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.

You have smart people working for you.  For the most part, they believe in the company and where it’s headed.  Because they are thoughtful and intelligent, they are willing to learn about the role you want them to play in creating value for the business.  The better ones had options when they chose to work for your company.  The best ones have other options now. 

So, if  what I describe above is familiar to you–if you have one or more person like this working for you right now–what would they say to you about compensation if they were honest about their expectations? 

In the course of our work with clients, we have interviewed hundreds of just such individuals within successful businesses.  In composite terms, I’d now like to share what we’ve heard.  I’ll categorize the responses in three groups and then lay out the expectations of those we’ve spoken to in the first person; speaking as if I were that smart, thoughtful employee who did and does have options.

• Sustainable Cash Flow–”I recognize that my experience and skill level merit a certain level of pay.  I’m not stupid; I’ve done some research, asked around and I know what most people in my position earn. I’ve built a certain lifestyle around that expectation.  Now I just want to know that as long as I perform–and the company continues to do well–I’ll have enough guaranteed and incentive income to keep me and my family in our ‘world’ and still be able to plan for the future.  As a result, it would be helpful to know what philosophy the company has going forward for how much of my earnings will be guaranteed and how much upside potential there will be through “value sharing” if I help the company meet its growth targets.  To the extent some of my compensation  will be ‘at risk,’ I’d like to be clear on the measures being used to determine payouts and know that those metrics are based on something I have control over.  I would also favor something that isn’t ‘all or nothing’; if we achieve a superior result, it would be nice to know even more would be available.  That would be meaningul to me–and seem fair.”
•  Security– “There are certain risks that could change my world pretty quickly.  If a member of my family becomes seriously sick or injured, or if I die or become disabled, I need some means of protection.  Likewise, I need to be able to plan properly for retirement, education for my kids and so on.  I certainly don’t expect the company to foot the bill for every type of risk I’m trying to plan for or protect against.  At the same time, I recognize the business is in a unique position to use the size of its workforce as leverage to obtain certain benefits and that’s it’s also in the company’s best interest that its key people not be too vulnerable. So, I hope I can have some flexibility in my benefit options that will allow me to address my circumstances in as customized a manner as possible.  I’m willing to share in the cost of doing so–I just want to make sure consideration is being given to the range of issues that could impact both me and the company if proper planning isn’t done.  Here are some of the things the ideal arrangement would include:
• • Medical Insurance—options for PPO, HMO, catastrophic coverage (dental, vision, long-term care options are a plus and having some options even at my cost would be helpful in this regard)
  • Life Insurance—options for additional coverage at a group rate are ideal; some kind of permanent coverage the company pays for while I’m employed is better (I’ve heard of things such as ‘split dollar’ arrangements where the company gets its money back when I leave)
  • Disability Coverage—this one worries me the most; so it would be great if there was either a group plan or individual coverage that replaces my income if I’m not able to work; again, I’m willing to share in the cost of this but I also recognize it takes the company off the hook for having to decide what to do if I am out with some kind of long-term condition
  • Retirement Plan—a 401(k) is great, I’d just like to make sure you’re looking out for me in the investment options I’m given and that you are making sure  hidden costs are being squeezed out so I can maximize my benefit.  If the company makes a contribution to the plan, it tells me they value a long-term relationship with me and want to help me plan for my future
  • Supplemental Retirement Plan—it’s a bummer that the government restricts my contributions to the 401(k) plan; what I put in is based on what people earning less than me put in.  As a result, having a supplemental plan to allow me to set aside more for the future and on a tax favored basis would be ideal.  I know many companies provide this through some kind of deferred compensation arrangement”
•  Wealth Accumulation—“It’s nice having a retirement plan, but it’s not what I mean by having a wealth accumulation opportunity.  I’m talking about having the means to share in the ‘wealth’ I help create in the business.  If my commitment of time and talent means the company achieves something it wouldn’t have achieved without that contribution, is it not fair to want to participate in the value I help generate?  It seems like a win/win to me if it’s set up properly.  I don’t care whether I get equity or not—I just want to know that there is a long-term mechanism in place that makes the achievement of the owners’ vision a financially meaningful event for me.  I’d be motivated by that and it would seem like more of a partnership arrangement if I can  participate in something like that.”

