Ken Gibson

Why a Long-Term Incentive Plan Matters

The full title of this article should really read, “Why a Long-Term Incentive Plan Matters…MORE than Other Types of Incentive Plans.”  However, I didn’t want you worn out before even starting the article–so forgive the abbreviated headline.

I recognize that’s quite a claim, but hear me out. My premise is based, in part, on what recent HBR authors Paul Adler, Charles Hecksher and Laurence Prusak have discovered about institutions that have sustained records of both efficiency and innovation.  Among other things, these organizations excel at achieving the following three things:

  • A Shared Purpose.  An effective shared purpose, the authors indicate, “articulates how a group will position itself in relation to competitors and partners–and what key contributions to customers and society will define its success.”
  • An Ethic of Contribution. Collaboratives communities generate accelerated results. Such organizations instill a bias towards contribution which in turn ”accords the highest value to people who look beyond their specific roles and advance the common purpose,” according to Adler, Hecksher and Prusak.
  • Interdependent Processes. In their article, the HBR authors quote a project manager from Computer Science Corporation as follow: “People support what they create…As a project manager, you’re too far away from the technical work to define the [processes] yourself…It’s only by involving your key people that you can be confident you have good [procedures] that have credibility in the eyes of their peers.”

At this point you may be saying to yourself, “This is all very interesting, but what does it have to do with long-term incentive plans..and why they matter more than any other rewards plan within our business?”  In a word, everything.

For a business to grow, it depends upon the collaborative efforts of a workforce that shares in the purposes and ends to which the company is working.  By nature, organizations are made up of interdependent teams and individuals whose motivation for building cooperative processes depends upon buying into a shared ethic of contribution.  In an ideal environment, employees recognize the value that grows out of a sense of partnership with those to whom they are “tethered” in the work that fulfills the shared purpose.  When this can be harnessed and perpetuated, there is a magnified fulfillment experienced by everyone collectively and individually.

The role, then, of the Long-Term Incentive Plan is to define the financial nature and benefit of engaging in the three elements outlined above.  Said another way, if all I experience from a pay program is a salary and annual bonus, there is no financial mechanism fostering in me the role of a shared purpose, the ethic of contribution and the interdependent processes that must be sustained for growth to emerge and then be sustained.  While it isn’t the only piece of the equation that allows these things to take root, if a long-term component isn’t there, it is difficult for people to trust that a true partnership has been entered into with those who control the financial future of the business.

This is one of the primary reasons we tell our clients that they must make it a priority to introduce the long-term component in their rewards gameplan.  When coupled with the short-term incentive, it balances the focus of participants between generating results right now with building and protecting  long-term value .

For more information on the role long-term incentives can play in your company, check out our webinar entitled: How to Build Long-Term Value for Key Producers.

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Posted in Business Growth & Compensation, Business Growth and Rewards, Compensation Planning, Current Pay Trends and Topics, Incentive Planning, Uncategorized | 1 Comment »

Ken Gibson
May 27th, 2011 by Ken Gibson

The CEO’s Role in Compensation Development and Management

CEOs have a lot to worry about.  (Okay, forgive my stating the obvious before even gettng started!)  As a result, effective chief executives provide strategic oversight but empower others to make decisions and carry out the company’s business model and plan.  Ideally, that person has set up accountability systems that are both effective and efficient in their ability to provide relevant feedback to guide him or her in making adjustments and course corrections as necessary. 

I recognize there’s nothing new in that introduction.  However, it’s an important foundation for setting up a discussion about the CEO’s role in compensation development and management.   Here’s why.

The leadership orientation  just described, while typical and necessary, often puts the CEO too far out of touch with an essential role he or she needs to play in the compensation discussion.  Pay is a strategic tool, not merely an expense that needs to be contained.  It is an investment that needs to be properly allocated and the CEO should assume as much responsibility for the return the company achieves on that capital commitment as any that is made in the enterprise.  In fact, given that compensation and benefits are usually the largest budget item on any company’s financial statements, one could argue that the CEO should pay even more attention to ROI results being generated  in this area than almost any other the company measures and manages.

At the end of the day, the person at the helm is primarily  responsible for making sure that both financial and human capital are generating an appropriate return for shareholders–and then holding people accountable for performance levels that will ensure that outcome.

If this is true (and I submit it is), then exactly what role should the CEO play in the compensation discussion–and where (if anywhere) should  handoffs (delegation) occur?  Here are some suggestions and guidelines:

