VisionLink Blog

November 01, 2018

The 3 Parts of an “Irresistible” Pay Offer

Let’s face it, it’s becoming harder not easier to attract top talent.  (Raise your hand if you’re not finding that to be true.)  And without great people, your business growth becomes stifled because a high-performance culture never really takes root.  You need strategic leaders to help you do that.  So, bottom line, you simply must have a value proposition that is second to none.  And at the core of a winning employee value proposition is a pay offer that no one could possibly refuse.  One that is “irresistible.”

To secure the talent you want, your pay offer must be "irresistible."

The term “irresistible” was introduced by Deloitte in 2015.  It used that word more broadly to describe the kind of organizations that were attracting the best people and securing higher levels of employee engagement.  In its report, Deloitte had this to say:

After decades of corporate discourse about the war for talent, it appears that the battle is over, and talent has won. Employees today have increased bargaining power, the job market is highly transparent, and attracting top-skilled workers is a highly competitive activity. Companies are now investing in analytics tools to figure out why people leave, and the topics of purpose, engagement, and culture weigh on the minds of business leaders everywhere.

Our research suggests that the issues of “retention and engagement” have risen to No. 2 in the minds of business leaders, second only to the challenge of building global leadership.

…The employee-work contract has changed: People are operating more like free agents than in the past. In short, the balance of power has shifted from employer to employee, forcing business leaders to learn how to build an organization that engages employees as sensitive, passionate, creative contributors. We call this a shift from improving employee engagement to a focus on building an irresistible organization. (Becoming Irresistible: A New Model for Employee Engagement, Deloitte Review Issue 16)

I am co-opting the word for this discussion about pay because the compensation offer you make to a recruit is one of the first clues they get about the experience they are going to have with your organization.  It conveys much about what you value and where they fit in that context.  It is part of the first impression that a person who is considering joining your company receives—and it has a lasting impact.  They look at your offer and either conclude you consider them a significant player who will be true growth partner in the business or that you are just looking to fill a position as inexpensively as you can.  You are giving them insight into how you think about the wealth-building opportunity employees should be offered within your organization.

In short, in the business environment we have right now, you cannot afford to just “wing it” when it comes to developing your pay offer.  It will require strategic thought and leadership.

So, what makes a pay offer irresistible?  And who is the arbiter of whether your plan is meeting that standard?

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The answer to the second question should be obvious, right?  The people to whom you are making the offer are the ultimate judges of its “irresistibleness,” are they not?  So, your starting point in constructing an offer that will be accepted is in understanding what the talent of today considers…well, acceptable!  Trust me, they can tell when you’re trying to cut corners or get away with as little as possible.  Do don’t even try playing games.  Commit to getting it right.

The good news is a pay offer that is good for an employee doesn’t mean it has to be bad for your shareholders.  In fact, it can and must be good for both.  Here’s how you do that.

The 3 Parts of Irresistible

Top talent expects to see three things in a pay offer: It is based on a clear philosophy.  It offers unlimited earnings potential.  It rewards value creation. 

Let’s see why each of these matters so much.

1. A Clear Philosophy

You will have a lot of confidence in your pay offer if you are secure in the belief system behind it.  So, does that mean exactly?  It means you’ve taken the time to think about the basis upon which people should be compensated and rewarded in your business.  You have thought through the answers to these kinds of questions:

  1. How do I define “value creation” in my business? What is the point at which profits can be attributable to the performance of my people as opposed to other factors (such as capital assets at work, accumulated good will, etc.)?
  2. With whom do I believe “added value” should be shared and what form should that value-sharing take?
  3. What do I believe is the right balance to strike between guaranteed compensation and variable earnings (value-sharing)?
  4. When it comes to sharing value, how much should be based on short-term performance and how much on long-term?
  5. When it comes to paying salaries, where do I believe I should be vis a vis “the market?”
  6. What is my philosophy about sharing equity? When and with whom do I think it’s appropriate?

Your answers to these questions (and more) should be turned into a written pay philosophy statement.  Business leaders that do this understand the strategic role compensation plays in their companies and are able to articulate why they pay people the way they do.  This is compelling to a potential recruit.  That person may not like the philosophy and may even reject your offer because of it.  But that is a good thing, not bad.  Your philosophy becomes one of your “filters” for determining who is a good candidate and who is not.  If someone doesn’t relate to your beliefs about pay, better to find that out sooner rather than later.

On the other hand, your philosophy gives you an opportunity to explain how your approach to compensation creates alignment between the company’s vision, it’s business model and strategy, roles and expectations, and how people are rewarded.  That kind of continuity is powerful and tells a recruit that your business knows what it’s doing when it comes to forging a partnership relationship with its people. 

2. Unlimited Earnings Potential

I imagine your first reaction to this second area is something like: “Oh sure—who wouldn’t want unlimited income potential?  But how in the world do you do that without ‘giving away the house?’”

You do it by making your compensation plan self-financing.  This means you pay your people out of something called productivity profit; the net operating income the business generates after accounting for a capital “charge” against profits to protect shareholder interests.  The higher the productivity profit of your business the more your people are creating value.  And since you are paying rewards out of productivity pool, they are not technically “costing” you anything.  You are sharing value only as it is created.  If there is no productivity profit, there is no value-sharing.  However, if productivity profit grows higher and higher, you can continue to share more and more value without creating an adverse financial drag on the business.  It’s not a matter of being altruistic.  It’s a strategic business approach, because it encourages your employees to become growth partners.

This concept allows you to design your value-sharing plans without caps on them.  As a result, you can tell recruits that their earnings potential is unlimited.  If they help the company improve productivity profit, part of that increase comes back to them in the form of performance awards.  Who benefits and to what extent are defined in your philosophy statement.  Sweet, huh?

3. Rewarding Value Creation

People with superior skills and deep experience are in high demand.  Many of them look at the marketplace of opportunities and conclude they can go one of two routes: They can embed themselves in an organization that has a compelling future, a high-performance culture and great resources and help that company grow, or; they can go out and start their own business.  And so, in attempting to attract them, you are not just competing with another company that might make them an offer they like better than yours.  You are competing with their decision to build something of their own. One Harvard Business Review called these people “catalysts,” another uses the term “strategic leaders.”  Whatever you call them, they are individuals who can come in and significantly change the growth trajectory of your business. 

People in this position want to know that their compensation arrangement will mirror the opportunity owners have.  Because if it doesn’t, they will just become owners themselves.  In simple terms, this means they want to participate in the value they help create.   They know they will need to perform and be willing to assume accountability for key outcomes the business expects them to fulfill.  But if they do, they expect the rewards structure to reflect what they’ve done. 

This, of course, fits hand in glove with the pay philosophy and productivity profit concepts we have just discussed.  If both have been thought through properly, you can assure recruits they will have a unique wealth-building opportunity at your company.  In fact, we suggest that organizations promote something we call a wealth-multiplier philosophy.  This means they adopt the belief that all stakeholders should benefit from the wealth multiple they help create and in proportion to their contribution.

Value creation rewards should be tied to two distinct performance periods: results achieved in a 12-month period or less and those achieved over a sustained period.  Short-term awards should be based primarily on company profits.  Long-term benefits should be linked to business value increase.  These metrics ensure that employee and shareholder interests are aligned, so there is a more unified financial vision for growing the company.

Organizations with a pay approach that includes these three elements win as they compete for great people.  They secure the talent they want.  Why?  Because their offer is irresistible.

Topics: pay offer, employee value proposition, recruiting and retention

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