Compensation Cafe

3 Reasons Equity Compensation is Experiencing Climate Change

Equity Compensation has been slowly going through its own version of climate change. Much like our planet, the environment for equity compensation has been changing for decades and very few have adjusted or even noticed. Whether you agree with the causes of climate change it is hard to deny that weather is different than it was even 50 years ago. Regardless of the driving forces, it is impossible not to recognize that equity compensation is delivering different results than it was when it became the major currency of tech startups in the 1980s and 1990s. The question at hand is if or how companies will address the issue,

1. Monolithic plan design is no longer effective

When equity started out it was relatively easy. You granted stock options, probably Incentive Stock Options (ISOs). They vested annually over four or five years. Only your US employees received them. Big companies paid in cash and were not a challenge.

Over the past couple of decades, there have been changes to accounting rules, tax codes, dilution models, extended times to an exit, global workforces, and more. Through all these most companies have continued using stock options, vesting schedules have changed slightly (most are now three or four years and vest multiple times a year). Companies use RSUs more frequently, but generally only when forced. Nearly every company, in just about any industry, uses equity. Things have changed, but I don’t think we can argue they have kept up with the surrounding environment.

2. Long-term is increasingly short-term

It wasn’t uncommon to have grants with 25 year lives in the 1980s. The ISO rules restricted the tax benefits to a life of 10 years and companies followed the path of least resistance for all grants. Vesting was designed to get the company and the participant to a potential exit event.

Today it takes longer to reach and exit than in those heady early days. At the same time, executives and employees are increasingly less patient. Three years is considering by many to be a reasonable time to build value. In some cases, companies are exploring “long-term" awards designed to retain people for one year!

3. Funding rounds are bigger, but equity percentages haven’t changed

IPOs are a funding round. Companies looked to an IPO as the major funding round required to move them from a start-up to a competitive business. They were the ultimate value creator and liquidity event.

Today the average pre-IPO company seems to be a “unicorn.” Companies can be so well funded without tapping the public markets that IPOs are used as an escape hatch, not a necessity. With so much money pre-IPO, there are still very few companies that have made the effort to allow for employee liquidity prior to an IPO.

I can, and eventually will go on. This article was originally created with 5 reasons, which quickly morphed into eight and the makings of a whitepaper or e-book. Once have a foundation of the challenges we face we can begin to discuss why this is happening. We can discuss why investors, boards, and founders have done so little to address the challenge. We can discuss long-term, lasting solutions and what they will take to become real. But, for now, we need simply to first recognize the changes are taking place around us and will not fix themselves.

Dan Walter is a CECP, CEP, and Fellow of Global Equity (FGE). He works as Managing Consultant for FutureSense. Dan is also a leading expert on incentive plans and equity compensation issues. He has written several industry resources including a resource dedicated to Performance-Based Equity Compensation. He has co-authored ”Everything You Do In Compensation is Communication”, “The Decision Makers Guide to Equity Compensation”, “Equity Alternatives” and other books. Connect with Dan on LinkedIn. Or follow him on Twitter at @DanFutureSense.

Cafe Classic: First, You Eliminate Pay as the Solution

Editor's Note:  One of the universal challenges we face as reward professionals is the leaders whose first instinct is to treat every problem as a pay issue (because it couldn't POSSIBLY be an issue with their behavior and management style).  In this Classic post, Jim Brennan examines the challenges we all encounter when we try to push beyond the easy/obvious to evaluate what's really happening and encourages us all to step up our game

An esteemed colleague of mine signs her emails with this slogan: 

"95% of the time, the issue is something other than money. So why am I not out of a job?" 

She makes a very good point.

Most of the people I hang with are still pretty much compensation people rather than Talent Managers or Total Rewards professionals, so when they are presented with a problem, guess what gets addressed first? Their instinctive first “fix” is usually to throw money at it. It’s almost like we were politicians.

When your only tool is a hammer, every problem looks like a nail.  Those whose power and authority comes from compensation expertise tend to rely excessively on that element as the universal cure for all ills. It becomes the same old story… first you give them money … then, when that doesn’t work, you try other solutions until you finally work your way down to the real causal agent, by trial and error and at great expense of  time, effort and money. 

We are not the only ones at fault. It is all too easy for managers to assume that pay can solve any problem. Even when they are wrong, the recipient of the inappropriate largesse will typically display some gratitude and may demonstrate temporary improvement. Plus, even if higher pay doesn’t create a compression wave, the manager still gets a bigger budget. Those who correctly identify a solution that does not involve compensation face an immense amount of resistance to any fix more difficult than simply writing a check. After all, if an issue can be corrected with cash, it is not a management problem but only a cost item.

