Unlocking Your Competitive Advantage
I recently participated as a panelist in a CEO Roundtable event hosted at the University of St. Thomas. The theme of the panel discussion was “Competitive Compensation Strategy.” There were three other panelists; Dan Byrne, a Compensation Consultant; Scott Rollin, the President of Management Compensation Resources; and Dan Kelly, an attorney specializing in employment law. The discussion at the well-attended event covered five main topics:
- The trend away from offering executives equity
- Nonmonetary compensation terms
- The most common issues companies ask for help with
- Compensation surveys and what to do next
- Mistakes CEO’s have made with compensation strategy
With the varied backgrounds of the panelists, they delivered fast-paced and very informative perspectives on executive compensation as a strategy. The feedback from members in response to the event was overwhelmingly positive and take-aways from the discussion included the importance of CEO’s to understand their respective cultures and what truly motivates their employees, compensation related or not. Several CEO’s in attendance stressed the importance of having flexibility in the work place, and the significance this has on employee retention.
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The Key to a Successful Compensation Strategy
In order for a compensation strategy to deliver and be effective, an organization’s approach to talent management and leadership development needs to align with that plan. I’ve been in executive search for more than 15 years and my previous industry experience includes being a CFO for a privately-held start-up enterprise. I can say from experience, appropriate succession planning is frequently a challenge for many business leaders, and without leadership development, there is no effective succession planning. They go hand-in-hand together. Leadership development, which can be the driver of growth and innovation, also happens to be at the core of one of the main priorities of motivation for millennials; career progression and development opportunities.
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Should You Be Rethinking Your Compensation Philosophy?
In preparation for the panel discussion, I ran across an article entitled; Rethinking Compensation Philosophies: Top 5 Questions for Boards. It’s an extremely relevant and well-written article and I highly recommend it to anyone in a leadership position having any influence over setting an organizations compensation strategy. The article exposes the shortcomings of a compensation strategy based solely on the traditional Attract, Retain and Motivate (ARM) methodology.
Traditional ARM Methodology
- Attract: Employees are not attracted by compensation, though competitive pay is important, it should not be a deciding factor.
- Retain: Retaining employees by compensation merely ensures the status quo, doing very little to stimulate innovative thinking.
- Motivate: Value creation is influenced by intrinsic motivation, not the extrinsic motivation of money. This is accomplished by hiring the right people. Good companies become great by hiring employees who align with their corporate values, or in other words, their culture.
A compensation strategy based on an ARM methodology may be adequate for rank and file workers to maintain the status quo, however to unlock the value creation capability of high potential employees, a strategy based on engagement and alignment is most effective.
- Engagement-centered programs focus on the evolving needs of the future leaders, is more holistic in approach by incorporating the organizations culture, and a long-term view based on the internal factors of business strategy and culture.
- Alignment-centered programs focus on creating long-term value creation, encourage an environment where taking risks is embraced, resisting corporate governance mandates, and that owners have a right in determining the structure of unique compensation packages.
Aligning these strategies is unique to the culture of each organization and will be the differentiator. This will allow for promoting long-term value creation.
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In summary, owners need to have an intimate understanding and appreciation for what truly motivates its high-potential employees, the ones that will impact and add the most value to the company. This is accomplished in the same way you would develop and evolve a trusted partner relationship with a client. Developing this relationship with employees and putting into practice the methods necessary to stay current, will also enable leadership to adjust when necessary their unique compensation strategy based on balancing both employee engagement and owner alignment.
Leadership development for the purpose of succession planning in a Family Owned Business offers a unique set of circumstances requiring at times a totally different approach, this is the subject of a future blog… Stay tuned.
For more information on the CEO Roundtable peer group, please visit their website; http://www.ceo-roundtable.org/