So, there you have it.  That’s what your best employees are thinking and what they’d like to say if given the chance.  Now you know.  You’re welcome.

For more information on this topic, view our webinar entitled: “What Your Employees are not Telling  You about your Current Rewards Programs.”

Engagement is one of the Holy Grails in business.  Every organization seeks it in its workforce.  Most company leaders can’t define it, but they know it when they see it…and they know it’s what’s missing when the business fails to reach its potential.  Engaged employees are like fuel to company growth and those who aren’t make everything move in slow motion. 

For an employee to become “engaged,”  a company must address what I refer to as “The Three ‘Cs’.”  They go like this. 

Engagement emerges when an employee feels:

1. Compelled–the business has a compelling future and the employee sees how his unique ability can contribute to its fulfillment.  This is about shared vision and values.
2. Clarity–leadership gives the employee a clear understanding of the business model and strategy what will fulfill the vision, what role he has in that plan and what’s expected of him in that role, and how he will be rewarded if he fulfills those expectations.
3. Connection–the employee feels a sense of partnership with company owners.  Whether or not equity is shared, he  understands there is a philosophy about value creation and value sharing that is fair.  As a result, all stake holders feel connected.

Well, if that’s what it takes to secure an engaged employee, what will the result look and “taste”  like once it’s achieved?  In my experience, companies that nurture engagement end up with employees that manifest that quality in each of  three ways:

1. Focus–more time is spent on the “best” results that can be achieved, not just good or better.  There is an outcome rather than a task orientation that is evident. The employee “gets” what result the company is looking for and displays a sense of stewardship about it.
2. Commitment–company leaders see that the employee has taken ownership of the future in a similar way that shareholders have.  It is apparent that it is meaningful to him for the company to achieve its vision because he knows what it will mean to him personally.
3. Shared Purpose–an engaged employees demonstrate a contribution ethic that extends beyond his specific role in the company.  It is a manifestation of the shared purpose he has with co-workers, other  teams or departments and with ownership.  This means he behaves in a way that demonstrates his understanding of  the interdependent nature of the independent roles throughout the organization.  He understands that today he may depend on someone else, but tomorrow that same associate may depend on him to achieve a desired result in which all have a stake.

In my experience, companies that use compensation as the strategic tool it is intended to be see rewards as one means of smoothing if not reinforcing the path to engagement.  For example,  they offer employees a long-term incentive plan that fosters the shared purpose indicated above.  It’s payout metrics are tied to a combination of company-wide performance, team or department performance and individual performance.  Such an approach nourishes a culture of contribution–because all have a financial stake that evokes a kind of “moral” bond with their associates.  If I fail in my stewardship, it doesn’t just impact me and if you slow down, I am also affected.

Leadership, then, should examine its current practices through a kind of reverse engineering process.  It starts by asking whether the workforce is currently, as a whole, manifesting outward signs of engagement (focus, commitment, shared purpose).  If not, it should then ask what can be done to promote a compelling vision, create greater clarity and enable the sense of connection and partnership that are foundational to engagement.  In the process, it should be sure to ask itself whether current compensation practices are more likely or less to promote the outcomes just discussed.

It is realistic to anticipate a fully engaged workforce?  It is.  I’ve seen it first hand.  For one example, see my blog entitled: “What a Competitive Advantage Sounds Like.”  The concept is further developed in another blog posting entitled: “Compensation and Trust.”  Finally, to learn how to get from an entitlement mentality to engagement, view our recent webinar entitled: “What to do When your Employees Act Entitled.” 

