Situation: A CEO wants to build additional incentives into the company’s compensation plan. The objective is to add group incentives to the pay mix – to focus more attention on group performance rather than just company goals. How do you create an incentive-based compensation plan?
Advice from the CEOs:
The best policy is to be upfront, open, and transparent as the plan is presented.
Communication is the key to success, including the following bullet points:
Pay starts at a base which is 75th percentile – a generous base in our industry.
Group bonuses, which reflect the results of the group’s efforts, allow you allow to reach the 90th percentile or higher.
On top of this, profit sharing enables the addition of 10-20% of your base.
Altogether, management thinks that this is a generous package. The difference from the old system is that employees will be rewarded for making decisions which will benefit the group as well as the company – and you will be generously rewarded for this.
Once plans are communicated to employees 1-on-1, reinforce the message with a group presentation and open discussion at monthly company meetings.
Consider: significant changes in compensation may be best taken in small rather than large increments. Start with small incremental adjustments. If these are effective proceed to larger increments on a planned and open schedule. This is particularly true if the historic culture has been that we all win or lose together.
A downside of rewarding by team is that some will get rewarded for producing minimal results. Consider some percentage of discretionary payments to recognize and reward effort instead of pure parity within the team.
Consider longer-term results within the payment scheme – not just quarterly results.
People need to know that they are accountable. Let them know that a 75% base is reasonable but that the significant rewards will be for producing results above this level.
Situation: A company is developing a companion application that simplifies the use a major company’s software. The CEO is considering how to show this application to the major company as well as at their user group conference. How do you market a companion application?
Advice from the CEOs:
This is an interesting situation. If the major company likes the companion application, the principal question is whether they will want to attach an additional license fee if the companion application is marketed through them. This presents three options:
Research other companies that have developed front end or access products for this company – what was their experience with the major company and did that company demand an additional license fee payment. If so, how did they handle this?
Be up-front with clients, and if an additional fee is required pass these through to the clients. It may be cheaper for clients to pay license fees through this route than to purchase and pay license fees for the major company product.
You may want to take a wait and see attitude while conducting your own research on the situation. See when and if the major company asks for a license fees, and if so, find out whether they are willing to negotiate.
Large companies are often focused on their own offering. Forget the idea that they will market another company’s companion application or front end. Instead focus on your own contacts within the industry and your client base and start talking to them about your application. Generate some experience and traction on your own.
Situation: A company wants to develop a better planning and execution process. Historically they have been poor at meeting goals and objectives. What are the most important factors that improve planning and execution in your company?
Advice from the CEOs:
Take the advice of Jack Stack in his book The Great Game of Business. When building a plan, do it as a company-wide exercise.
Make sure that all of your departments are involved, each has direct input into the development of its own goals, and each understands that they are fully accountable for the achievement of their own goals.
Also do this in open session, and assure that each department has the input of other departments whose activities are critical to the completion of each goal.
This assures that different departments are working in alignment and not against each other.
Finally, make the process interactive and add some fun so that everyone is engaged.
Milestones and meetings are critical. Each department develops quarterly goals to support the plan, and department heads meet bi-weekly to monitor progress and prevent conflicts. Revisit the plan on a quarterly or semi-annual basis to adapt as necessary.
Focus the plan on one-year performance – with quarterly objectives – but forecast financials and broad metrics out 3 years to assure that the 1-year plan supports long-term objectives.