Measures that Matter

Many of the business leaders we work with struggle to find the right metrics for measuring acceptable growth in their companies. In a recent article at Strategy+Business entitled “Total Shareholder Returns”, authors Ken Favaro and Greg Rotz offer some great insights in this regard. Although the article addresses issues primarily relevant to public companies, the principles discussed have broad application. It's worth the read so check it out.

Towards the end of the article, the authors make this point as it relates to managing strategy and execution towards improving Total Shareholder Returns:

“Only two factors determine the value creation path of any company: the distinctiveness of its strategies and the execution of those strategies. We often hear statements such as, ‘A great strategy is worth nothing without great execution’ or ‘I’d rather have great execution with a mediocre strategy than the other way around.’ The reality is that strategy and execution are two sides of one coin. Is Southwest Airlines or Tesco or Wells Fargo the product of great execution or of great strategies? Yes. Both are needed to produce consistently superior shareholder returns.

What, then, will enable your company to have and sustain distinctive strategies and execution? In our experience, this achievement requires proficiency in both the formal and the informal aspects of a company’s management. On the formal side are corporate strategy, business strategies, strategic planning, resource allocation, performance management, incentive compensation, organizational design, and role of the corporate center. On the informal side are leadership behaviors, peer-to-peer networks, teaming norms and skills, nonfinancial motivators, pride, and a strong sense of the business’s purpose.”

As it relates to VisionLink’s approach to compensation, we refer to the formal and informal aspects as the “structural” and “mindset” impact of pay decisions. Much of what this article discusses helps identify the kind of structural issues that need to be properly defined if a strong rewards strategy is going to be tied to them. If the structure is not properly built, it will be difficult for employees to understand that to which they are devoting their minds and hearts, and how it will be measured.

For more help on this topic, check out our webinar recording entitled: "How Shareholders Should View Compensation."

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