All in equity compensation
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.
Companies love equity compensation. We often use it without understanding its cost. We also use it without understanding its tangential impact. As it turns out, there has been a ton of research over the past 20 years, much of it invisible to most compensation professionals.
This is why emotional ownership is where you should start. You don’t need a new compensation plan to create the spark of ownership (although it’s a good idea.) You don’t need people to understand the mechanics of their plan for the plan to have a impact (although it certainly helps.)
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.
4. Lastly, it’s ok to do things differently. This type of program, and other unusual approaches will never show up as a data point on an industry survey. They will never be listed as a major trend in one of the big consulting firms annual lists. But they can be amazingly effective.
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.
I have seen executives volunteering in the evening or on the weekends at their kid’s football or theater practices, or fundraising events. I have seen these same highly paid leaders unblock a toilet without thinking twice. Some of them would do the same thing at their place of work…most would not. That is the challenge.
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
I began my compensation career in 1994. People still typed things (on typewriters). Email was a new thing used by only a limited few. Equity compensation was the wild west. It cost companies nothing. It was used as liberally as salt at a corner burger joint. Few companies knew all the rules and fewer followed them. Gains were expected and repricings were performed without much thought. Importantly, equity was used to fill sometimes massive gaps between cash compensation expectations and cash compensation realities. Stock options were a secret weapon of startups and IPOs to asymmetrically compete for talent against the tech titans and other big companies of the day.
Equity is a term that has become a keystone in the world of compensation. We use it in a wide-ranging list of topics including stock-based compensation, pay transparency, gender and race. I recently did a presentation about the topic titled “Three Buzzwords and One Truth. The buzzwords being fairness, transparency, and internal equity, the truth is the continued growth in variable (differentiated) pay.