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.