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Businesses Seek Solutions-Centered Approaches to Compensation
Businesses are realizing that compensation can no longer simply be “managed.” It is one of the largest deployments of capital the business makes and must lead to solutions that will leverage the ability to effectively implement the business model
“Too often, companies implement a given pay program in an attempt to solve a certain problem,” Gibson said. “However, they don’t think comprehensively about what they’re doing, and, as a result, they end up creating a new set of problems in the place of the one they were trying to solve.”
The compensation consultant offered two examples of what he meant by this observation:
• In an attempt to overcome a lack of stewardship for key initiatives (the problem), a company institutes an annual bonus plan. It later discovers it has created an entitlement mindset and placed the company in the position of paying out incentives even during periods of distressed economic performance.
• A private business begins sharing stock with key producers as a means of overcoming attrition and the inability to compete for premier talent (the problems). In doing so, the equity position of previous owners is diluted and the new shareholders have few options for capitalizing on value increases in the business other than a major transition event or transaction such as the sale of the business.
The VisionLink leader will discuss this issue and what it means to businesses in a webinar on January 22ndth entitled, “What Problem is Your Compensation Strategy Solving?” Registration for the free broadcast can be accessed at: http://www.vladvisors.com/
Gibson explained that this issue is not solely a function of companies developing pay strategies without clearly identifying the problem they are trying to solve. “Instead, they often don’t go quite far enough in thinking through all of the relevant implications of a given strategy that’s being considered,”
When companies focus properly on the “right” problems at the outset of their planning, and all of the implications of the strategies they are considering, the ability to sustain alignment between vision, strategy, roles and expectations within the business becomes much easier. The compensation firm leader explained that organizations achieve this outcome by clearly identifying the problem(s) they need their compensation programs to solve. They then need to test those assumptions through an effective design and modeling process that can highlight the potential harmful impact of a given approach.
The business environment of the past few years has made this issue more critical than ever, according to VisionLink’s senior vice president. “If companies don’t get pay right, they risk squandering millions of dollars of their compensation investment. It just doesn’t need to be that way and can’t be if an organization expects to achieve its growth goals in the future.”