Jack Welch once said: “If you pick the right people and give them the opportunity to spread their wings and put compensation as a carrier behind it you almost don’t have to manage them.”

What did he mean?

Well, I certainly don’t claim any cosmic ability to “channel” Jack Welch.  That said, I think some assumptions can be made about the point he is trying to make.  He means that when you effectively link the roles and expectations of good people to the company’s business plan, compensation–when properly engineered–naturally becomes a key driver of results.  “As a carrier” means this occurs through an unforced yet  strategic process of alignment.  When that happens, a stewardship culture emerges; one in which your best talent takes ownership of outcomes.  This occurs because your people feel like partners in the company’s success; they helped create growth and the compensation system subsequently rewarded them for it.  

This concept is completely consistent with VisionLink’s view of incentives.  They are not tools of manipulation, rather key ingredients of a unified financial vision for growing the business.  They unleash rather than suppress the intrinsic motivators we all possess.

To ensure that your compensation becomes a “carrier,” the following five things must consistent occur once you have created then launched a specific pay program:

1. Communicate and Promote–don’t assume the plan is understood and remembered. Remind, celebrate, explain and reinforce.
2. Administer Effectively–so people feel they have ready access to information and it’s clear from whom it can be obtained.
3. Stay Compliant–so there are no legal or financial surprises for either the participants or the company, especially where ERISA, IRS or other statutory guidelines apply.
4. Model and Monitor–anticipate ahead of time what the financial commitment will be and then consistently measure actual results against targets; then adjust the plan accordingly.
5. Measure ”Line of Sight”–so you know whether you’re creating effective links between vision, strategy, roles, expectations and pay.

Follow this pattern and you are on your way to a world-class approach to compensation that is a true “carrier.”

Employers are constantly tinkering with their compensation programs. Are our salaries at market? Couldn’t our bonus plan be better? Are we spending too much on benefits? Notice how each of these questions (and there are lots more like them) focuses on cost and or effectiveness. And effectiveness usually means “does it work for the company?”

After all that effort it’s easy to see why employers are often surprised when an employee quits and takes a job for “more pay” somewhere else.

Employers would be wise to spend a little more time looking at their comp plans through the eyes of their employees. Ultimately, all elements of the total rewards package are evaluated by employees through three lenses: (1) are my cash needs being met? (2) are my security needs being met? (3) do I have a meaningful wealth accumulation opportunity?  (I realize there are other real elements of the total pay program such as PTO, sick pay, etc. But I’m putting those in the “lifestyle support” category. Today I’m talking about the core or largest elements of direct pay–salaries/wages, bonuses, long-term awards, retirement and health and welfare.)

We conduct employee surveys about the perception of the value of pay commitment. I just completed our main survey–the Alignment Appraisal–for three different companies. Here are some of the average employee scores (think 1-10, 10 being the highest).

The company’s cash compensation program effectively meets mypersonal lifestyle needs. (Scores: 4.0,  5.5, 6.2)

The company’s benefit programs (health and welfare plans) offer adequate flexibility and coverage to address the potential financial risks I face. (Scores: 4.0,  8.0,  8.2)

I perceive a meaningful wealth accumulation opportunity through our compensation and rewards programs? (Scores: 3.5,  4.0,  4.9)

Two of these companies obviously do a pretty good job of providing strong health plans. Other than that these scores indicate to me that employees see their rewards programs as average or below when they come to actually meeting their personal needs, goals and expectations. (There are plenty of other responses in the survey that support these conclusions.)  By the way, these scores are very typical. We don’t usually see them much higher.

I consider this a serious problem! The investment in compensation for employees is huge–almost always the biggest expense on the income statement. Why isn’t their greater concern about matching this up with what employees really want and need?

This problem is very often one of perception. But it’s a common one. Right or wrong, employees don’t think employers are really that concerned about their personal financial needs. Think about the implications of this to morale, productivity, retention, recruiting–as well as growth and profits!