  1. Establishing Pay Philosophy.  A chief executive officer must lead the philosophical discussion about pay.  Given the performance outcomes demanded of that role, the person at the helm must make clear what the company will pay for–and how that philosophy will be manifest in practice.  Where should company salary levels be vis a vis market pay?  What balance should the company strike between guaranteed and at risk pay? How much of performance-based pay (incentives) should reward for short-term results (monthly, quarterly or annual) and how much should be tied to long-term results (more than 12 months)?  Certainly, a CEO can solicit imput from key leadership members in this discussion (as well as outside consultants), but this is a core issue for which he or she must assume primary responsibility.  Every other discussion about pay will cascade from this foundational stage and the groundwork that is laid by establishing a clear pay philosophy.
  2. Defining Strategic Outcomes. Specific pay programs may be developed under the direction of individuals given that stewardship by the CEO.  However, in making that handoff, the person ultimately responsible for the “bottom line” must be able to clearly define the strategic outcomes and priorities the company is focused on.  Every rewards plan that is developed must have a purpose statement–and that purpose must be tied to a specific, measureable result the business seeks to achieve.  What is the role of the pay plan if not to drive the business model and strategy of the company?  CEOs will be left wondering why they aren’t getting better results from their people if they aren’t paying attention to and fully engaged in this part of the process.
  3. Establishing Framework for Discussion.  Compensation development and management is not a static activity.  A company can’t develop a plan, role it out and then “let it ride” forever more (although some companies do, by default, adopt this approach).  As a result, the CEO needs to provide the organizational framework within which best practices for envisioning, creating and sustaining world class compensation strategies can emerge and thrive.  He or she should decide who is essential to the compensation discussion, organize a committee to fulfill the oversight role and (with the help of those committee members) establish a schedule and agenda for ongoing management and monitoring.
  4. Determining Roles and Responsibilities. Related to area number three above, this category implies that those involved with developing a best practice approach to building and sustaining world-class compensation strategies for their company understand their specific stewardships.  For example, who is ultimately responsible for administering a given plan?  Who will take the lead in developing a promotion and communication strategy for the overall rewards strategy?  Who will make sure successes are celebrated appropriately and in a timely fashion?  Who will monitor any legal requirements associated with the plan(s)?  How and under whose direction will the success of given pay programs be measured and monitored?  What financial information, requirements  and procedures have to be tracked and managed–and who will assume that responsibility?  And so on.  The CEO doesn’t have to make everyone of these assignments, but he or she does need to ensure that these roles get defined and that there is accountability for their fulfillment.
  5. Approving Metrics and Measures.  Compensation design is an outcome based endeavor.  In many ways it’s also an exercise in reverse engineering.  We project forward certain results we anticipate achieving based on certain assumptions (revenue growth, expenses, manpower, etc.).  We determine how such growth will impact shareholder value.  We then determine what amount of that additional value we are willing to share to achieve that outcome.  We then “reverse engineer” that future value to a present context so we can clearly state how employees will participate in the value they help create.  In that process, the CEO must help define thresholds of performance (revenue growth, profit margin, ROE, etc.)  that need to be achieved before the company will be comfortable sharing value.  Specific measures and metrics for company wide performance, department or team performance and individual performance will ultimately need to be determined.  While the CEO won’t independently  set the levels in each of these areas, he or she cannot disengage from the decisions that have to be “signed off on” if the plans developed are going to be financially viable and protect shareholders’ interests.
  6. Insisting on a Clear Message.  CEOs set a tone.  They can make or break a meeting or announcement based on the level of attention it receives, the passion that surrounds it and the clarity that is provided.  Likewise, a CEO must ensure that any message involving any aspect of the largest budget item on the company’s financials (compensation and benefits) is clear and helps reinforce the organization’s vision and mission as well as it’s business model and plan.  This doesn’t mean the CEO needs to deliver every message about compensation.  It does mean, however, that he or she knows what messages are being communicated and they are consistent with the compensation philosophy statement that was established and articulated at the start, under the chief executives direction.
  7. Leading the Celebration.  While managers at all levels of a business should help their teams celebrate the successes they experience, the CEO needs to be the cheerleader in chief.  That role carries a weight that can’t be duplicated by others.  When employees hear from the person at the top, there is a different priority level that message attains.  CEOs should “pick their spots” but then be sure their voices are heard when good things happen.  This can be done in writing, in meetings, on intranet postings, on Facebook pages and through “tweets.”  Whatever the channel, the CEO must engage in this activity.
  8. Measuring Productivity.  Perhaps the most important question to be asked about a given compensation strategy is whether or not it made the workforce more productive.  Did people become more engaged as a result of how they were being paid?  Is execution improving.  If so, are there measurable results to prove it?  Having mechanisms in place that isolate the return on investment that the company is achieving  through its human capital are critical to evaluating the effectiveness of its rewards strategies.  While a CEO does not have assume the task of coming up with the specific means of making a productivity assessment, he or she must insist it be measured and consistently review the trends the analysis portends.
  9. Holding People Accountable. If a rewards strategy isn’t working, the CEO needs to know that.  And someone has to be accountable for the lack of results being generated.  If the other areas outlined in this article are properly addressed, this will be an easy step to take.  Roles and outcomes will have been clearly defined.  Accountability in this arena means that everyone in those roles understands what will happen if the outcomes intended aren’t being realized through the specific pay programs for which they have charge.  When results fall short, it will not always mean that the specific plan in question is bad or not performing properly.  However, those responsibile need to be able to “account” for why results are what they are.

Our experience has been that in companies where this level of engagement (in the compensation discussion) from the CEO exists, performance occurs at an accelerated pace.  Presumably, this happens because alignment has a greater possibility of occuring in organizations where the person at the top understands the essential and strategic role of compensation in creating a unified financial vision for growing the business.

To learn more about this issue, please view our webinar recording entitled “Why CEOs Should Drive Compensation Strategy.”

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Posted in Business Growth & Compensation, Compensation Planning, Current Pay Trends and Topics, Incentive Planning, Key Talent Compensation, Managing Talent, Uncategorized | 1 Comment »

Tom Miller
April 27th, 2011 by Tom Miller

Can Employees Stay Committed to Productivity Improvement?

Is it possible to encourage employees to become responsible for productivity gains in your organization? Here’s a great article in Harvard Business Review that describes how. The authors stress that the easiest but most overlooked way to accelerate ownership of progress by employees is to support them in their daily progress in meaningful work. This improves both their inner work lives and long-term performance. The article comes complete with a daily worksheet for managers to use to help support daily progress among their employees.

All compensation plans should ultimately be “paid for” by productivity gains. Shareholders should always be happy to increase incentive payments when clear gains are realized.

Posted in Uncategorized | No Comments »

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