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Ken Gibson
May 18th, 2012 by Ken Gibson

Facebook and Value Sharing

Core Principle of Compensation Design: Value Sharing Attracts the Best Talent and Magnifies Results

To achieve sustained success, companies must attract and keep talented people that know how to compete and are willing and able to assume a stewardship role in representing shareholder interests towards growth. For such a relationship to be properly fostered, owners and other stakeholders (in this case, key talent) must share both the risks and the rewards associated with value creation.

Those of superior talent are attracted to this idea.  Individuals best equipped to contribute to the future success of the business will see it as an opportunity to have what amounts to a mini-entrepreneurial experience within the construct of someone else’s business model.  As such, they view the company as a mechanism for wealth creation, not just a place to express their passion and talent.  And shareholders should want employees with that perspective representing their interests.

In a recent interview with TV talk show host Charlie Rose, Mark Zuckerberg, founder and CEO of Facebook, said it this way:

I actually think the biggest thing for us is that a big part of being a technology company is getting the best engineers and designers and talented people around the world. And one of the ways that you can do that is you compensate people with equity or options. Right?

So you get people who want to join the company both for the mission because they believe that Facebook is doing this awesome thing and they want to be a part of connecting everyone in the world. But also if the company does well then they get financially rewarded and can be set.

… we`ve made this implicit promise to our investors and to our employees that by compensating them with equity and by giving them equity that at some point we`re going to make that equity worth something publicly and liquidly — in a liquid way. Now, the promise isn`t that we`re going to do it on any kind of short-term time horizon. The promise is that we`re going to build this company so that it`s great over the long term. And that we`re always making these decisions for the long term. (From a transcript of an interview on Charlie Rose, PBS, on November 12, 2011. Emphasis added.)

The point Zuckerberg is making has little to do with whether or not a company plans to share equity or go public.  There’s a larger principle he’s defining. When companies can attract and retain the kind of people that think and perform as he describes, they are in a unique position to sustain results.  This is because a distinct and lasting interdependency emerges between the employees’ skills and the company’s resources that extend those skills (capital, co-workers, suppliers, products, technology, etc.).  Talented contributors soon learn that their skills are not as unique and applicable outside the company (that is providing the laboratory for nurturing and magnifying them) as they are within the enterprise. That’s a good mindset for company talent to have because of the mutual dependency it creates.

Such interdependence is reinforced and validated when long-term value creation is rewarded through value sharing, as Zuckerberg indicates.  When employee skills connect with company resources in the right way, superior results are produced. To be effective, the compensation program should then provide a remunerative link to that outcome which confirms and magnifies the sense of partnership owners wants to convey.  That link “seals the deal,” so to speak, and financially ratifies the interdependent nature of the relationship more completely.

So, whether one decides that  newly available Facebook shares are over priced or under valued,  Zuckerberg’s approach to value sharing with key producers is a sound one.  Long-term value sharing, done right, attracts the “right” people and magnifies results.

 

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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 | No Comments »

Ken Gibson
March 5th, 2012 by Ken Gibson

WSJ–How to Fix Executive Compensation

Recently, the Wall St. Journal ran an article that provides insight into how a company can tailor executive compensation to better  fit a “pay for performance” rewards architecture.  I found myself agreeing with almost everything the author had to say, so determined I’d quote here from the piece by Alex Edmans and offer my commentary (in parenthesis following each excerpt) on the conclusions he draws.

“The secret to reforming compensation isn’t so much looking at how much bosses get paid—but how they get paid.

“It’s easy to understand why critics focus on the gaudy awards of cash and stock that executives take home. And, yes, it’s hard to deny that some bosses get paid a lot more than they deserve. But the structure of compensation is ultimately a lot more important than its level, because it gets to the heart of how managers run companies and create value for shareholders.”

(This has been a core tenet of VisionLink…well, forever. How you pay someone communicates what the company values and the outcomes that are most critical to the present and future success of the business. The structure used for compensation also gets to the heart of how company leaders create value for all stakeholders, not only shareholders. Even if the goal is to multiply wealth  for all primary producers, a business must take a comprehensive approach to how growth is driven in the business AND how risk is mitigated when it creates rewards programs.)

“An effective way to deter executives from taking excessive risk is to compensate them with debt-based pay as well as equity. However, many compensation packages feature only cash and equity.”

(There are many ways to do this. One way we recommend–and that the article goes on to suggest–is through deferred compensation.  Such plans make participants general creditors of the company in the event of insolvency, forcing business leaders to be cautious about putting the organization at risk through overly ambitious transactions or strategies.  It also encourages the development of “good profits” and discourages those that come at the long-term expense of both customers and shareholders.)

