VisionLink Blog

Ken Gibson

Outcome-Based Compensation Design

Too often a company’s compensation strategy discussion begins in the wrong place.  It starts with questions about design or amounts.  This occurs because, in most instances, the company is just trying to solve a problem.  And usually, its hope is that there is a way to simply “plug the hole” that’s making the “dam leak” so they can move on to what’s really important.  When someone in such a circumstance calls us, this tendency is manifest pretty quickly.  Once we’ve listened to the issue and explained our process, the potential client reveals their frame of mind with a question that is set up something like this:

“So, how long will it take to work through your process?  We are coming up on our employee reviews in four weeks and we told them a while back we would be introducing a new bonus plan at that time.  Can we get this done by then?”

Such a question, while asked innocently enough, reveals much about how that company views compensation. It is an issue to be managed, not a strategic tool to drive certain results  in the business.  Seldom is the core problem a design issue.  It’s an alignment issue. This is because rewards planning is an outcome-based endeavor that needs to reinforce the strategic focus of the company.  A four-week excercise in re-engineering the bonus plan is not going to drive a different outcome for the business ,and year or two later the company will be back at square one trying to solve the problem all over again–and probably asking the same questions.  (What did Einstein say?  “We cannot solve our problems with the same level of thinking that was used to create them.”)

To avoid this tendency, let me suggest six steps that an outcome-based approach to compensation planning should include.

  1. Identify your company’s core strategy.  Reduce it to a one paragraph statement that everyone in the organization can recite.
  2. Define three to six strategic intiatives that have to be achieved if the strategy statement is going to be fulfilled.
  3. Identify where in the organization key decisions need to be made relative to those intiatives (department, team, pair, unit, division, subsidiary).
  4. Model what financial value (for shareholders) will be created if those initiatives are successfully carried out.
  5. Align the organizational roles with the strategic intiatives that have to be carried out if the value modeled is going to be achieved.
  6. Now approach compensation development in the framework of that broader strategy discussion.

Certainly, there are other pieces that need to be managed for the outcomes in question to be fulfilled.  A company needs to be able to identify key decisions the company needs to make.  It needs to organize its macro structure around sources of value.  It must figure out what level of authority decision makers need.  It has to align other elements of the organizational system, such as information flow and processes, with those related to decision making.  It must ultimately nurture a sense of stewardship and help those responsible develop the skills and behavior necessary to make and execute decisions quickly and well.   Incentives, then, and other elements of compensation, must become mechanisms for structuring the kind of “partnership” you will have with those responsible for the outcomes and how a unified financial vision within the company will be defined.  (For more information on the examples given in this paragraph, please see The Decision-Driven Organization in the June 2010 edition of the Harvard Business Journal. Marcia W. Blenko, Michael C. Mankins, and Paul Rogers, all of Bain and Company, are the authors.)

We are living in a business age of rapidly changing cycles where flexibility and decision making skills will make the difference between thriving, surviving and dying.  Compensation must be discussed in a framework that acknowledges that reality.  If it is, a company will find itself with a powerful rewards program that will allow it to attract the decision makers described above and move the company from a reactive problem solving mode to outcome-based achievement.

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"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
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
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
Creative Memories North America

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