Not until I held credibility as a compensation expert would anyone believe my claims that pay was usually not the issue in any given situation. Realistically, if you don’t deal with compensation first, dispelling that as the solution, no one will listen to you; all will claim it’s simply a matter of money. 

We human resources people still have a terrible habit of prescribing solutions without ever performing a diagnosis. The seductive temptation to throw money at every problem cannot be defeated without strong and confident compensation people willing to reject inappropriate solutions.

Ironically, we need more pay experts in order to correct non-pay problems.

Do we have them? And will we continue to grow them?

E. James (Jim) Brennan is an independent compensation advisor with extensive total rewards experience in most industries.  After corporate HR posts and consulting CEO roles, he was Senior Associate of pay surveyor ERI before returning to consulting in 2015. A prolific writer (author of the Performance Management Workbook), speaker and frequent expert witness in reasonable executive compensation court cases, Jim also serves on the Advisory Board of the Compensation and Benefits Review.

Image: Creative Commons Photo "my to do list" by koka_sexton

A Question of Pay Acceptance

Managing the day-to-day activities of compensation can be complex in itself.  The role of total rewards is multi-faceted and impacts several key organizational areas such as talent management and balancing operational costs).  It is strategically linked to organizational goals and to culturally managing the perceptions of pay. 

From an outsider (or employee) perspective, the rudimentary thought is that we are simply not paid enough and that HR is not capable of nor doing enough to address this need.  Whilst this very well may be the case, what is becoming more obvious is the evolving role of the Rewards practitioner.

The context in which we operate today encompasses not only the balancing of data with art and science but also addressing the more sensitive and emotional side of pay.  Compensation resides beyond the four walls of an organization but is being impacted by the societal landscapes in which we operate.  For example, the MeToo Movement reignited the need for employers to address gender pay inequities and job value.  The “woke” culture has put in motion the organizational integration of diversity, equity and inclusion, the dismantling of racial injustices, and the curating of equal opportunity.

For the same reason in which we approach total rewards with a newfound level of acute awareness,  our workforce, as the recipients of our pay programs, must also display a similar level of “wokeness” when it comes to pay acceptance. 

If the ask is for the employer to be more transparent, then as an employee one must be as willing to handle the truths around the design of the compensation philosophy and outcome of how pay is structured and ultimately delivered.  Assuming it's a well-intended design, then it's a matter of accepting the organization's culture.  Through sound pay education acceptance resides with the individual and their ability to acknowledge the balancing act an organization has.  This encompasses the responsibility to afford, sustain and compete at a level that attracts the right talent to deliver the business objectives. 

Eradicating injustices around us may take a valiant effort, one best achieved through acknowledgment, acceptance, and collaboration.  The same applies to an organization's total rewards strategy.  If the practitioner seeks a higher level of awareness, then the question remains, how able and willing is the employee to find common ground?

Reena Paul (CCP, GRP) works as a Senior Compensation Consultant.  She is passionate about all things “total rewards” and has experience in dealing with all stakeholders of an organization and strategizing optimum client-focused solutions.  A lover of data and the story it tells, Reena enjoys the exploration of presenting and discussing compensation with a fresh perspective.  Connect with Reena directly on  LinkedIn. 

Image source: Unsplash image with credit to Simone Secci.

3 Reasons Great Equity Compensation Creates Great Responsibility

The job market continues its hot streak. Companies continue to grow. Investors are driving values high and higher. Individuals are asking for, and often expecting a piece of the success their contributions have helped create. More and more companies outside of the traditional sectors of technology, life sciences, finance are turning to equity compensation to reward their employees. Equity compensation can give companies superpowers. But with great power comes great responsibility.

1. Vesting creates a new urgency to manage participants

Companies work hard to hire the best people they can. They also work hard to manage out the worst people they hire. Great companies reward their best people. Some companies let a small percentage of not great, but also not valuable, employees get pulled along in the wake of their success. Granting equity compensation magnifies the obvious problems with this habit.

A vesting schedule defines milestones for a person to show that their value matches the company’s expectation. It is imperative that managers are taught and reminded to ensure performance is aligned with the awards an individual holds. Equity is a finite resource, and it cannot be wasted on people who are not helping you succeed.

