Woulda, Coulda, Shoulda: An Incentive Compensation Story

Stickman woulda coulda shoulda.jpg

Woulda, Coulda, Shoulda: An Incentive Compensation Story

Not so long ago in a town not so far away, there was a growing company. Inside that company, worked a compensation professional (“Yolanda”) who juggled many projects. Not the least of them was the creation, design and management of the company’s long-term incentive program. Yolanda was very good at her job. She planned her year well and executed with the precision of a heart surgeon. She brought creativity to her communications and structure to her base pay and performance increases. She also combined all of these skills to build and manage her incentive compensation plans.

This year the two main incentive plans did not perform as expected. The first, a long-term cash plan paid out at the maximum of budget even though results were thought to be lackluster. The second, a sophisticated equity compensation program paid out nothing due to a stock price that fell as a result of the lackluster results.

Yolanda spent both days of the weekend creating communications in support of both programs. As she dragged herself into work on Monday, three senior managers were waiting outside her office.

Woulda, Coulda and Shoulda Dunitdifrent were cousins who had worked at the company for years. They were obviously upset and immediately pelted Yolanda with questions and comments about the failure of the incentive plans. Yolanda, tired but not defeated, smiled and invited them into her office to discuss things.

Woulda Dunitdifrent brought a list of all the metrics that he believed were better than those used in the cash incentive plan. Yolanda, being very good at her job and extremely organized, pulled up the notes from the prior year’s stakeholder discussions. She walked through the discussions that the group had regarding each of the rejected metrics and explained why different metrics were deemed to be more aligned with the individuals, more tightly linked to company success or more likely to be tracked correctly. Woulda calmed down and agreed that perhaps the proper work had been done in advance. Yolanda then gently pointed out that Woulda had been invited to attend the stakeholder meetings, but he did not attend. Yolanda reminded him he was also invited to this year’s meetings, which would take place soon.

Coulda Dunitdifrent had made a list of all the missteps Yolanda had obviously made during the past year. Yolanda hadn’t accounted for the impending drop in stock price. She did not make sure that one department who performed poorly did their jobs better so their goals were met. She did not explain how performing poorly could result in less pay for everyone. Most importantly, she hadn't made sure that the incentive pay that Coulda had been planning on receiving was actually delivered!

Yolanda calmly opened up her plan and communications from the prior year. She went back to her presentations and emails that showed how historic stock prices had gone up and down. She showed the examples of how similar price movement in the future would increase value or could even wipe out immediate value. She also showed how some of the equity awards may still have value in the future if Coulda was patient. She explained that the Compensation Department could only show the path to success. She and her team had neither the resources or authority to ensure specific departments did their jobs well. She also admitted that perhaps she could have done a better job of explaining the risks of incentive pay and agreed to do more in the future.

Shoulda Dunitdifrent had sat there quietly during the prior conversations. She waited until the room was completely quiet and simply said, “I can't believe this is so bad, you should have done everything better.” Yolanda smiled and took a deep breath. What came out her mouth surprised everyone, including her. “You know, Shoulda, you may be right. Why don’t you join the compensation team for this year and help make sure we do things better.”Shoulda looked at her in amazement and said, “I don't know anything about compensation. How could I possibly help?” Then, realizing what she had just said she smiled with chagrin. She and Yolanda burst out laughing and everyone lived happily ever after. The End.

The moral of the story is simple. Even if you’re a perfect compensation professional you are bound to have programs that don't work as expected. Making sure the right people are involved up front and that you execute well throughout the year is essential when your stakeholders believe things have gone “wrong”.

Dan Walter is the President and CEO ofPerformensation a firm committed to aligning pay with company strategy and culture. Get your copy of the new book: “Everything You Do in COMPENSATION IS COMMUNICATION.”Written by Comp Café writers, Ann Bares, Margaret O’Hanlon and Dan Walter. Dan has also co-authored of several other books you may find useful including“The Decision Makers Guide to Equity Compensation”, “If I’d Only Known That”, and“Equity Alternatives.” Please connect with him onLinkedIn and follow him on Twitter at @Performensationand@SayOnPay.

Jon Stewart Isn't Worth Two Cents!

Startups: How can a startup provide the necessary diversity of projects to its employees?