“Each party to the equation has a different issue that needs to be resolved,” Miller explains. “Company owners and CEOs are seeing business get better and are ready to hire. But they don’t want to lock people into high salaries for an extended period of time. On the other hand, many of the people they want to attract have either been sitting on the sidelines or underemployed for a while and are concerned about assuming positions where their salary gets pegged at lower levels than they previously enjoyed. Meanwhile, the press continues to look at everything through the ‘fairness’
Miller went on to say that value sharing plans help to resolve this problem because they are only paid out if value is created, which makes shareholders happy. At the same time, they offer key producers a higher wealth accumulation opportunity than a large salary can provide. Value sharing refers to a mechanism businesses use to compensate people long-term for the results they produce. Customarily, this includes programs such as phantom equity, stock or stock options, profit pools, performance unit plans and incentive-based deferred compensation.
“While these kinds of plans have been around for a while—especially in public companies—they haven’t been used as strategic tools of transformation like they are these days,” Miller says. With the incorporation of such programs, Miller explains that businesses can peg salaries at perhaps the 40th to 50th percentile but allow for greater upside potential than they could before. “Imagine having a conversation with a key person you’re about to hire,” Miller continued, “where you’re able to say, ‘This is not just a $150,000 position you’re being hired to fill. This is a $1.7 million opportunity over the next five years.’ That changes the dynamic completely.”
Miller claims that under such arrangements, shareholders are happy because their interests are protected; no value is paid out unless value is created. Employees are pleased because they have an opportunity to earn even more than they did under previous rich salary arrangements. And the fairness issue is resolved because the compensation paid is tied directly to well-defined performance standards.
To explain this issue further, Miller’s firm VisionLink will be broadcasting a free webinar on September 25, 2012 entitled “Compensation Standards that both Shareholders and Employees will Embrace.” Mr. Miller will be the presenter. The event begins at 8:30 a.m. PDT and will last approximately one hour. Registration for the webinar can be accessed at: http://www.vladvisors.com/