2. Diversity, Equity, and Inclusion

Ironically, equity is typically the least equitable form of compensation. People with more forward personalities or negotiation skills often get larger grants than their peers. This leads to long-term values that magnify seemingly small variations in award size at the time of hire.
The arbitrage performed at the time of hire benefits the overly confident and leaves less for your best long-term performers. Companies should consider removing or severely limiting new hire equity negotiations to improve future DEI issues.

3. Small errors lead to large problems

When a compensation professional makes a mistake in the market pricing for a base salary it may cost the company or individuals thousands of dollars. When a similar mistake is made for an equity grant it can cost the company or individual hundreds of thousands, or even millions of dollars. The paradox of equity is that you must be supremely confident in your grant practices while you are supported by sketchy or vague data.

When looking at equity compensation market data you have little idea of the underlying details. You don’t know the intention of the awards. You have little or no details on vesting schedules, termination provisions, or performance conditions. You likely don’t know the prior growth history of the company or the expectations for future growth or an exit event. You don’t know what the investor waterfall looks like at each participating company. In short, the data provides a guideline, but it does not provide answers.

When granting equity compensation, take the time to understand the purpose of the awards and how your grant details, practices, and data contribute to or hinder your long-term success. Take the time to educate managers of the additional responsibility they have in managing their staff to their awards. Ensure your processes do not undermine the hard work you are putting into correcting DEI issues. Remember that equity compensation is missing more than it includes. Things reported as trends are probably only things a few very visible companies are doing. Best practices are just the most common way of using equity, not the best use for your company. As a burgeoning young superhero, take the time to learn your abilities and limitations. With equity compensation’s great power comes great responsibility.

Dan Walter is a CECP, CEP, and Fellow of Global Equity (FGE). He works as Managing Consultant for FutureSense. Dan is also a leading expert on incentive plans and equity compensation issues. He has written several industry resources including a resource dedicated to Performance-Based Equity Compensation. He has co-authored ”Everything You Do In Compensation is Communication”, “The Decision Makers Guide to Equity Compensation”, “Equity Alternatives” and other books. Connect with Dan on LinkedIn. Or follow him on Twitter at @DanFutureSense.

Cafe Classic: Reward Design is a Balancing Act!

Editor's Note: Reward design is no place for quick-fix artists and thoughtless amateurs. 

Rewards can be powerful things.  Poorly aimed and carelessly fired, they can do real damage.  I like the image evoked by Dan and Chip Heath when they compare incentives to a jet engine: "There's no question that the engine will take you somewhere, fast, but it's not always clear where.  Or what you're going to mow down on the way."

Work today, regardless of the job or employer, is a complex thing.  Employee performance and contributions are rarely as straightforward and easily discerned as we like to pretend.  A number of bloggers, both inside and outside the Cafe, have reinforced this point recently.

Cafe blogger Jim Brennan reminded us that mentoring is a key to talent development and long-term organizational survival - and that we fail to appreciate and recognize those who do it at our own peril.

In another Cafe post, Derek Irvine shared the story of Tom to demonstrate how critical it is to recognize those who contribute consistently and support the success of others, even if they aren't the ones putting the highest score on the board.

Bob Sutton, in his Work Matters blog, warns against "winner take all" incentives that lavish rewards on the select few and leave ordinary performers with just the crumbs, and notes the climate of cheating that such programs can promote.

Strong stories and sound advice.  And if there is a common thread running through all this advice about rewards, I would submit that it is the imperative of balance.

Effective reward design must carefully sense and balance all sorts of competing priorities and tensions, including (but not limited to):

The greater team versus the individual

Results versus behaviors

Short-term versus long-term

Quantity versus quality

Speed versus service and attention

"Stars" versus supporting players

Critical skills versus all other (also important) skills

If there is one immutable law of reward design, it is that pushing too hard in one direction or the other, toward one desired end at the expense of another, invariably leaves unhappy, unintended consequences in its wake. 

So, better doggone well take the time to map out and appreciate the full lay of the land, including all those competing interests and priorities.  Better have a pretty solid idea of where that jet engine is likely to go when it takes off and what else lies along that path, at risk for being mowed down.  Failing that, you got no business designing and implementing rewards, my friend.

It's a balancing act, baby, and no place for amateurs. 

Ann Bares is the Founder and Editor of Compensation Café,  Author of Compensation Force and Managing Partner of Altura Consulting Group LLC, where she provides compensation consulting and survey administration services to a wide range of client organizations.  She earned her M.B.A. at Northwestern University’s Kellogg School and enjoys hiking, reading and hanging out with family in any spare time. 

