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06/27/2012

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Derek,

Great post. In response, as someone who focuses most of their work on executive compensation and LTI...

Executives are risk-averse

Executives are risk adverse, but I would argue that the risk is the economy and the market, not the type of pay program. When the global economy and markets were strong, most executives wanted LTI, with a basis in stock.

Complexity and ambiguity destroy value

Complexity is less of an issue than ambiguity. These are far more matters of ongoing communication and management policies than plan feature problems. Yes, plan features have to be understood, but executives are generally smart people who can understand virtually anything if they want to and are given the right information. As comp pros we need to be better at making them want to know more and then even better at giving them the right information.

The longer you have to wait the less it’s worth

The delay in a reward may reduce its value. BUT, the anticipation of receiving a future reward can also increase its value. It’s all about building excitement and communicating potential. In a poorly performing market this can be difficult, and if the comp/HR pros don’t understand how their businesses work they will have a hard time designing and communicating exciting programs.

It’s all relative – fairness is fundamental

Fairness, is a funny thing. It's only "fair" if someone gets paid MORE than their peers. Fairness seldom applies to the work and results delivered. I tend to recommend pay programs that are "just". In the US (and am sure elsewhere) we like to say that "justice is blind." Justice refers less to your peers and more to your own interaction with pay and results.

People don’t just work for money

TRUE. But they won;t work without money either. :)


Design recommendation:

"Money is only part of the deal – and recognition matters as much as financial incentives. Pay is as much about fairness and recognition as it is about incentives. Simpler plans can achieve the recognition benefit with less discount to perceived value."

This a reasonably valid statement. Recognition is a large part of remuneration. But, recognition is not delivered via pay or rewards, it is delivered via human interaction, both words and actions. The money and rewards are simply tangible way to validate that recognition, they are not, in and of themselves, recognition.

Derek details timeless realities. The most effective consequences of behavior are clear, immediate, positive and certain. Individuals and cultures will vary on definitions and weightings, but the standards remain constant in identity.

AND they want "fair pay" as well, but the minimum threshold values of that hygiene factor are even more variable.

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