On Compensation, Keeping Great People, and Old World Wisdom

February 3, 2012

I’m one of those lucky people who has a remarkable mentor.  At the end of every single lunch when we get together, I feel buoyed (we always laugh – a lot!), inspired, and that (as quickly as the world changes), there are just some basic fundamentals that never really vary.

Bill tells the story of his first CFO position for a highly successful (then private) company.  On reviewing the compensation structure, he discovered that the total compensation package of the VP Marketing was well in excess of that of the company President (also the majority shareholder).  With this information in hand, he could hardly contain himself in bringing this revelation to the President at their weekly meeting.  How could this blunder have happened?  Clearly someone had taken their eye off of the ball!

When Bill finally got to the President with the “news”, he was shocked by the leader’s calm response and quiet smile.  The Prez explained that because of the nature of the VP’s job (growing revenue in a specialized, highly profitable niche), the more that the VP earned, the greater the company’s (Enterprise) value.  So to him, the bigger the VP’s paycheque, the better.  A few years later, the company was acquired by a public company for … well let’s just say that the president received a paycheque that meant that he never had to worry about paycheques – ever again.

Increasingly, as the competition for talented people becomes more acute, company leaders stress about compensation.  Are we paying at market rates?  Can we keep “the best” for this level of pay?  What’s the competition paying for this same position?

True, these are all valid considerations, and critical in establishing compensation levels.  But, those comparatives are really just a piece of the picture – also consider the following:

  1. Research shows that compensation IS an attraction factor – people choose between potential roles based on compensation.  BUT the things that keep people (retention) in those roles, and keep them engaged are quite different.  You can’t pay someone to be engaged in their job.
  2. In determining compensation levels, consider the value of the role to the objectives of the company.  If growth, or increasing market share is on the agenda, who cares what the competition is paying if your guy or girl can bring in the numbers?! Similarly, if productivity problems are undermining the company’s ability to compete, doesn’t it make sense to bring in the best Chief Operating Officer and pay him or her accordingly?   In other words, pay should be tied to strategy and should commensurate with value to the organization!
  3. Employees in general, and top performers in particular don’t leave companies, they leave bosses!  The best “compensation” for a top performer is leadership that helps them to grow and achieve their goals.

Obviously, this could open up a whole discussion on retention and attraction factors, etc., on which, in addition to research and my point of view, I’m sure, Bill has a full slate of stories, and opinions.  That’ll be a topic though, for another blog, or at least another very lively lunch!

– Lynne F.

We help organizations thrive by building strong leadership teams & driving sustainable growth.

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