Image “Spa Stones Shows Equal Value And Balanced” by Stuart Miles via FreeDigitalPhotos.net

How to Change Your World

Let's say that you're responsible for developing new or revised compensation programs for your organization.  Perhaps an audit has generated worrisome results, or the latest employee engagement survey showed a large measure of discontent.   Perhaps turnover is rampant, or you’ve just sat through an uncomfortable meeting with a boss who is upset over a bloated payroll. 

Something must be done, you’re told, to better utilize payroll dollars, because too much money is dripping out of your organization like a leaking faucet - and the remainder isn't giving you much bang for the buck.

The challenge, then?  You have to change your world.

Now there are program design considerations, costing models, impact studies, external and internal analyses, even focus groups perhaps, but at the end of the day you can’t simply snap your fingers.  Your ideas, your recommendations need to be approved.  So, how do you make that sale?

What Not to Do

When facing senior leadership with compensation proposals, the quickest way to be shown the exit is to tell them what they don’t want to hear.  Sounds obvious, but basic judgment errors are commonplace occurrences when you’re so caught up with what you know are the answers that you forget to focus on how to talk to your audience.

A few examples of how not to sell your ideas:

• Leading with "It’s the right thing to do" is rarely a good idea.  Using an emotional, feel-good rationale is seldom a strong argument and is easily sidelined by the bean counters or anyone playing the “This is a business” card.

• “Surveys tell us . . . “can be another weak point, because the argument that everyone else is doing something hasn’t worked in a debate since you were a kid.

• Over analysis: The more you rely on charts, graphs, and regressed formula trend lines to make your point, the more vulnerable your proposal becomes as eyes start to glaze over and your audience loses focus.  

I’ve seen senior executives feel compelled to ask detailed questions about the support calculations, just to show they’re engaged and shouldn't be taken for granted.   Don't let your proposal rise or fall on the comfort level of decision-makers struggling through the details vs. the concept.

Principles of the Sell-Job

Here are a few suggestions to consider before walking into that critical proposal review meeting.

• Make a business case where your recommendations illustrate how the company will win.  Management’s prime directive is to act in their own self-interest, so once you have them nodding their heads at their own good sense, they’ll be more easily moved to support your plans. 

• Tell a story; start with a statement of the problem, then augment with a back story to explain how things got so bad.  Illustrate the impact of inaction, then close out with your recommendation - highlighting impact, savings, reduced turnover, whatever the goal - that solves the problem.

• Do you know the ROI?  You had better have one, as that could be your strongest argument.  Pros and cons?  Are there potential glitches?  Rarely will you have simple, uncomplicated solutions that can’t fail.  So, it would be better for you to address any troublesome possibilities early on, to soften the potential "gotcha's" that could trip you at the worst possible time.

• Always have a backup plan, just in case, as all-or-nothing strategies don't usually work well outside of the movies.  Better to get half a loaf today and plan for more later, than crash and burn today because of pride and stubbornness.

So be careful that you don't fall on your sword over concepts and be prepared to compromise.  Proprietary ownership of ideas (I want it my way) should be secondary to achieving the business goal.  Though often pride does get in the way, sometimes derailing sound ideas for the wrong reasons.  It should not be about you.

The numbers you will be sharing will rarely speak for themselves; in fact, you’re at risk if you rely on statistics as your main argument.  Instead, paint a picture with text.  Then use statistics to support the point you're making.  Strategic thinkers balance technical skills with the art of persuasion, influencing others to undertake a desired action.  They don't throw out a bunch of numbers and say, "see?" Never assume that your audience will see what you see.

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Even when the task ahead is daunting, go ahead and take that first step.  It’s usually the hardest.  But if you’re prepared to accept incremental gains vs. sweeping changes, if you keep your eye on the ultimate goal, you'll find the second step is easier, then the third and so forth.

"Rome wasn't built in a day" is a classic common-use phrase, and for good reason.   Because it rings true.  So, think steady progress when you try to change your world.  Just don't become Don Quixote and run off chasing windmills.

Chuck Csizmar CCP is the founder and Principal of CMC Compensation Group, providing global compensation consulting services to a wide variety of industries and non-profit organizations.  He is also associated with several HR Consulting firms as a contributing consultant.  Chuck is a broad-based subject matter expert with a specialty in international and expatriate compensation.  He lives in Central Florida (near The Mouse) and enjoys growing fruit and managing (?) a clowder of cats.