“Another critical change companies should implement is to lengthen the time that executives must wait before they can cash in their shares and options. All too often, stock and options have short vesting periods, sometimes as little as two to three years. This encourages managers to pump up the short-term stock price at the expense of long-run value, since they can sell their holdings before a decline occurs. A CEO can, for instance, write subprime loans to boost short-term revenue and leave before the loans become delinquent, or scrap investment in R&D. This is possible since, in many cases, stock and options immediately vest when the CEO leaves the company.”

(A company doesn’t have to be public for this to be an issue.  Most of our work is done with privately held businesses and the focus there is the same.  In addition to the issues described by the WSJ article, people need to feel a sense of stewardship about the future enterprise.  This is more likely to happen when there is a remuneration component that defines a financial partnership between ownership and key producers in the organization. Companies that focus long-term in their compensation plans build a more unified financial vision for growing the business.  In the private environment, we often recommend phantom stock or stock appreciation rights to mitigate against a short-term focus or manipulated outcomes. Vesting schedules and staggered payout periods can help to solve the problems Edmans articulates in this regard. )

“Be flexible. Change the structure of the compensation package as circumstances change. So, for instance, the CEO gets more stock and less cash after the company shares plummet, restoring the CEO’s incentives to boost the long-term share price.”

(Similarly, in private companies, key people can be compensated with more phantom shares of stock during down periods to encourage the regeneration of company value over the long-term.  Bonus payouts can be replaced with additional shares during times when profits have declined and the organization needs to recalibrate its performance.  Short-term value sharing arrangements such as annual “bonuses” can then be revived when the company’s financials return to a normal or more robust status.  At that point, the longer-term plans can release fewer shares or units.  Once the favorable economics have returned, it will be reflected in the value of the shares issued during the downturn–creating the exact economic outcome that kind of program was intended to produce.)

“If companies employ [these] principles…executives will be aligned with the long-term health of their companies. And that will not only help keep individual companies safe, it will reduce the risk of another financial crisis.”

(I agree.)

 

 

 

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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, Phantom Stock, Recession Strategies | No Comments »

Ken Gibson
February 20th, 2012 by Ken Gibson

What Deserves to be Rewarded?

Every CEO or business owner has a unique set of  performance factors he or she wants executed which are considered crucial to the achievement of the company’s  growth goals.  However, in my view, more importantly there are  categories of outcomes that every company should have as a  focus regardless of their industry, size or niche.  Most specific key performance indicators that company leaders identify as a priority fall under one of those categories.  By defining  those areas of focus–and communicating (through pay systems and otherwise) why they are so critical to the future of the company–business leaders are better able to engineer rewards programs that will drive the outcomes they are seeking, and build a greater ownership mindset among those responsible for producing those results.

Conversely, if those areas of focus are not clearly defined, employees end up participating in a rewards plan that has little or no context.  They see it as a mechanism for increasing their compensation, but that’s all.  It might even  pay well, but the company will ultimately be frustrated with the results it is realizing if employees can’t connect their rewards to a broader fulfillment that is  being achieved.

Here’s what I mean by defining areas of focus within which individual compensation metrics, measures and plans can be constructed:

  • We reward innovation. Creativity and ingenuity are critical to our growth and so we are willing to share value with those whose innovations leverage our ability to multiply value for all stakeholders.
  • We reward sustained performance. Our growth depends upon the ability of the company to maintain then expand the virtuous cycles connected to our business model. Therefore, we share value with those that help us sustain and improve our revenue producing “engine.”
  • We reward  ”good” profits. Good profits come by delivering real value to the market place and protecting customer or client interests at all levels of interaction.  Bad profits are those that come at the expense of the customer or client relationship and experience or erode owner interests over time. We will share value with those who help create and grow good profits.

The list could go on but hopefully you get the idea. Unless employees are aware of these definitive priorities and outcomes they could technically qualify for a payout under an incentive plan without ever taking stewardship of key results the business needs them to perpetuate.  In the worst case, those same employees could pull the company in a direction that is at odds with the strategic direction it has charted (generating bad profits instead of good profits, for example).

So, as you examine your current pay practices, ask whether your rewards programs help define and fulfill the broader areas of focus your company needs to reinforce if its growth expectations are going to be realized.  If they don’t, you should consider making some serious changes.

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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, Uncategorized | No Comments »

Ken Gibson
January 31st, 2012 by Ken Gibson

Why Long-Term ‘Value Sharing’ Matters

The following post is an excerpt from a White Paper (with the same title) that VisionLink recently published.  To access the full article, click here.

Value sharing is an issue that, sooner or later, every enterprise leader must confront.  For example, many responsible for driving business growth wonder whether some kind of long-term incentive will enable higher performance; and if so, which approach is best—stock, performance units, phantom equity or some other value sharing plan.  This article offers five compelling reasons why long-term value sharing is critical for any company seeking breakthrough growth.

