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.
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.
- 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.)
- What are the potential barriers that could keep that vision from being fulfilled (external and internal)?
- What key opportunities and initiatives have to be seized and effectively implemented if that vision is going to be realized?
- Who are the people that will drive those opportunities and are key to overcoming the barriers described?
- 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?
With a clear and compelling vision in mind, you are ready to address level two questions.
- What is the business model of the company; the performance engine that keeps revenue flowing and will fuel growth?
- 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.)
- If you implement a compensation strategy that works, how should the outcomes produced by this group be improved or changed?
Now that we have addressed the vision and business model, we're ready to talk more specifically about compensation related issues.
- What do you believe people should be paid for primarily? Time spent working? Outcomes (if so which?)? Knowledge and experience?
- In what ways are you paying people now that is supportive both of that philosophy and the business model you described in stage two?
- How and to what extent should people be paid for maintaining the present performance engine of the company?
- How and to what extent should people be paid for innovation and contributing to the future growth of the company?
With a working pay philosophy established in stage three, we're now in a better position to be more granular in our compensation questions.
- Where do we want to set salaries vis a vis market pay?
- Where do we want total compensation to be vis a vis market pay?
- Are those answers the same for each tier of employee in the company?
- Do we want to share equity?
- If we don't want to share equity, do we want some level of pay to be reflective of company value?
- If we don't want to tie pay to company value, what financial metrics do we want it tied to?
- 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.