VisionLink Blog

Ken Gibson

Can a Company Buy Performance?

No, it can’t. But many organizations try nonetheless.

A few years ago, our firm was engaged by a business leader who thought he could buy results by paying people at the 90th percentile of market pay.  His theory was that by paying a higher salary than most of his competitors, he would attract the best people–and because he hired superior talent he would in turn achieve superior performance.  Didn’t happen. He was frustrated and couldn’t understand it.  Why didn’t it work?

What successful companies have figured out is that pay is a strategic tool that is not one dimensional. It has many facets that must work together much like asset classes do in an investment portfolio to achieve a “total return.” In fact, for most organizations compensation is one of the most significant “investments” they will make year to year–and should be treated and measured as such. As a result, the issue becomes much less about “how much” someone should be paid and more about “how” he or she is paid.

A rewards “portfolio” has to be organized in a way that creates alignment between a company’s vision, its business model and strategy, the roles and expectations associated with the those elements and how value will be shared once those expectations are fulfilled. Only compensation that is properly distributed between a range of “asset classes” can achieve that. A one or two dimensional approach won’t get you there any more than one or two stocks can be counted on to generate the total return you’re seeking in your investment portfolio.

When the line of sight just described takes place, employees more clearly focus on what’s important to the organization. That focus leads to higher and more consistent execution in key performance areas. And consistent execution produces results.  That is how performance is properly nourished.

Conversely, paying someone a higher salary than the competition doesn’t communicate anything to that employee about what, for example, needs to be done to grow the business. If my company has plans to double revenue in the next three years, and I am paying a key person $10,000 more a year in salary than most of my competitors, what connection is there in his mind between his remuneration and my growth target? There isn’t any. What I need is for that employee to “own” the revenue goal–to have a sense of stewardship about it.  I can talk all I want about how important that goal is to the business, but unless that employee and I have defined a financial partnership for achieving that outcome, it’s not likely he will fully adopt an ownership mentality towards it. We’re not aligned.

On the other hand, if I institute a pay philosophy that incorporates a value-sharing approach, I might think about paying that employee at the 45th or 50th percentile of market pay but with significant (perhaps even unlimited) upside potential.  I will likely incorporate a blend of short and long-term value-sharing programs that allow the employee to participate in the growth he helps create.  The larger the growth, the more value I’m willing to share.

This kind of pay strategy isn’t “buying” performance.  Instead, it’s defining a financial partnership with key producers that is self-financing.  Value is paid out of value that is created.  If it is not created at the targeted level, then less or no value is shared.  This approach appeals to real producers because they feel more in control of the financial outcome associated with their performance. And the reward is aligned with with the vision, business plan, strategy, role and expectation components mentioned earlier.

So, instead of trying to “buy” performance, companies should be trying to create alignment (line of sight) by effectively defining how value is created in the organization and how and with whom it will be shared.

To learn more about this subject, view our webinar entitled: “How Does Compensation Impact Performance?”

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CLIENT SUCCESS STORIES

"VisionLink has helped us successfully navigate a number of complex issues regarding our rewards programs. It has dealt with all facets of these varied issues with a high degree of competence, integrity, and straight forward advice. VisionLink's experienced team has consistently delivered first class results in a timely, professional manner and has become a valued Storm partner."

Thomas K. Grzywacz
President/Chief Executive Officer
Storm Industries, Inc.

"VisionLink has helped us successfully engineer a long-term incentive plan that has empowered our company to reward and retain key talent while increasing shareholder value. The knowledge, patience and deep experience of its team members helped us navigate a road that was unfamiliar to us. Ultimately, VisionLink designed a plan that met the high standards of both stockholders and key management employees. We have further engaged VisionLink to address our business succession and transition planning needs."

Reggie Dupre'
Chief Executive Officer
Dupre Logistics

"Over the past several years, National Technical Systems has engaged VisionLink to provide insight and direction on a number of executive compensation issues, as well as a performance evaluation of our 401(k) plan. Under its direction, NTS completely revamped executive level rewards to align with our business growth objectives and the strategic plan of the company. VisionLink's insight and direction have been invaluable. NTS has achieved its growth objectives and our executives feel appropriately rewarded for their performance."

Bill McGinnis
President/Chief Executive Officer
National Technical Systems

"VisionLink arrived on the scene just in time for us. We needed a new framework for our short-term and long-term incentive plans. VisionLink's modeling and forecasting process broadened our horizons and expanded our view of how to use a good incentive system to build, retain and strengthen our senior management team. We remain impressed by their expertise, professionalism and great service."

James Keng
Chairman
Jimway, Inc.

"Our firm has had a long-term incentive plan for over eight years but we never quite felt like it was firing on all cylinders. We hired VisionLink to re-energize our plan, and they did it! We now have a cohesive awards strategy that's fair to shareholders and valued by our employees. VisionLink's team is technically skilled and very creative. We're happy to recommend VisionLink to firms looking to upgrade their management incentive programs."

John M
FTO Inc.

"Our company was like VisionLink's typical clients. We were great at sales and haphazard at how we compensated our people. VisionLink's process brings great clarity and confidence to our growth planning - and makes compensation a great growth capability."

Dan Sullivan
Founder and President
Strategic Coach ©

"The team at VisionLink helped our company structure a long-term incentive plan that parallels the company's strategy for continued growth as a global market leader within our industry. Their approach resulted in a program that our corporate team and executives embraced on both a professional and personal basis. Through VisionLink's guidance and execution, we were able to create both a motivational tool for current team members and a recruiting device to attract future executive level associates. Well done!"

Mark Rhoades
President
Fluidmaster, Inc.

"As a leading direct seller of scrapbook photo albums and supplies, Creative Memories has independent consultants across the country. And for over six years now, VisionLink has helped us to stay connected and administer a voluntary 409A non-qualified plan for them. VisionLink has provided support for all aspects of our plan from notification of eligibility through registration and distribution. The VisionLink support team has offered suggestions for improving processes and provided us with outstanding service year after year."

Guy Walker
President
Creative Memories North America

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