Dan Walter, Performensation
Most
of the problems with executive compensation tend to originate within a few
categories. I have attempted to summarize these and look forward to the
compensation community adding their take on this topic. Look at your past
mistakes and issues. Did they start with one of these seven categorical errors?
- Assumption:
Assuming is one of the biggest risks to successful executive compensation. You
can’t assume that your compensation strategy and the business strategy are in
alignment. You need to have conversations with the right people. You can’t assume
that your executives or shareholders will understand or value anything without
instruction. Take the time to get your communications right. - Selection:
There are countless decisions to be made in executive compensation. To list
just a few, peer groups, compensation instruments, plan features, pay levels,
performance metrics and goals. Making proper selections requires an intimate
understanding of your compensation philosophy, strategy and goals. - Sloth:
“But, we’ve never done it that way” is too common of a refrain. “That will be
much harder than how we do it now” is not a good reason to stay the course. Executive
compensation professionals are swamped and it is unlikely that everything will
get the attention it needs. Stepping over a high priority item is inexcusable
and is a frequent cause for long-term problems (rather than long-term
incentives). - Following:
Executives are leaders. Executive compensation is about motivating and
retaining these individuals. The best of them seldom state that being a
follower is a key component of their business strategy or goals. Why should
their pay simply “follow” trends and survey data. Of course, we must know the
market to understand where we stand, but we shouldn’t let it define us, or our
pay packages. - Greed:
While this is seldom a direct issue for compensation professionals, it is
something we must deal with from others. Determine how to counter greed with
effective research and proactive planning. Don’t let the avarice of others put
them or your company in a position to fail. - Envy:
The money is always greener on the other side of the corporate firewall. When
you have strong leaders, you also have people who only compare themselves to
the best. In the world of executive compensation, the score of the game is kept
in dollars (or pounds, euros etc.). Your compensation philosophy must be strong
enough to guide your decisions, even when there is a strong temptation to stray. - Pride:
Sometimes we make mistakes. Don’t stand on your past decisions, simply because
they were yours. Don’t be afraid to point out the mistakes of leaders simply
because they are leading. Our own pride and the fear of prideful leaders often come
between us and better solutions. Be confident in your preparation, expertise,
skills and decisions and be willing to quickly change the minute your confident
solution is proven wrong.
It
is difficult to navigate these issues when many of them, in small doses, are
also considered to be among our most critical drivers of best practices and
success. We walk a thin line between overindulgence and counterproductive
restrictions. How do you handle these issues?
Dan Walter is the President and CEO of Performensation an
independent compensation consultant focused on the needs of small and mid-sized
public and private companies. Dan’s unique perspective and expertise includes
equity compensation, executive compensation, performance-based pay and talent
management issues. Dan is a co-author of “The Decision Makers Guide to Equity Compensation”, “If I’d Only Know That”, “GEOnomics 2011” and “Equity Alternatives.”
Dan is on the board of the National Center for Employee Ownership, a partner in the ShareComp virtual conferences and the founder of Equity Compensation Experts, a free networking group. Dan is frequently requested as a
dynamic and humorous speaker covering compensation and motivation topics.
Connect with him on LinkedIn or follow
him on Twitter at @Performensation and @SayOnPay
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