Situation: The CEO of a privately held company wants to share company success with employees. An option that she is exploring is phantom stock. The objective is to engage employees in company success. Does a phantom stock plan make sense?
Advice from the CEOs:
Why would you use phantom stock options instead of real stock?
Phantom stock options are popular in the tech sector. Phantom stock confers the right to receive cash at a future point in time, typically a share of the proceeds received upon the sale of a company.
The principal difference between phantom stock and real stock, is that real stock must be issued in exchange for cash, property or past services. There is also a tax consequence to the receipt of real shares. When shares are issued in exchange for past services the employee must recognize taxable income, just like wage compensation. Employees may be disappointed to learn that they may face taxable income based on the fair market value of their shares received without compensating cash to pay the tax.
Let’s assume that the objective is to increase employee engagement as they observe the value of the shares increasing with company success over time.
Under phantom stock programs the value of the company is pegged on a periodic basis, based on a pre-set formula developed by the company.
In some cases, employees can “sell” their phantom stock back to the company for the differential between the price when they were awarded the stock and the current pegged price.
The structure of the program is determined by management based on company objectives.
Employees frequently don’t have the cash to purchase real stock or options at a fair price given the value of the company. Using a phantom stock plan, a company can offer the rewards of stock ownerships without a purchase requirement or tax implications at the time of award. Employees can be apprised of the value of their phantom stock based on a periodic internal accounting exercise.
Situation: A company is interested in partnering with a larger company to market a suite of services. They have identified two good candidates. They haven’t worked with partners in the past and are curious about how other companies work with marketing partners. How do you evaluate marketing partners?
Advice from the CEOs:
The danger of working with a single marketing partner is that all of your eggs are in one basket. Your success in this relationship will depend upon the success of the marketing partner. This, in turn, will depend on the amount of attention that they pay to marketing your services, and on how actively their sales department sells your services. The danger to you is loss of control over the marketing and sales process.
Another company had a similar situation several years ago. At that time, the advice of the CEOs was to not select an exclusive partner, but instead to work with two different marketing partners, even though they are competitors. The company followed this advice, and it has worked like a charm.
Start with a position that you want a non-exclusive relationship. If a potential partner insists on exclusivity then ask for fixed guarantees of business and fixed minimums.
Other companies around the table work in partnership with competing companies all of the time. All of the partners value the services that these companies provide, and the relationships are harmonious.
If a possible partner insists on an exclusive relationship, another alternative is to split territories and supplement your agreements with most favored nation clauses.
Going back to the original question, provided that the terms offered by the marketing partner/partners are favorable, you won’t really know how they will perform until you establish a relationship and monitor it over time. Exit clauses and conditions will be an important part of any marketing agreement.
Situation: A company has developed a number of initiatives and priorities which are important to the success of the company. All of the initiatives are daunting. What do they need to do to get all of these accomplished? How do you manage multiple priorities?
Advice from the CEOs:
Start with corporate level objectives and set these independently from your initiatives. Pick your top corporate goals and objectives – financial, performance, and so on. Once this is in place, rate your initiatives in terms of how they help to meet your company objectives.
Create an initiative list. Measure the upside and risk for each initiative. Based on the results of your analysis classify each initiative: critical, important, or nice to have. This, plus alignment between initiatives your corporate objectives will indicate which initiatives are most critical to company success.
Every company needs long and short term goals. Use these to align and prioritize initiatives. Only and your team you can tell what is important and importance is a matter of your strategic focus and objectives.
They key to accomplishing multiple objectives is focus. Focus on your top 2-3 initiatives first – if you can reasonably handle this many. Once these are accomplished, focus on the next 2-3, and so forth.
Look at your competitors – where are the opportunities in the marketplace. How will your initiatives make you more competitive?
What does your leadership development plan look like? If you plan to add new leadership, include in your thinking a transition plan to new leadership, taking into account your multi-year timeline.
Situation: Start-ups and early-stage enterprises are typically both resource and talent constrained. The CEO of a start-up asks how others successfully outsourced infrastructure cost effectively and when they were early-stage so that they could focus on critical success factors and improve their opportunity to succeed. How do small companies outsource infrastructure?
Advice from the CEOs:
In the early stages of company development, outsource everything possible and focus our efforts only on the key functions.
In order to focus on the most important things first, decide what must be accomplished and when. Set priorities, establish key milestones and create a timeline to measure achievement. Celebrate your successes!
Identify the most important strategic foci within your business model and outsource everything else.
For example, use outside data centers instead of developing these yourself.
With the increase in Cloud-based options, early stage companies can do without the IT infrastructure that they used to need. Just be careful to safeguard your intellectual property!
