Link your compensation program rewards to corporate performance goals

by on June 30, 2009 · 0 Comment POSTED IN: HR Info Center

What is it that you’re trying to accomplish through your compensation program?

What is it that you want executives to do? What is it that you want to pay people for? A compensation program is a failure when either the goals of the organization were completely unclear or were completely not giving any regard to in terms of the way the design was put together or anything else.

Compensation program alignment
Goals and strategy of the company in putting the compensation program in place is that if the two are properly aligned, they make it very clear to the executives what we expect from them and what we want them to be doing. This is not only in terms of the way in which they should be driving the organization but once we tell them, “This is what you’re going to be paid on for performance criteria”, not only whether its earnings or returns or market share. We focus them in that direction but we set targets and goals for them through the incentive vehicles. We also tell them how important these things are by the way we mix our compensation program between salary and bonus and long-term incentives. We give them a focus as to what kind of time horizon they should be concerned with and what the risk profile is.

Compensation programs and corporate goals
And there are generally two sources that we use to gather the goal information for a compensation program: one is we generally go after company, “Can we see your business plan?” and the often reaction is, “Yes, we have a business plan, you know, it’s more reliable for a three-year period than a five-year period.” And, but even so, we’re nervous about setting goals based on that alone.

We need a stake in the ground to start somewhere and so we can – this is generally the starting point that we would use to understand what is it important. Those criteria that define success will generally pop out of these programs.

Other ways that we understand what’s important to the company as we go forward are interviews – not only with executives, but interviews with Board Members or members of Senior Management, or owners

But we want to make sure that there is a clear vision amongst the executives as to what they’re attempting to do; what the goals are; and how are we going to define success in – as they’re trying to achieve the strategy of the company.

If we think about the way in which we do a compensation program, everybody talks about salary and bonus. And we define those two, put together as total cash compensation. When we add long-term compensation – long-term incentives, whether it be equity based or cash based, stock options or restrictive stock or performance shares – we come up to total compensation.

Total remuneration in the compensation program.
What is the total amount that the company provided to them as – for the labor that they do? We know that base salary is generally paid in cash, generally based on skills and experience of each person. When questioned by people, when we do a market pricing assignment and we would find that someone is below the median of the market place. And the goal of the company is to pay it medium.

Edited remarks from the Rapid Learning Institute webinar-Executive Compensation: What Worked and What’s Fair by Steve Hall

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