One of Stephen Covey’s “7 Habits” was to “seek first to understand, then to be understood.” Employers who learn to look at their total rewards investment (TRI) through the lenses of their employees’ three needs will find that they strengthen the partnership relationship with their employees. In the long run everyone wins–employees utiilize their rewards dollars more productively and shareholders reap the benefit of long-lasting improvements in culture along with  greater profits and real equity value.

One of the biggest mistakes most organizations make is to treat compensation as a tactical, expense management issue.  In some respects, this is a natural inclination.  Compensation is customarily the largest budget item on the company’s financial statements.  As a result, most organizations look at it as a cost to be managed. 

However, high performance companies see everything through a strategic lens, including and especially compensation.  As a result, they see pay as an extension of the company’s business plan, not just a  line item on the income statement.  For such organizations, decision making regarding rewards can’t be and isn’t dealt with in tactical terms.  Every rewards program they roll out has a strategic purpose that is grounded in a well defined compensation philosophy.

Businesses that treat compensation strategically commonly employ the following practices:

• The CEO  establishes the strategic direction for rewards and drives the priorities surrounding compensation planning and decisions
• The organization employs mechanisms to measure alignment between workforce performance and practices, and the business plan of the company
• The company has a compensation committee that meets regularly (preferably quarterly) to make rewards decisions and assess progress of existing strategies based on a written philosophy statement that clearly defines what the company “pays” for
• The compensation committee employs processes for the consideration, development, implementation and ongoing management of its rewards strategies
• Specific rewards programs are only implemented once their strategic purpose is clearly stated and their impact on both shareholder and employee wealth accumulation value has been modeled and tested
• The company establishes a means of measuring the productivity of its people; it isolates the return that comes to the business through financial capital at work versus human capital at work
• The organization develops a rewards reinforcement strategy and management system  for the ongoing promotion and communication of its compensation plans
• Shareholders are routinely informed of the relationship between rewards and additional value being created through the execution of an effective and focused workforce.

Such an ideal isn’t achieved overnight.  However, no one achieves it until they buy into the relationship between vision, strategy, roles and expectations, and rewards–and then commits to a process that links those interdependent issues.  Such an approach is only adopted by organizations that want compensation to become a key driver of growth in their business, and not just one more cost that has to be contained.

Certain words and phrases become part of a kind of  business “pop lexicon” as they are used and repeated incessantly over an extended period of time.  When they do, their meaning often becomes diluted.  As that happens, businesses sometimes assume “it must have been a passing fad”–so think they can now ignore the issue.

We fear “Pay for Performance” is in danger of becoming just such a phrase.  So many use it, but so few can tell you what it actually means.  Fewer still employ this philosophy, even when they outwardly espouse it.

We believe any company that wants to achieve World Class Performance must have World Class Compensation. As a result, it must understand and embrace a pay for performance philosophy and plan. Because we believe that, we’d like to tell you what we think it means.

A company is employing a pay for performance strategy if its rewards programs are structured as follows:

1. The company ties awards to shareholder financial objectives. In a true pay for performance environment, incentives drive value for shareholders and the company is able measure the impact their rewards strategies are having in this regard.
2. The business employs the right “mix” of compensation elements. Organizations that tie compensation to performance standards understand that how they pay people has a bigger impact on results than how much they pay them–although both are important.  Pay for performance means the company strikes the right balance between guaranteed and at risk compensation, and short-term versus long-term incentives.
3. Payouts result in meaningful dollars. Employees want to feel a sense of partnership with owners in achieving company goals.  This creates a unified financial vision for growing the business.  Such a unity can only happen when value sharing reaches a threshold that is “meaningful” to employees. In organizations that achieve this, employees are thinking (and hopefully saying) the following: “It’s important to me that the company achieve its goals because what I receive if it does is meaningful to me.”
4. Performance expectations are tied to factors  employees can impact. It doesn’t matter how much employees have the potential to earn if they don’t feel they can impact the outcome that triggers their award.  In too many cases, what is supposed to be an incentive turns into a credibility problem for the company.  “Sure, you tell me this is my award, but I’m not really in a position to earn it.”
5. Rewards are consistently communicated, reinforced and celebrated. This is a primary way a partnership mindset is nurtured.  Individual, departmental and company wide achievements are celebrated and employees sense they are participating in something great they helped create.  Sustained success and a culture of confidence grow out of such an approach. 

