Building Unified Financial Visions

Ken Gibson
June 29th, 2011 by Ken Gibson

5 Simple Ways to Transform Your Rewards Strategy

It’s summer and we’re all ready for simple solutions to things.  Easy meals to fix. Inexpensive ways to entertain our kids.  Fastest routes out of town for long weekends. And so on.  In that same spirit, here are a few suggestions to simplify your company’s compensation life this season and have significant impact in the process.

  1. Form a Compensation Committee. Include members of the leadership team best positioned to impact decisions related to compensation. Make sure it is headed by the CEO of the company.  Establish as its charter to treat compensation as both an investment that generates a measurable return and a strategic tool that  impacts company growth.  Establish a regular meeting schedule.
  2. Create and Publish a Rewards Philosophy Statement. You don’t have to be able to fulfill the philosophy with concrete programs yet, but it will communicate the direction you plan to go and get you moving in the right direction.  Consider having a philosophy statement that commits the company to being at somewhere between the 40th and 50th percentile in terms of guaranteed compensation (salaries) but perhaps at the 70th percentile or above in total compensation.  In other words, commit to a philosophy that will begin putting a larger amount of compensation at risk.
  3. Innumerate 4 to 5 Results Your Company is Seeking to Realize. These might be divided between short-term (12 months or less) and long-term (over 12 months).  They could be revenue or sales goals, profit or margin targets, new product development, market expansion or any number of key performance factors your company is seeking to improve.  Ask the committee to consider how, if at all, any of the present compensation strategies of the company are reinforcing those results as priorities to employees right now.
  4. Identify the Individuals or Groups Best Positioned to Impact those Results. As you examine that list, begin formulating in your mind the “type” of compensation that will best communicate to employees their role in achieving those results.  Think in terms of how much of their compensation should be tied to those outcomes and how much should be short-term versus long-term.
  5. Make a List of the Obvious Missing Pieces in Your Comp Strategy. The previous four steps should make this apparent.  For example, if you determine one of the key results you are seeking is to double revenue in the next three years, but your compensation package includes only salary and a quarterly bonus, then a long-term incentive plan is an obvious missing component at this stage.

Now, going through this exercise will not (yet) alter your overall rewards approach.  What it will do, however, is transform your thought process. And changing the way you think about pay is the first step in transforming compensation in your organization.

If you can engage in these simple steps over the course of the summer, by the fall you will be positioned to begin developing specific strategies that will bring your rewards philosophy to life and fulfill the results your company seeks to realize.  Compensation will then become a strategic tool helping to drive growth rather than an impediment to the sustained success you desire.

Here’s to a simplified summer.

For more information on this topic, view our webinar broadcast entitled “How Do I Create a Competitive Advantage with Our Compensation Programs.”

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Tom Miller
July 28th, 2009 by Tom Miller

What Comp Committees Should Learn From Private Companies

We work with both publicly and privately owned companies. I suppose the public market place is more “glamorous” (in some sense). Larger issues. Layers of board decisions. Bigger impact. More intense magnifying glass examining results. However, Comp Committees of public companies often miss the mark.

Of course, Committee members are under a lot of scrutiny and pressure. The risk of regulator criticism (or worse) is always hanging over their heads. And there are always disgruntled shareholders. These are real hassles. As a result, the main benchmark they use is “peer review.” They look to the pay package of their peers to determine how to pay their own execs. Here’s how it works: (1) a consultant is hired and charged to pull proxies, review surveys and present results; (2) the consultant presents findings to the committee; (3) the findings (showing how the top 5 execs compare to the selected group) are examined by the committee members and discussed; and (4) the committee draws some conclusions and makes recommendations to the board. The result: over time most companies offer pay packages that match up with this group of “peers.” This is the safe result. Who can criticize the committee since they’re merely doing the same thing being done by everyone else.

Wise owners of private companies do it differently. They don’t begin with the assumption that the management team should be paid the same way as those of their competitors. (Granted, the urge to do this is strong. But hopefully someone is protecting them from going down this path.) Instead, they can begin with the question: “What is our strategic direction?” My experience is that private companies are often much clearer on this message than their public brethren. The strategic direction of the company should drive compensation strategy. What is our short-term direction? What is our long-term? What initiatives need to be launched or maintained to achieve those objectives? What people will we need to do so? How do we want those people to think about our company’s future? What do we want them to focus on in their daily work? How much value will we create if we achieve our goals? How much of that value should be shared with our employees? In what form should that value be shared?

These questions and answers will lead the astute business leader to discard old compensation practices and embrace new ones. Since the entrepreneurial owner(s) of the company are not as controlled by regulators, shareholders (and even their boards) they have more freedom to align compensation with strategy rather than peer data.

As we observe an increase in government oversight of pay practices watch for originality and creativity in the total rewards world to emerge from the private marketplace. Bureaucracy stifles freedom and creativity. Ignore the public practices. Let the entrepreneurs create!

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