It is not the intent of this article to make a judgment about which long-term plan is most effective or to describe the advantages and disadvantages of different value sharing approaches.  Instead, we want to consider why such plans matter and how they make companies more productive while multiplying wealth for all stakeholders.

With that understanding as a “jumping off point,” let’s now move on to why long-term value sharing matters.

#1: Value Sharing Attracts the Best Talent and Magnifies Results

To achieve sustained success, companies must attract and keep talented people that know how to compete and are willing and able to assume a stewardship role in representing shareholder interests towards growth.  For such a relationship to be properly fostered, owners and other stakeholders (in this case, key talent) must share both the risks and the rewards associated with value creation.

Those of superior talent are attracted to this idea.  Individuals best equipped to contribute to the future success of the business will see it as an opportunity to have what amounts to a mini-entrepreneurial experience within the construct of someone else’s business model.  As such, they view the company as a mechanism for wealth creation, not just a place to express their passion and talent.  And shareholders should want employees with that perspective representing their interests.

#2: Effectively designed long-term value sharing plans reinforce the company’s business model

A sustainable business model depends, in large part, on a culture that is committed to and, ideally, “invested in” that model’s reinforcement and success. As a result, having key members of a workforce aligned financially with the business model makes both common and strategic sense.  The importance of this concept stems from the nature of the virtuous cycles (revenue perpetuation) the model is intended to produce.

Four Seasons, Verizon and Amazon each have distinct business models and, by extension, unique virtuous cycles.  So, it only stands to reason that their compensation strategies will be equally distinct.  The metrics and measures that stand as gate keepers to payouts (or earned shares, as the case may be) in each organization must reflect and reinforce the virtuous cycles relevant to that business.

# 3: Value Sharing Protects against Bad Profits and Promotes Good Profits

In his book The Ultimate Question, Fred Reichheld, a Bain Fellow and founder of Bain & Company’s Loyalty Practice, offers the following on the subject of profits:

“Whenever a customer feels misled, mistreated, ignored, or coerced, then profits from that customer are bad…Bad profits are about extracting value from customers, not creating value.” (The Ultimate Question, Fred Reichheld, Harvard Business School Publishing Corporation, 2006, 3-4.)

Long-term value sharing arrangements, if designed properly, become a self-enforcing means of perpetuating good profits.  Everyone has an interest in good profits if everyone’s wealth multiplier rises or falls on the ability of the company to sustain the right kind of profitability.

#4: Long-term value sharing promotes an ownership mindset

Businesses need employees in leadership roles that understand “what’s important.”  Such individuals must be able to embrace a stewardship role in aligning their focus with that of shareholders. They need to define what’s important in the same terms as ownership when they go about fulfilling their responsibilities.  For most companies, a list of “what’s important” would include, but not be limited to, the following:

  • Drive growth (revenue, net income, EBIDTA or other measures)
  • Improve margins/profits
  • Manage costs

Each of those areas of emphasis has long-term implications.  In that context, value sharing plays a key role in communicating “what’s important” and aligns key producers with ownership thinking.

#5: Value Sharing Builds Trust and Trust Accelerates Results

At its core, value sharing is about turning a company’s workforce into partners in building the future company.  A culture of confidence is rooted in an environment of trust.  Value sharing communicates and builds trust because, in part, it is a fair approach to rewarding those responsible for value creation—and trust is the key to accelerating results.  In his book The Speed of Trust, author Stephen M. R. Covey makes the case this way:

“Whether it’s high or low, trust is the “hidden variable” in the formula for organizational success.

“ …A company can have an excellent strategy and a strong ability to execute; but the net result can be torpedoed by a low-trust tax or multiplied by a high-trust dividend.  This makes a powerful business case for trust, assuring that it is not a soft, ‘nice to have’ quality.”  (The Speed of Trust, Stephen M. R. Covey, Free Press, February 2008)

When you pay people in a way that communicates you want them as partners in building the future business, you are, in essence, saying: “I have confidence in you and trust your ability to get results.  To prove it, I’m willing to share the value you help create.”

Start with a Clear Philosophy

Before considering which plan is “right,” wise leaders will begin with the development of a compensation philosophy that addresses how the company will nurture a culture of confidence through its approach to rewards. Such a philosophy should address the balance the company will maintain between short and long-term value sharing, and guaranteed versus at risk compensation.  Determining the plan that will best reflect that philosophy then becomes much easier.

