All in pay for performance
As I have written before, equity is not about being equal. And as I have covered many, many times before, I am a true proponent of performance-based pay. Call it variable, call it personalized, call it incentive pay. Whatever you call it, I have made the argument that some people should get paid far more than others.
I like envisioning pay transparency using the idea of windows. There is a great reason we created windows many ages ago. They let light in. They allow us to look out. They can be designed to let in the fresh air, and they can provide coverage for those things not meant for the eyes of others.
Data that is hard to gather is often made a low priority. For example, we seldom see the details behind incentive plan terms, conditions and features. When data is messy, it may be avoided because the final report is simply too hard.
“If you have to think about it, you shouldn’t do it.” In other words, if you didn’t have the trust and confidence in yourself in doing it right, you were probably just going to get hurt.
Provide the right tools.
Any person who has built an IKEA product has extra parts in their house. This is intentional. More importantly, the Allen wrench for each product is custom fit to ensure it rotates smoothly with a minimum of scraped knuckles.
1. Make sure you design your incentive plan to reduce the possibility and rewards for cheating. Think through all possible results and work to ensure the worst doesn’t happen.
As we fly through another holiday season let’s take a look at some of the stockings hanging on the executive compensation mantle. This is the time of year for gifts and coal. Some are based on lists and requirements, others are a tad bit more…discretionary. In the end, like every year, most get something nice, some get more than they deserve, and others finally get a reminder that being bad has a cost.
Pay has been in the news so often lately, it can be hard to choose a topic to write about. But on November 12, 2018, I read an article titled “Setting a maximum wage for CEOs would be good for everyone.” The author was Mark Reiff, a person with an impressive academic resume who asks if setting a maximum wage could “be the long-awaited solution to economic inequality?”
I’m not going to bury the lead. The answer is no. No, a maximum wage is not a solution to economic inequality. In fact, it isn’t a solution for anything
The more useful type of tension can be as magical as the tug of a helium balloon on the string in a child’s hand. It can also be equally difficult to control and similarly capable of escape. It can also be as dynamic as launching from a trampoline. Learning to use it properly takes practice, but the results can be pretty impressive. This is the tension that effectively links pay and performance. It is also the tension that links groups, and entire companies, together into a stronger, more cohesive entity.
I find that the Rule of Three works for nearly every incentive program, for nearly every company, and in nearly every industry. Like many good things, the process requires some additional thought and effort, but the results are effective, manageable and easy to communicate. Would the Rule of Three work for your company? If not, how would you improve it?
Perhaps I should have titled this “Ownership without leadership is almost certainly doomed.” A business near me was recently sold to a new owner. The place ran like a top for more than a decade. It had established procedures, great service and great products. The owners regularly spent time on site, and in the mix of day to day activities. Then it was sold as a “turnkey” operation.
With performance units investors, individuals, rule-makers, and regulators seemed to get what they wanted. Investors got assurances that payouts were linked to their own success. Individuals received awards that had upside potential, like stock options. Rule-makers thought they had found a key to slowing the growth of executive compensation and regulators had a framework of established processes that they could apply without too much hassle. But, companies and compensation committees had a real challenge.