While reward arguments often follow strategy arguments, there are some notable cases where the reverse can be equally useful. Part 1 of this series explored how executive compensation debates can “shake the dog” and trigger fruitful dialogue about underlying business facilities and strategic priorities. Part 2 jumped into an example in which compensation programs reveal talent gaps and previously unnoticed cultural risks.
This third and final article focuses on three cases in which compensation discussions have changed the way we actually work. By examining how compensation programs reward and enhance workflows, businesses can help uncover new areas for efficiency, build succession plans, and drive long-term growth in key areas.
Not all roles are created equally: how more efficient ORG charts have influenced by discovering wage gaps
The Compensation Committee recently discovered that wage gaps between the CEO's direct reports and the general manager (GMS) are incredibly large below one level of wage inequality than direct reports. Direct reports were paid almost three times more than GM, with large, disproportionate wages increasing with each GM being promoted. Obviously there was an amputation. Are there too many direct reports or too few GMS?
As the committee delved deeper, further analysis revealed opportunities to simplify organizational structure and increase the span of control. There were too many GMs in the organization, and some people were significantly less responsible than others. However, all GMs were paid in the same paid band, regardless of each individual's range. The flat-pay structure, which kept all GMs at the same level, limited the development path for high-performance GMs and ultimately limited the compensation. As a result, if promoted to the CEO direct reporting level, a significant salary increase was required.
By examining the “tail” of compensation, the board identified the issue and reconstructed accordingly. Going forward, the organization has created a differentiated layer of GMS. This streamlined workflow and established a clearer development plan and wage track for GMS that has the greatest impact. This useful reorganization was sparked and supported by the reparation debate.
Wise Inheritance: What the proposed retention grant reveals about C-Suite's role and responsibilities
When companies proposed to pay more to ensure that key executives remained in the organization, management worried that wage increases could send the wrong message to other leaders without corresponding increases in liability. It began as a discussion about compensation, but the subsequent conversations ultimately led to a more broadly rethinking the role and responsibilities of C-Suite for its long-term success.
Pushing on why this one executive is needed, management focused on the fact that they are promising candidates for long-term growth and therefore worth a higher wage. Furthermore, they were high power candidates in some succession plans. As a result, the management team agreed to transfer additional operational responsibility to high potential employees, combining wage increases with new developmental roles. The discussion of increased pay has encouraged the opportunity to build further skillsets for high potential candidates and test them in new circumstances.
Ultimately, by examining the “why” of the proposed compensation plan, the board was motivated to coordinate the responsibilities of key work, allowing the company to simultaneously grow and retain key talent. By starting with an honest discussion of compensation, the organization uncovered new long-term strategies for success and adapted its workflow accordingly.
Loud and clear: When reward discussions strengthen communication skills
The organizations that the IPO recently had a hard time adjusting to their new public responsibility. The forecasting process was severely flawed, and the board's communication strategy mistakenly prioritized positivity over clarity. As a result, they struggled to accurately communicate and predict revenues, and the company missed out on revenues for several quarters in a row.
The company had to help develop new bonus structures. However, the proposed compensation plan revealed an organization-wide discomfort regarding linking executives to objective goals tailored to external guidance. Despite being public, the management team wanted to continue running the company as if it were privately owned. As a result, they delayed the development of some of the key forecasting skills needed to truly succeed in the open market.
When discussing the “tail” of the company's bonus program, they uncovered the larger issues of accountability that enable business priorities. As a result, they worked with the board to first clarify important outcomes. They then tied these results to compensation, encouraging implementation of the bonus program guidance and encouraged key drivers of shareholder asset creation through PSU. Thus the “tail” reached a perfect circle. The reward discussion facilitated changes to the goal setting workflow. This was enhanced by a redesigned rewards programme that rewards the outcomes associated with new work.
Conclusion
Regardless of which one was “swept” first, compensation and strategy are always intertwined. If the compensation program causes friction, ignites questions, or raises the alarm bell, the board will most likely need to dive a little deeper. A thoroughly vetted salary philosophy is an important tool that can be used to increase organizational efficiency, clarify and strengthen strategic priorities, and ensure long-term success. Conversations about compensation can go far beyond dollar amounts.