Attend relevant meetings and functions to learn about existing and available capabilities. Look for local networking opportunities relevant to your market.
Incubator sites have developed in a number of high tech centers. These are designed to cover infrastructure needs at a reasonable cost so that founders can focus on product and service development.
Hire a virtual assistant – you can find these locally using a Google search.
Take advantage of lower cost labor and enlist younger, less experienced labor to manage databases and clean records.
Set up a wiki for information. This exchange is free and you can tailor it to your needs. It is permission-based; you can find it at pbwiki.com.
Situation: A company has hired interns in the past and wants to upgrade their intern program to attract more interns from top schools. How do you attract interns from top schools?
Advice from the CEOs:
Top schools want to build lasting relationships with the companies to whom they send interns. In addition, the ability of top schools to attract top students increasingly relies on the placement rate of the school, so this can be a win-win proposition for both company and school. Take the time to cultivate this relationship and let the school’s representatives know your intentions. Get to know the top professors in programs from which you wish to recruit interns.
Provide a high quality internship experience. Treat interns as though they were normal employees during internships. Give them a job, objectives and tell them that you will evaluate you as though they were FTEs. They will feel more like members of the team and will have a higher quality internship experience. They will likely tell their placement office and other students about their experience. Interns should understand that if all goes well, the company MAY have a job for them; no job is guaranteed.
If you want more applicants from top schools then view your internship program as an investment. Look at it as a recruiting tool, not as an expense.
Pay for interns may not be same as FTEs – frequently interns are paid less, and don’t get the same benefits as FTEs. Before you make an offer or hire, call the school from which the potential intern comes and check out the candidate’s representations as to expected salary, etc.
Hire more than one intern and compare their performance against each other.
The CEO of a technology company has hired many engineer interns. Many of these were subsequently hired as employees. Overall their success has been good, but not fantastic. Similar to a new employee, it takes time for an intern to get up to speed.
Situation: A company’s CEO came from sales where she excelled in building relationships with important customers. As CEO she must adapt to new responsibilities. This seems to be working, but she misses her sales role as the face of the company to customers. She wonders whether this is normal. How do you adapt from sales to CEO?
Advice from the CEOs:
First, congratulations on your new role and responsibilities. It is clear that your Board saw your potential and has rewarded you with a new opportunity. You have a lot to feel good about.
Second, adapting to new roles is a necessary pain of personal growth. The company needs a different you now. Everyone in the room has gone through the same emotional trauma – and survived! You will, too, in your own way.
In your sales role self validation came from your ability to convert customers, satisfy their needs and solve their problems. As CEO, self validation must now come from managing, coaching and motivating others, not from doing the job yourself. Your new customers are internal as well as external. Many of the techniques that worked in sales can work in your new role. Look for potential wins and take pride in these just as you did in sales.
You are still the face of the company, but now in a bigger role. Enjoy this and leverage it for the benefit of the company. Take pride in team wins just as you did previously in personal wins.
You will never find someone just like you or who does the job the way that you would! Accept this, accept that others will add value different from your own, and that this has benefits. The more you can help others win the more success you will experience.
Situation: A company has a high-powered Board of Directors. This Board is focused primarily on company strategy. The CEO wants to create a separate Advisory Board for technical and business development. How do you create and leverage an Advisory Board for technical and business development?
Advice from the CEOs:
Be clear on the role and compensation of the Advisory Board.
Create a clear set of expectations to initiate the process, and refine these expectations in early meetings of the Advisory Board.
Early stage companies often pay out of pocket expenses for attending Advisory Board meetings, plus stock options. When business development is the focus, you may want to add a percentage of any new business brought to the company by the member.
More mature companies may add a stipend for Advisory Board service.
Not all Advisory Board members may be compensated equally, particularly if members receive a percentage of business that they help to create. You may also choose to compensate members differently based on their experience and influence.
Choose Advisory Board members carefully.
Go beyond personal contacts of the CEO and company officers. Look for individuals who are known and respected within the industry. You also want individuals who have exceptional contacts and who will agree to use them to benefit you.
Look for individuals who are highly positioned within target companies – for example a VP of Operations or of Business Development. Also look for individuals who have excellent relationships with personnel in target companies
Be open and clear about your expectations of individual Advisory Board members. Celebrate success.
Establish metrics that the members are expected to fulfill.
Record commitments made by Advisory Board members and include updates against commitments as part of Advisory Board meetings, as well as updates against metrics that expected of members.
Celebrate successes of Advisory Board members and note individual and team contributions whenever the Advisory Board meets.
