Compensation and Creating Change

It is certainly cliche to say that change will be an ever present part of business life in the 21st century--and beyond. However, cliche or not, many businesses haven't surrendered to this truth enough to create a plan for managing change and finding the appropriate role of rewards in that process. The reality is, most business leaders know how to talk about change, but don't know how to build an integrated approach to addressing it through all levels of the organization. And when it comes to compensation issues, these same leaders either put too much of a burden on rewards strategies to engineer the new culture they seek or they isolate the issue so completely that it can have no real measureable bearing on execution and results.

In a recent article in Booz & Co.'s Strategy + Business Magazine entitled "Making Change Happen and Making it Stick," authors Ashley Harshak, DeAnne Aguirre, and Anna Brown posit five key success factors to making change work in an organization. I find this list to be in harmony with VisionLink's philosophy about all of the elements that have to come together if any kind of purposeful, productive transformation is going to take hold in a company's culture. Let's look at their list and the corresponding role rewards should play in bringing about the improved outcomes you seek.

Five Key Success Factors

  1. Understand and spell out the impact of the change on people. Good leaders know how change impacts individuals and can speak to how a course alteration or revision will affect different populations within the organization. Creating clarity around this issue and relating it to the personal visions of employees is essential to alignment. Leadership must must also communicate how the proposed changes relate to the shared vision and values of shareholders and other stake holders. Similarly, rewards strategies that are introduced need to be relevant to the core philosophy guiding the change; and, if the new direction impacts pay, employees need to know how the new approach will affect their cash flow, security and/or wealth accumulation opportunities.
  2. Build an emotional and rational case for change. Most CEOs are pretty good at conveying the rationale behind the change that is being initiated. They are less effective, however, at appealing to the emotional reasons employees should embrace a new direction. In their book Switch, the Heath brothers use the analogy of an elephant, a rider and a path to make a similar point. The rider is the rational part of our reaction to change, the elephant is our emotional core and the path is clarity about the course we need to follow. In a compensation context, we encourage companies to make sure they build a rewards gameplan that will address both structure issues (impact on strategy, cost, productivity) and mindset issues (impact on clarity, partnership and engagement). By doing so, they appeal to all three elements: the rider, the elephant and the path.
  3. Ensure that the entire leadership team is a role model for the change. If companies want to nurture a performance culture, they must make sure that it starts at the top. That's why when we speak with companies about building a pay for performance approach to rewards, we suggest it begin with leadership and cascade down from there. Change, if it is effectively engineered, should improve a company from being merely a wealth creator to becoming a wealth mulitplier, one where it becomes clear to everyone how value is magnified then shared. This can't happen if leadership doesn't hold itself accountable, and management won't feel fully accountable unless a good portion of their pay is subject to clear performance standards. Ultimately, those performance standards need to be aligned with the new course the company needs to take.
  4. Mobilize your people to “own” and accelerate the change. Here, I quote from the authors directly: "The blunt truth is that most change initiatives are done 'to' employees, not implemented 'with' them or 'by' them. Although executives are pushing behavior change from the top and expecting it to cascade through the formal structure, an informal culture left to instinct and chance will likely dig in its heels." I can't imagine how an organization can expect to affect meaningful change if its rewards systems and strategies make no attempt to help the workforce think more like owners. This doesn't mean equity needs to be shared. It does mean, however, that how employees are paid should help them better understand what's at "stake" and how they should think and execute as a result.
  5. Embed the change in the fabric of the organization. In this step, leadership needs to communicate the various people-oriented elements of the change and not just the structural components. Continuity maps are good for this--charts and explanatory material that draw clear relationships between the different parts of the change effort and the role each person has in that process. Compensation's role in this is to help employee's understand the complete value proposition that is associated with the "future organization" so there is a sense of partnership about bringing about its fulfillment. We encourage companies to construct a Value Statement for key people in particular that brings together in one place all of the elements of their pay package (salary, short-term incentive, long-term incentive, retirement plan, etc.) with a five to 10 year projection of the opportunity. This helps cement the concept of partnership and provides real clarity about what the future holds. Such an approach embeds a vision of "what's coming" in the minds and hearts of the company's human resource. Meaningful and measurable change will not occur if this vision doesn't take hold.

As you consider the multitude of changes your business will need to live with over the coming years, I recommend you consider these guidelines in navigating your course. I don't promise it will be easy, but my experience is that world class performers learn to integrate this kind of approach consistently and effectively. In the words of Machiavelli: "Whosoever desires constant success must change his conduct with the times."

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