These guidelines will never go out of style, regardless of the popular lexicon that is in vogue at a given moment in time.

Yes, a competitive advantage has a sound.  I heard it last week during a management society breakfast meeting for a group  I lead.  It was given voice by the presenter, Said Hilal, CEO of Applied Medical Devices.  It was clearly on display both in what he said and in the confidence with which he said it.

Given the current economic climate, it was refreshing to say the least.  It was apparent to me that American enterprise is alive and well when in the hands of the right leaders.

Before I go further, a  few facts.

In a season of economic turbulence, Applied Medical continues to experience 30% growth year in and year out.  Today, it is a $250 million enterprise. Applied develops and manufactures specialized surgical products .  It competes against the major players in the healthcare industry.

The company was founded in 1988 in a 700 square foot facility and now occupies five large buildings in the community of Rancho Santa Margarita, California.  I took a tour of those facilities last Friday. Suffice it to say, everything I saw supported all that I heard during the presentation at our breakfast meeting two days prior.

With that as a backdrop, let me share a few of the things I heard and witnessed  that made it clear why Applied Medical enjoys such a competitive advantage. The following comments come from the notes I scribbled while Said spoke–and may not be exact quotes.  Where they are not, they capture the essence of what was said.

“In 2003, Applied Medical had a 3% market share in the medical device business,” Said explained while projecting these and other statistics on the screen.  “By 2008, that figure had reached 21%.  In 2009, we are approaching 29% market share.”

“While we may OWN market share,  we OWE our market. We understand that and that is why we continue to find success.”

He explained,   “We set out to determine how our organization could make a difference.  We asked the question, ‘What does the customer want?’  We found out.  The customer wanted enhanced clinical outcomes, improved choices and reduced costs.  For most industries, especially ours, those are not compatible outcomes.  However, Applied Medical’s chosen edge has been its proven ability to implement clinical advances coupled with superior value.”

Said continued, “When gurus and pundits talked about outsourcing, we instead relied heavily on integration.”

To Applied Medical, integration meant to become almost completely self reliant.  (In fact, you could “almost” take the “almost” out of that sentence.)  The company became its number one vendor and component supplier.  That’s not a typo–as you move through the Applied operation, it becomes very apparent how self contained the company is.  There is vertical integration at work that combines automation, cross training, internal supply chains, promise-based continuity, and superior team building all within the context of a university-like commitment to employee education.  If something is needed, it is created–often right on the premises.  Training rooms appear throughout every facility as a reflection of the heavy commitment Applied has made to nurturing an educated, competent, integrated workforce.

“We have worked hard on building the Applied Culture, which has two parts: the cultivating culture and the competency culture–bringing people in from the beginning to grow.  That combination has been exceptionally effective.”

Said spoke about gross margin being the most important metric Applied focuses on, because it finances all other aspects of their business, including and especially their highly valued research.  In that regard, Applied has organized its research in such a way that an engineer can conceive of something in the morning and have the prototype  built and tested  by the afternnon.  Applied does what it calls “progressive R&D” that is fulfilled through enhanced processes and automation.  This approach has resulted in the shortest supply line, fastest response and best value in the market.

There’s more, but you get the idea.  This is a business that understands its role in the marketplace and is highly focused on delivering value in a consistently superior fashion.

So, from whence does this excellence spring?  What is at the core of Applied’s success?

