Companies that struggle with building effective compensation strategies are often ascribing an unrealistic expectation to their rewards programs. They want compensation to be a motivation tool; one that will impact behavior and create change. They are often disappointed when they don’t see quantum leaps in performance and productivity. They subsequently label the latest incentive plan attempt “dead on arrival” and begin cursing the “compensation gods.”
What these companies don’t often recognize is that their attempt at motivation came across as manipulation to their employees. It’s a fine line, and it is easily crossed. Premier talent has an intrinsic sense of purpose and recognizes the value it brings to the table. These individuals are motivated by mission and opportunity, not by financial rewards. As a result, they are not relying on a compensation program to trigger their passion. However, they are looking for a sense of partnership–and the company’s compensation programs become a key validator of that message. You see, partnership is linked to opportunity–and that is motivating to the kind of people most companies want to attract.
Partnership is more than pay, but pay is a key component of partnership if it is given the right frame of reference. Compensation needs to be viewed as a means of creating a unified financial vision for growing the business. It is built in parallel with the vision, mission and strategy of the organization. It is an extension of the business plan and defines the financial parameters of the partnership relationship the company has with its key people.
Companies that embrace the partnership concept understand the critical nature of having a compensation philosophy statement. That written document defines what the company pays for. It communicate the balance the business seeks to strike between guaranteed versus at risk compensation, and short-term versus long-term rewards. It ties short and long-term incentives to the concept of good versus bad profits, and uses the compensation construct to encourage more of the former and less of the latter. Such definitions are critical ingredients of a sound financial partnership and offer insight to the parties involved into the best means of fulfilling the partnership’s potential.
A foundational philosophy statement provides a lauching pad for examining the components of pay that should be included in defining the partnership relationship the company wishes to have with its best people. Salary, short-term incentives, long-term incentives, equity, phantom equity, health and welfare plans, retirement benefits and executive benefits are all weighed and evaluated in the context of partnership. “What plans will drive performance, increase shareholder value, and meet the cash and wealth accumulation objectives of our most critical partners–our employees?”
When a company begins to think and act in these terms, it will turn the corner in its understanding of the power of compensation to be transformational in its impact.
So…when you think about compensation, think parternship, not motivation.