Creative Commons image "Mother," by Christopher Kray

Integrative Planning - Work, Labor, and Rewards

As employees ride the wave of the “great resignation”, not all is lost on the side of the employer.  Today brings the onset of a company-wide reset, an introduction of new expectations through a newfound sense of clarity.  Organizations best take this time to redefine who they are as an employer; how they wish to conduct work, where it will take place, and by whom. 

One must not forget, nor take lightly, the incredible feat organizations encountered at the onset of the pandemic.   Let's face it: none of us truly thought that within mere days we’d be cut out from going to the office and forced in some capacity to adapt to a remote setting. 

Settling into a new normal now may, in fact, seem unsettling, especially with a strained labor market coupled with increasingly high demands of the employee (e.g. more pay, better benefits, and guaranteed protections).  To some extent, being acutely aware of these stressors enables us to be more pragmatic and thoughtful in how we tackle the issues by adopting an integrative approach.  Planning today for tomorrow's future considers the interconnection among work, labor, and rewards elements. 

Firstly it is work planning.  Is your business model the same as it had been pre-pandemic? Have your product and services evolved or possibly changed and how do you plan to execute in the short and long term?  Addressing the purpose you serve as an organization and the details of how tasks should be done is critical.  Awareness of key work functions and activities enables you to define the kind of work being done and put in place the type of worker you may need.  This connects us to the second planning phase, your labor.

Who or what will do your work? This is the question tied to our second planning component.  While there might be a war on talent and a trend of employees wanting workplace flexibility, let's not forget that there are individuals, possibly a fair percentage of which may prefer coming into the office. 

Don’t be afraid to define a workplace culture and environment that differs from the new normal. Being descriptive in knowing the kind of talent you need, whether it be a contractor, robot, a human on-site or completely remote, enables us to better refine our search and deliver on productivity too.  

Finally, it is your rewards planning.  Optimum rewards achieve business alignment by defining the way you work and what you value, and the labor behind this productivity informs us to strategically design and purposefully cater to the workforce.  Through the precursor planning activities, you may find select roles have become obsolete or even redistributed to AI and contractors, which in turn affects your emphasis towards who will get rewarded.   

Embracing this planning period and diverting from the typical run-of-the-mill incentive programs facilitates a new total rewards unveiling, one that creates a clear line of sight, performance differentiation, and a repurposed employee value proposition.

The road ahead won't be easy, but putting some thought and laying the groundwork in careful planning will hopefully be the framework we need to create a new sense of forward direction. 

Reena Paul (CCP, GRP) works as a Senior Compensation Consultant.  She is passionate about all things “total rewards” and has experience in dealing with all stakeholders of an organization and strategizing optimum client-focused solutions.  A lover of data and the story it tells, Reena enjoys the exploration of presenting and discussing compensation with a fresh perspective.  Connect with Reena directly on  LinkedIn. 

Image source: Unsplash image with credit to Brett Jordan.

Cafe Classic: The Best Recognition I Ever Received

Editor's Note:  What does recognition that inspires and empowers look like?  Jacques Vilet shares her own unforgettable recognition experience in today's Classic. 

There have been many great posts at the Compensation Café regarding recognition.  Did you know that 99% of great recognition has nothing to do with money!

I’ve been thinking about that a lot recently.  It’s true . . . at least for me.   The best recognition is not about money.   It’s about feeling appreciated.  It’s about feeling that you did something good, and it was noticed.   It makes you feel you are not just a cog in a wheel but a person. It makes you feel that you are valued for your expertise, good judgment, decisions and  recommendations. That you have the best interests of both the company and employees at heart.

I want to tell you about the best recognition I ever received in my career.   The company shall remain nameless but other than that it is a true story.

I went to work for a company that had operations in 20+ countries.  I was the International HR Manager.  There were no HR people outside the U.S.   My manager told me they weren’t sure how many employees they had at each location and that this was embarrassing.   He said the CEO was upset that HR could not even answer a simple question like “How many employees do we have outside the U.S?”

My manager also told me that he didn’t know if the company was legally compliant in each country, had no idea what, if any, policies each location had, what their compensation was or what benefits they had.   He told me “it’s yours --- go for it”.

I did audits in each location, participated in surveys, made sure each country was legally compliant, worked with business units to insure their employees in each location were paid competitively, and recommended supplemental benefits where needed.  Each time I needed approval for something I was given the go ahead.