Situation: A small company has a key employee who has been with them for one year. Previously, this individual had been a production manager in a large company managing as many as 100 employees. He excels at analysis, QA and other “doer” roles but has not demonstrated strong supervisory skills. How do you address a key manager functioning at 80%?
Advice from the CEOs:
Small companies are different from large ones. In a small company, people must wear multiple hats and be willing to roll up their sleeves with the others. The atmosphere can be very different in a large company. Past experience in a large company does not mean that previous skills are transferable.
If the person is not a fit for your needs and organization, then you must find a fit or make a change.
Do you have room on your payroll for a job appropriate to this individual’s skills and talents? If so retain him in a new role. If not, then take action.
Engineers often do not transition well to management positions. Different skill sets are required. Shortcomings may have been masked in a large company.
If your future need is for an individual to take on many or your current responsibilities in the role of General Manager, hire an individual who has demonstrated success in this position in a company of in size and focus as yours.
If you need to hire a different person, review your selection process.
If this position requires the wearing of multiple hats, indicate the range of responsibilities in the position description.
During the selection process query candidates on their experience handling these responsibilities. Ask open questions and look for specific instances where they have demonstrated talent. Confirm responses in reference checks.
Key Words: HR, Selection, Performance, Doer, Manager, Supervisor, Big vs. Small Company, Success, Experience, Selection, Position Description, References
Situation: A company has been seeking additional engineers. Unexpectedly, three excellent candidates independently approached the company seeking employment. This opens the door to expand the department and also to create an additional layer of management consistent with the company’s growth objectives. Currently, in this small company all engineers report directly to the CEO. What are best practices adding a layer of management to the company?
Advice from the CEOs:
Remember that aspiration does not equal talent. There is a big difference between good individual contributors and good managers. The best predictor of managerial success is past successful experience.
You have a number of senior engineers who have been with you for a long time. Have any expressed an interest in management responsibility? Do any of them have a track record successfully managing teams? Similarly, evaluate your new candidates both in terms of both their ability to contribute as engineers and their prior management experience.
If you hire one or more of the candidates, start them at the senior engineer level. Let the company and the rest of your engineering team get used to them and observe the quality of their contribution.
Once you are ready to create a new level of management, make this an open process. Announce your plans to the engineering team, and ask them to approach you individually if they are interested. See who steps up.
When the time comes to make the promotion, how do you communicate this to the group?
If you’ve used an open process to evaluate one or more candidates for management, the group will already be prepared when you announce the new structure and promotion.
An important part of the message is that the company is growing and that there will be ongoing opportunities for talented engineers to earn promotions to management.
For those interested, start with small steps as leads in team projects. Who if effective at guiding their team? Who is a positive source of energy for the team? Who is helpful and goes above and beyond for other team members and for customers? How do they respond to team obstacles? Observe and coach them along the way.
Situation: Leaders who are successful in the long-term have figured out how to build high performance environments. This enables them to continually produce breakthroughs by stimulating the performance of others, and to rise above their competition. What are the factors involved in building a high performance environment?
Advice from Paul Limbrey:
Our work is based on 20 years of research into high performance in individuals and organizations. First one needs to understand the dynamics that stimulate high performance in people.
Our research indicates there are several elements that combine to form a system that stimulate improved performance in populations. These elements include concepts addressing Direction – Achievement, Failure and Strategy, providing Status of current performance, and Motivation – reason/purpose plus reward/consequence. The final unifying element is the culture or guiding philosophy in an environment.
On a company level, the first task is to understand these dynamics as you have created them today. This enables you to see where you need to tweak your environment to better stimulate high performance.
How consistent is high performance across difference fields of human endeavor?
We find that all elements that encourage high performance exist in all environments. However the potency of each element varies with the particular environment.
For example in some environments the Goals are more potent (Sales groups or athletes). In others culture is potent (the Military or companies like Southwest Airlines). In others the reward systems are most potent (Investment Banking) or the potential for failure (airline pilots or first responders).
Any of the elements can stimulate performance improvement.
How does one go about matching the right system and solution for a particular company?
Start by focusing on the potency of each subsystem – Directional, Status and Motivation – in your particular environment. How critical is each in shaping decisions and action taken?
Take the example of a CEO who has no vision for the future of the company. The result is inconsistent decisions day to day or week to week. The organization can’t focus on effective execution. The solution is to focus on Direction.
What about the CEO who is concerned with complacency. This is best addressed by looking to define what represents sub-standard more clearly for the organization.
If you have an “excuse rich” environment or desire greater accountability, look to your status or “exposure” systems to provide more accurate performance status first before looking toward your consequence systems.