CEOs don’t want employees. They want growth partners. Let me explain.
A couple of years ago I heard a CEO speak at a conference of HR professionals who were there to learn how they could add value to the chief executive of their companies. At the outset of his presentation, the business leader told the audience about a conversation he just had with a neighbor friend who was an unemployed CFO. The neighbor told him he had recently interviewed for a position he was confident he was qualified for and with a company that was a good fit for his background and experience. He didn’t get the job. He was perplexed.
“If you were hiring a CFO, what would you be looking for?” the neighbor asked. The CEO told the audience he was sure his friend expected him to rattle off a list of qualifications most experienced CFOs would have on their resume—all of which he possessed; affirming that the business made a big mistake in not hiring him. Instead, the CEO gave an answer that frankly confused his inquirer: “I’d be looking for a growth partner.” “A growth partner?” the CFO responded. “Yes, a growth partner: someone who will see the future of the business the way I do and is willing to take ownership of that vision and do what it takes to make it happen.”
Again, CEOs don’t want employees. They want growth partners.
So how do you make that transformation and what role does your value proposition play in that process?
The Age of Transformation
It starts by accepting a certain premise: We live in the business age of transformation, not just innovation. Look around. Google’s ambition is to organize the world’s information. TED wants to be the channel for thought leaders to share ideas globally that will improve people’s lives. Singularity University intends to positively impact one billion people with its global leadership resources. Disney seeks to develop the most creative, innovative and profitable entertainment experiences and related products in the world. The CEO who was trying to offer some perspective to his neighbor obviously had a transformational view of his organization’s future as well.
If you run a business, you must know and be able to articulate the transformative purpose your company is pursuing. You then must be able to identify the type of talent that relate to that kind of transformation and has the skills, experience and mindset to help you achieve it. Then you must ask yourself a simple question: What will make you a magnet for those kind of people and inspire them to make energetic and enthusiastic contributions to the future of your enterprise?
These issues are what frame the business world in which we now live. It doesn’t matter what industry you’re in or how successful you were yesterday. Tomorrow will require more of you than ever before. You will need the right people and they will want to know what journey you plan to take them on if they partner with you to transform the future. They’ll want to know what it will mean to them to arrive at the destination you have envisioned—and why it will matter. If you don’t create that kind of unified vision for growing the company, you will continue to have mere employees instead of business partners.
A major component in building that unified vision is creating a value proposition that links the shareholder and employee financial visions. At a minimum, this means transformative companies spend time figuring out what the right balance is between guaranteed versus variable compensation and between short and long-term value-sharing. However, they also think beyond that and look for unique ways of aligning pay with the transformative results they seek. Here are just a few examples of what that kind of thought process has led some companies to offer people they want to transform from employee to business partner.
Performance agreements attempt to link value-sharing to value-creation in a very direct way for key performers. Participating employees are excluded from company-wide, annual incentive plans. Instead, they individually negotiate a “deal” with the organization’s leaders that defines financial, operational and leadership expectations. It likewise defines the value of the award that will be generated if the results are achieved as agreed upon. The agreement is memorialized in a “deal sheet” that becomes the basis of a consistently scheduled (typically quarterly) self-evaluation the participant engages in with company officers.
An approach that is becoming more popular with smaller companies and start-ups (although not limited to them) is one that offers key employees a choice in their pay arrangement. They are given the option (opt-in or opt-out) of having either a “higher” salary and modest incentive or a “lower” salary with higher, even unlimited upside earnings potential (through short and long-term value-sharing plans). In some organizations, key producers’ entire compensation can be variable, receiving payouts solely based on a formula (percent of revenue, profits, etc.). Opt-in duration may differ from organization to organization or even between employees.
Internal Venture Capital
Internal venture capital is an approach that is used primarily in larger organizations. It is intended to support an entrepreneurial undertaking within an existing business. The concept is self-descriptive. A venture capital “account” is established and criteria for its access are defined. The company makes a point of publicizing that it wants to “fund” great ideas that will bolster its business model and is willing to “finance” them through the organization’s venture capital account. Innovative, creative catalysts relate to this kind of opportunity because it’s like running their own business. When this approach is adopted, compensation will often be tied to either a performance agreement or opt-in plan. Commonly, value-sharing will be aligned with the performance criteria that have been set for the venture capital account. The intent is to create a highly entrepreneurial experience within an existing business.
Long-Term Value Sharing Plans
For years, companies have been using various programs for sharing value with those who help create it. These include plans such as stock, phantom equity, SARs, profit pools, performance units and strategic deferred compensation. Long-term value-sharing is not a new concept. However, in the future, the ability of a company to clearly define value creation and then have a mechanism for sharing it with key producers (in a way that properly reflects the organization’s pay philosophy) will be more critical than ever. Why? Because in the “new” environment, companies are competing for innovation talent, and those individuals will be seeking a relationship with an organization that operates under a “wealth multiplier” philosophy. This simply means an organization believes that shareholders will experience a greater wealth multiple for themselves if they create a vested interest for others to participate in the company’s success. And by the way, this is the very kind of people CEOs are trying to attract. They want business partners, not just more employees.
In arrangements such as these, can you see the sense of partnership that is formed with key producers in the business? These approaches reinforce the transformative performance the company is seeking and its willingness to engage financially with those who can produce results that enable growth. They help transform employees into business partners.
Transformative pay, then, is one that reflects the following:
- The company views the shareholder-employee relationship as a partnership.
- Employees are trusted to achieve the organization’s financial ambitions and are rewarded for fulfilling growth-related results.
- Employees are able to anticipate a meaningful financial “upside” in their earnings capacity.
- An ownership mentality is nurtured and viewed as the key to engagement and growth.
- Rewards programs encourage long-term value-creation.
- Shareholders receive a fair return on their investment in their employee-partners.
- Compensation is engineered and managed within the organization fairly, purposefully and with an amount of flexibility that reflects the ever-changing environment that exists within today’s business environment.
These tenets represent a change from “yesterday” in the way companies view and design compensation. They match the business reality CEOs live with relative to the kind of talent they need to attract and retain.
A value proposition that has the potential to transform employees into growth partners effectively builds continuity between the vision of the company, its business model and strategy, roles and expectations of key stakeholders and how people will be rewarded for fulfilling those roles and meeting those expectations. Pay in transformative companies is treated as an investment, not an expense, and is held accountable for producing a positive return. As a result, organizations that pursue this approach take a comprehensive view of the components of pay that will best work together to drive the outcomes the business seeks to achieve.
CEOs who adopt this kind of pay philosophy (coupled with corresponding practices) end up with growth partners instead of employees.
To learn more about how to engineer pay plans that create an ownership mindset, tune into our upcoming free broadcast entitled “How to Pay Millennials.”