“We are different and we feel a passion about our difference,” Said asserted. “When you are different and succeeding, everyone wants to copy you.  When you are different and not succeeding, no one cares what you are doing. Well, people pay attention to what we are doing.”

Said continued by explaining what he referred to as ”The Quiet Statistics.”

“We determined that the best way to enhance ownership’s wealth is by maximizing everyone’s interest. We never stop developing those that want to be developed.  We are their avenue to the American Dream.  We are not in the business of developing the next minimum wage job, we’re in the business of developing careers.  When we develop careers, we develop our business.”

Such is the sound of a competitive advantage.  Passion leads to focus.  Focus breeds execution.  Consistent execution leads to success patterns, which in turn  engender a culture of confidence.  That culture is at the heart of a competitive advantage, because culture is not copyable.

Every company that wants to achieve such breakthrough success, whether it is large or small, must develop this pattern. It must  build upon a foundation that places a high value on a shared vision and mission.  For that success to be sustained, a company’s approach to total rewards must reflect and support the strategy that emanates from that base.  Employees must be able to envision a compelling future, there must be a superior work environment, there must be opportunities for personal and professional development, and there must be financial rewards that complement and reinforce the roles and expectations the company has of its people.

In the end, success is defined by those that  experience it.  In Applied’s case, there is no horizon to that success.  What’s important is that the competitive advantage the company has built has placed it in the driver’s seat to determine exactly what the boundaries of its  success will be.  No outside institution, person, or condition  will determine that for them.

Special thanks to Said Hilal and his group at Applied Medical for taking us “behind the scenes” and allowing us to better understand what a competitive advantage sounds like.

Earlier this year,  we determined that an update of the VisionLink website was long overdue.  We were living in the dark ages.  Although the demands of our business were great, and we were already “stretched,” we knew that rebuilding was critical.  It just had to be a priority.  We had determined that our website was an essential tool for defining ourselves in the market place–and that our current site didn’t represent us well.

So, our search for a firm to assist  began.

As you would expect, we interviewed four or five different website development companies that seemed suitable.  Ultimately, we hired the last firm that walked through the door.  Here’s why.

When Jason Lavin of Golden Communications came in, he arrived with no laptop and no portfolio.  He wasn’t interested in demonstrating his firm’s great graphics capabilities or showing us the many websites they had designed.  His pitch was  simple and straight forward. “As far as I’m concerned, if I can’t make your phone ring with your website, then you shouldn’t hire me.”

He then proceeded to tell us how and why his firm’s approach would drive business to VisionLink.  He made sense.  Our eyes were opened to new possibilities and we began to view the potential of our website more strategically.   We were encouraged by what we learned. Two weeks later, we hired Jason’s company.

We launched our new site about six weeks ago, and have already received several qualified inquiries through this tool. If you’re reading this blog, you are evidence that the website is working.  Jason did what he said he was going to do.

Since our first meeting with Jason, I have thought frequently about his challenge.  I have recognized that it doesn’t just apply to website development.  It applies to a company’s approach to compensation and rewards as well–perhaps even more. “If it isn’t driving business, why are you doing it?”

Although this seems intuitive, most companies don’t make rewards decisions this way. Few can tell you what business improvement or financial outcome each component of compensation is intended to create.  If salaries increased by 5 or 10% from last year to this, what was the reason?  When last year’s bonuses were paid, what performance measures were they based on? Important questions.  Too many business leaders can’t answer them.

Back to our website.

Once we understood what our website could and should accomplish for us, we had some decisions to make.  Should we just hang on to our old site and hope to get better results in the future?  Maybe we could just “tweek” a few things.  Or, should we just do away with our website completely and revisit it when we have more time?  After all, it’s kind of expensive to go through a change…plus, there’s work involved with keeping it maintained and fresh. Is it worth it?  How can we know ahead of time?

