According to PwC’s 2016 global CEO survey, most chief executives entered this year with less optimism about the business environment than the previous three years. Pessimism and uncertainty were prevalent in their responses. When the global consulting firm gathers its results for 2017, it remains to be seen whether a level of optimism will emerge post-election, at least from CEOs in the United States--and whether any expression of surging enthusiasm will have an "optimistic but cautious" modifier associated with it.
On the one hand, businesses seem to be anticipating a more friendly tax and regulatory environment. If that anticipation becomes reality, many CEOs believe it will fuel the growth that’s been lacking in recent years. On the other hand, as January looms, company leaders face trends in performance management and employee engagement that make them feel less in control of their culture than ever before. Add to that the uncertainly that comes from a shrinking pool of skilled talent which is putting top performers more in control of who will earn their loyalty and at what price. Put it all together and it means that if CEOs’ tempered optimism is to be rewarded, they will need to identify a clear performance blueprint for 2017 (and beyond) and commit to following it.
What is a Performance Framework?
To help companies accomplish this, at VisionLink we encourage business leaders to build and manage to a performance “framework.” This construct is made up of three areas of performance focus: The Business Framework, The Compensation Framework and the Talent Framework. These are separate but interdependent parts—like connective tissue in your body. Any chief executive expecting to assume control of his or her company’s growth destiny in this environment of uncertainty must ensure that each element of the overall framework is working properly and that it is effectively linked to the other two.
In this first category, enterprise leaders must envision the future company, define its revenue engine and standards and then identify the roles needed to execute that strategy and business model. This analysis should include the following:
1. Define the company’s growth expectations (vision). Here you will want to clearly express key outcomes that need to be achieved in the future in quantifiable terms. A financial model that looks at a three to ten-year horizon in terms of base, target (or budget) and superior levels of growth is recommended.
2. Define the business model and strategy. This step involves a clear articulation of two separate but related issues. The business model is how the company drives revenue and makes money. Its strategy is how it competes in the marketplace. You will want to identify where the leverage points are in each and how they can be maximized. This should help you determine the growth opportunities that will lead to fulfillment of the vision you defined in step one.
3. Identify roles and expectations. With the first two elements established, you should think about the specific skill sets that will be needed to drive the business model and strategy you have just identified. Those skill sets inform the kinds of roles and expectations that will be associated with the outcomes you must achieve if the “future company” you have envisioned is to be realized. Expectations should be articulated in the form of outcome criteria which you will use to define what “success” means in the fulfillment of each role.
With the business framework in place, a compensation framework is easier to contruct. Your company’s pay structure should help align roles and expectations (just identified) with the business vision, model and strategy. It does this by framing the financial partnership that will exist between ownership and the workforce. It should include the following:
1. Identify a Pay Philosophy. This is a written statement that acts as a kind of compensation “constitution” for your business. It should define what kind of outcomes the company is willing to “pay for”—and presupposes you have determined how value creation is defined in your business. Defining value creation puts you in a better position to articulate your company’s belief about how that value should be shared and with whom. The pay philosophy is also where a company addresses whether it’s going to adopt an expansive or selective approach to structuring rewards for key producers.
2. Engineer Pay Strategies that Reflect the Philosophy. This means you will pay attention to both salary structures and value sharing—and strive to achieve an effective balance between the two. Likewise, you will build both short-term and long-term incentive plans (value sharing arrangements) that properly manifest the organization’s belief about the kind of financial partnership it wants to have with its people. To do so, you must pay attention to both the structural and the mindset impact of the plans you develop. Structure addresses who should be in the plan, what kind of plan it should be, how much it should pay out and so forth. Mindset has to do with whether or not a plan will build a greater sense of stewardship about ownership priorities and whether there will be a higher level of commitment and engagement on the part of employees.
3. Adopt a Total Rewards Approach. This implies that you come to accept that there must be more to your value proposition than financial rewards. First, there must be a clear and compelling future—one that invigorates key producers about where the business is headed. They need to be able to see themselves in that future and believe that their unique abilities are necessary for its fulfillment. Second, employees seek a positive work environment. This suggests premier talent in particular is working within the sphere of its distinct abilities, that its work has a strategic purpose and it likes the nature of the work in which it is engaged as well as the team of people with which it associates. Third, there must be opportunities for personal and professional development. This doesn’t necessarily mean training—although that can be a component. Rather, it means people feel as though their abilities will be magnified as a result of their association with your organization and its resources. And finally, fourth, there must be financial rewards. And those financial rewards need to relate to the value a producer helps create in the business. Key people want to have an appropriate salary and bonus plan, but beyond that they want to know there is a mechanism for building wealth in a similar way ownership experiences. (This does not necessarily mean sharing stock, however.)
The final piece in your performance framework is talent. This area of focus has to do with identifying your key producers and defining where you have potential talent “gaps.” With both existing talent and that being recruited, your talent framework must include a plan for communicating role expectations and the rewards associated with their fulfillment.
1. Identify Key Producers. These are individuals who are most responsible for helping the company consistently achieve the “success” standard you identified in your business framework. You need to be able to distinguish between this kind of contributor and the rest of your workforce. You should also be able to identify the skill sets of those in this category and how they compare with the expertise needed to achieve the growth goals your have set.
2. Identify Talent “Gaps.” Step one should make it easier for you to identify where the company falls short in the skills and roles needed to reach organizational performance standards and goals. That gap should then drive the recruiting strategy your business adopts for seeking new talent.
3. Communicate Expectations. Individuals that are capable of driving the performance of the company want there to be high expectations that are well defined. Expectations are—or at least should be—reinforced in the way people are paid. When there is clarity and continuity between company vision, business model and strategy, roles and expectations and rewards, “line of sight” exists within the organization. This means each of those elements are working together to create a unified vision of what the target is, who is responsible for its completion and how he or she will be rewarded when expectations have been fulfilled.
4. Communicate Rewards. In the context just described, pay strategies form a kind of capstone that defines the financial partnership you want to have with your key people. As a result, compensation must be both effectively engineered and clearly communicated. That communication should include a statement of the company’s pay philosophy, an articulation of the specific program(s) being introduced and a projection of the total rewards value a producer can receive from the business over an extended period of time. When all of this occurs, individuals being recruited into the organization have a magnified view of the value proposition they are being offered. The new employee is no longer being recruited to a $175,000 salaried position. He or she is able to see they are entering a financial “partnership” that a value of $2 million over the next five years (or whatever the numbers play out to be for your company).
When you invest the time to build a performance framework as just described, you transform worry into opportunity. The process produces an operational model for creating and sustaining the performance culture you need to achieve the growth standard you have set. You end up with confidence in your ability to attract and retain the kind of people that can positively impact the performance trajectory of your business. And that improved, sustained performance is a great antidote for the pessimism that too often inhibits our hopeful inclinations.