Creating Quality Compensation

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Expert Perspective by Grahall’s OmniMedia Editorial Board

expert perspective telescopeIn a November 19, 2009 article for The Street (Tie Pay to Performance — The Innovators) contributor  Bob Prosen shared a few “characteristics of quality leadership… that ultimately make a superior leader a strong contributor to achieving and accelerating profitability”.

We thought we might share our own list of characteristics of “quality compensation” that can ultimately make your compensation programs strong contributors to achieving and accelerating your business strategy and profits: 

1)  Start by examining your external environment: the public, government, competitors and unions because the external business environment has an enormous influence over the development of executive rewards strategies.

2) Consider the needs of your stakeholders: suppliers, employees, shareholders, partners and customers.  These are the groups that care about the company’s success since in many cases the company’s success influences their own

3) Revisit, renew and refresh your Vision, Mission and Values statements as these provide the guidance for decision makers especially when the decisions get tough.  Good statements promote good decisions.

4) Understand your business strategy: including your general, value chain and specific business strategies.  Align your executive rewards programs with these strategies. 

5) Review the Organizational Capabilities and People strategy: Since organizational capabilities comprise a company’s skills, abilities and expertise and are a direct result of how an organization decides to invest in its human resources. Why is this important? Because a total rewards strategy should be designed to attract and retain the people with the right skills and abilities. 

6) Take a surgical approach to designing compensation programs.  This can help a company to select, retain and mobilize not just its best people but the people best suited to drive success in the future and create true incentives to drive desirable and risk-appropriate behavior. 

7) Consider all the impacts. The organizational impact – how the organization will behave under certain pay scenarios. The employee impact – how the individual employees will behave under certain pay scenarios. The financial impact – how profit will accrue to the organization and the shareholders under certain pay scenarios.  Most companies focus only on the financial impact when making pay decisions.   

8) Address all components of compensation structure.  As important as getting right the compensation amounts (“the money”), it is equally important to get right the combination of pay, incentives, and non cash compensation such as benefits ( “the mix”).  It is also imperative to “get right” the explanation of how the compensation supports the business plan (“the message”.)  Grahall calls the combination of money, mix, and message “M3″ and all three must be done properly.

We pledge to you that if you consider these when design your compensation programs, you will design compensation programs that will better drive behaviors that will help you reach your business goals.

For more information on designing an effective compensation program read the book Effective Executive Compensation  by Grahall’s own Michel Graham contact us.

Contact Grahall’s Editorial Board at edie.kingston@grahall.com


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