To some, these may seem like silly questions and a lame analysis given the internet age we live in.  Who can expect to seriously compete in a service business without every strategic base being covered? But, with all due respect,  this is the kind of analysis we  see many businesses go through when faced with the challenge (opportunity) of updating their rewards programs.  There is clearly a need to make a change but they are stuck in neutral.

(For the record, we never seriously considered NOT moving forward with a new site.)

As we approached our new website, we had to learn about the potential it offered.  We discovered there was a systematic, effective, measurable way to determine if our site was generating results.  We became educated in SEO and SEM marketing, Google Adwords, blogging,  and more.  We applied our effort and investment towards building something that would drive business and generate specific, measurable results.  We set our sights on developing a tool that would support our business plan, attract the kind of clients we could best serve, and generate an appropriate return on our investment.    We adopted a measured, strategic approach with a clear outcome in mind.  We were confident that the effort, investment and forethought would be rewarded. (They have been.)

In this process, we were careful not to establish unrealistic expectations. We  recognized that our website would not be the only key to success in our business.  We still had to manage  projects well, develop appropriate solutions and create the right experience for our clients. We realized that our site was simply a strategic tool that would assist us in getting to the next threshold of performance in our business.

As business leaders look at their compensation strategies,  the thought process should be no different. CEOs should engage in a process that will help them first diagnose where they are, then enable them to envision, create and sustain great compensation programs–ones that are going to drive business.  Rewards  should reflect the strategic outcomes a business is trying to achieve–and the execution level it needs to foster.

This approach requires a different mindset; one that treats compensation as an investment designed to generate specific results and higher productivity.  It rejects the view that compensation is simply another expense that needs to be managed.

We couldn’t base decisions about our future website on the results we had achieved from our original site.  We hadn’t employed the right tools before.  Likewise, business leaders shouldn’t base future decisions about compensation on results they did or didn’t achieve before knowing there was a better way to do things.

Obvious?  Well, maybe so.  However, too many companies are paying people the same way they did two years ago or five years ago, and hoping for a different result.  Meanwhile, they are otherwise making plans for breakthrough growth. By now, it should be obvious that without a more strategic approach to compensation, they are not likely to realize that growth.

So, before taking another step with your rewards strategies, please ask yourself a critical question, “If is isn’t driving business, why are we doing it?”

The Seven Imperatives

Growth companies understand that economies are cyclical.  Times of surge and prosperity are countered by periods of contraction and downturn. Great companies plan accordingly. To flourish during difficult economic periods, business leaders in growth oriented companies must strategically address the role of their human capital and reward systems in meeting the challenges they face. The following Seven Imperatives should guide any business leaders thinking in such times.

1. Assess Your Talent Pool–

Know who your best people are and make sure they know what their role is in the future of your company, especially at this time.

2. Create a Pay for Performance Philosophy and Strategy–

Now is the best and most critical time to align pay with performance. This starts with identifying a philosophy that defines how the company will address rewards issues in good economic times and bad.

3. Focus on Strategy not Just Tactics–

Your long‐term vision for growth hasn’t changed just because the economy is hurting. Strategies drive growth, tactical changes manage costs.

4. Define Clear Performance Expectations–

Star performers want a clear understanding of the key results indicators they are responsible for and what their stewardship will impact.

5. Nurture an Ownership Mentality–

An ownership mindset permeates an organization when there is “line of sight” between the shareholders’ vision and strategy, the roles and expectations of key people, how those individuals are rewarded for generating those results and how well those rewards align with personal goals and objectives.

6. Build a Value Statement–

The best way for a key people to visualize their financial future with your company is to receive a statement that summarizes and projects forward the total value of that relationship if performance expectations are met–salary, short-term incentives, long-term incentives, 401(k), etc.

7. Cut Business Expenses First, Incentives Last–

Reward performers and reinforce the results you need to continue to achieve—don’t try to resolve the company’s financial woes on the backs of your best people.