 

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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, Phantom Stock | 4 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 a 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 »

Ken Gibson
October 21st, 2011 by Ken Gibson

Complexity and Compensation

Let’s face it, business life is accelerating in its complexity.  Denial won’t help us overcome it; we must embrace it and learn to manage it.  As some organizations attempt to “rein it in,” they find themselves making things worse rather than better.  A recent Harvard Business Review article makes the point this way:

“In and of itself, this complexity is not a bad thing—it brings opportunities as well as challenges. The problem is the way companies attempt to respond to it. To reconcile their many conflicting goals, managers redesign the organization’s structure, performance measures, and incentives, trying to align employees’ behavior with shifting external challenges. More layers get added, more procedures imposed. Then, to smooth the implementation of those ‘hard’ changes, companies introduce a variety of ‘soft’ initiatives designed to infuse work with positive emotions and create a workplace where interpersonal relationships and collaboration will flourish.”

Our experience has been similar when we are engaged to help companies design incentive plans.   Value sharing arrangements such as bonus programs, phantom stock, profit pools, performance unit plans, etc.  should bring greater clarity not complexity.  Too often, business leaders want their rewards programs to achieve more than they are designed to and become a substitute for performance management. As a result, they add layers of metrics and measures that are intended to micro manage the results the company wants employees to achieve.

If a value sharing program is going to offer more clarity than complexity, what is that it should make clear?  Here’s our list:

  • It should make clear that the company considers the employee a key partner in the achievement of its growth goals.
  • It should reinforce the company’s business model and the strategy employed to roll it out to the marketplace.
  • It should help clarify the role of a given employee in the business model and strategy.
  • It should make clear the outcomes the employee is responsible for within that role.
  • It should create line of sight between the employee’s personal financial vision and the company’s growth goals and vision.

If a company will use compensation as a clarifier and reinforcer of “what’s important,” it will take a big step towards better managing the complexity that inevitably will continue to grow.

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Posted in Business Growth & Compensation, Business Growth and Rewards, Compensation Planning, Current Pay Trends and Topics, Incentive Planning, Managing Talent | 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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Ken Gibson
September 15th, 2011 by Ken Gibson

Innovation and Compensation

I have recently become somewhat a student of innovation; particularly looking at how great companies and individuals manage to get ideas and products implemented while others stop and stall.  Among the things I’ve assimilated in that learning process are the following:

  1. Great innovators associate. Those that are prone to effective innovation are constantly associating one idea or experience with others.  They also systemitize the association process so that it occurs regular and naturally.
  2. Great innovators question everything.  Their curiosity is insatiable and they want to get to the bottom of things.  Why are things the way they are?  Do they need to be like that?
  3. Great innovators network. They want to associate with people that have a broad range of backgrounds and experiences so their life view is expansive and their feedback loop is broad.
  4. Great innovators seek feedback. They want to know what others think before they introduce a product to market.  They want it tested.  It doesn’t have to be perfect, but it has to meet the right need in the right way.
  5. Great innovators have a bias towards action. Innovating is not dreaming or wishing or even just being creative.  It is about getting ideas implemented and working in a way that transforms the end user’s experience.

There’s more I’ve learned, but let’s work with that list for now.  As we examine it in the context of compensation there are some important issues to consider.  A company’s approach to building effective rewards needs to follow a similar process:

  1. Those that develop compensation programs need to be able to view compensation as a dynamic tool and ”associate” each component both with other elements of pay and with the business model of the company.  As the company’s innovation cycle continues and expands, the approach to rewards needs to be able to reflect that new reality.
  2. If individuals are going to create an “innovative” rewards structure, they have to be willing to question everything.  What is the outcome we’re trying to drive?  Why is that important?  How should that outcome be rewarded?  When should it be rewarded?
  3. Innovative companies look beyond the “network” of their own industry in seeking creative ways to properly reward people for value creation.  They don’t think in terms of what the peer companies in their “space” are doing.  They look at what great, innovative companies are doing and then take lessons from their approaches to everything, including pay.
  4. Businesses that are effective at every level have a continuous feedback system in place.  They measure and assess.  They look at data and make decisions based on what that data reveals. Similarly, they seek feedback from their workforce about whether they are succeeeding at creating a sense of partnership, painting a compelling vision and building a sense of unity about the outcomes being pursued.  If they aren’t, they use pay as one of their strategic tools to target a better result.
  5. Companies that get compensation right usually get a lot of other things right because they are prone to act.  They don’t let the pursuit of the perfect paralyze them from taking action.  They get close enough, they stay focused, they get it done, roll it out and then make adjustments as they need to.

As you approach bettering the compensation strategies you wish to adopt, hopefully you will likewise become a student of innovation.  If you do, the horizon of possibilities will expand and your ability to drive results will be magnified.

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Ken Gibson
September 9th, 2011 by Ken Gibson

What Your Employees Would say about their Compensation…if they Thought they Could

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 meaningful 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.”

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

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