Toward the end of the “cleaning up” phase, I decided the company needed to implement multinational pooling.  It was approved by my manager.   I next made my presentation to the SVP of Administration.   He asked me to come back to him and discuss it  three times.   At the end of the third session he finally looked at me and said ---- and I’ll never forget this:

“Jacque we hired you for your expertise.   None of us here in the company know anything about international HR.   I still don’t totally understand multinational pooling.  I rarely approve something that I don’t fully understand.   But if you think we should do it I approve it.   I trust you and believe you have researched this and know what is best for the company and our employees.”

Well . . . . . . for the next week I was walking on air.  I can’t tell you how much that comment meant to me.   The SVP could have given me a “dinner for two coupon”, a $100 check, a plaque, etc.   But the best thing he did was give me recognition that made me feel like a million dollars.

I can assure you that I worked even harder than ever from that moment on.   I was determined to never make the SVP regret his words.

I have not forgotten his comment, and I never will.

Global Human Resources with major multinationals such as Intel, Texas Instruments and Seagate Technology. She has managed both local/ in-country national and expatriate programs and has been an expatriate twice during her career. Jacque has the following certifications: CCP, GPHR, HCS and SWP as well as a B.S. and M.S in Psychology plus an MBA. She belongs to SHRM, Human Capital Institute and World at Work. Jacque has been a speaker in the U.S., Asia and Europe, and is a regular contributor to various HR and talent management publications.

Sales Incentives: Farmer, Hunter, Rancher

Everyone who has ever worked on sales incentives has heard people refer to roles as “farmers” and “hunters”. These two terms are used to simplify the focus of sales roles and the type of pay they receive. Unfortunately, this clouds the roles of salespeople in many of today’s businesses. Professionals who have the responsibility of bringing in new revenue are more complex than we often recognize. In truth, many are more like ranchers than they are farmers or hunters.

Farmers grow things. They keep the ground healthy. They plant seeds and tend to their crops. They are patient, persistent, and resilient. They know that time, luck, and execution will lead to an eventual harvest. They live with their product and eventually take it to market to be sold. No matter how much they want to act, they can only sell their goods when the product is fully ripe and ready.

Hunters don’t live with their product they go after it. They work with an urgency created by the movement of what they are hunting, and the conditions that allow for the hunt to exist at all. They also know that luck, execution, and a limited amount of patience are required for success. Where farmers think of patience in terms of seasons, hunters think of patience in terms of days or even hours. Once they have captured their target, they must quickly get back into the field to find more prey.

Both definitions are still valid for many sales roles. Some positions require long, slow relationship building followed by years of productivity. Other roles require identifying, pitching, and closing new clients at a very rapid pace. But we are increasingly finding roles that combine both the methodical building cadence of a Farmer with the opportunistic market-driven closing style of a Hunter. We call these people Ranchers.

Ranchers are a unique breed of people. They are solitary but have strong interactive communities. They are independent, yet are comfortable asking for, and receiving, help during the busiest time of the year. They grow their own crops to ensure they have food for their herds. They spend years improving their bloodlines by patiently breeding in traits they want and avoiding those they don’t. But they also recognize and jump on opportunities.

If the market is for their product is strong, they will sell things even if they may have additional time to grow. If a better horse or bull becomes available unexpectedly, they will take a chance and act quickly, and figure out what to do with their current animal later. They also know that they must “bet the ranch” every year if they wish to have the ranch the following year.

The Rancher is the prototype for many modern salespeople. Some nurture their sales for years before the close. Others nurture their sales for years after the close. Both approaches are designed to allow them to act on opportunity when it arises, instead of when the season commands. The best salespeople are willing and able to execute on the long-term development of relationships while also executing on the quick “big close.”

Incentive plans for Ranchers need to have the defined performance goals and cadence of a traditional short-term incentive plan with the immediacy and high potential of a commission program. This combination is a new challenge for many compensation professionals and requires a more active partnership between sales leadership and the compensation department. If you begin today, you will have enough time to do something great for the start of next year!

Dan Walter is a CECP, CEP, and Fellow of Global Equity (FGE). He works as Managing Consultant for FutureSense. Dan is also a leading expert on incentive plans and equity compensation issues. He has written several industry resources including a resource dedicated to Performance-Based Equity Compensation. He has co-authored ”Everything You Do In Compensation is Communication”, “The Decision Makers Guide to Equity Compensation”, “Equity Alternatives” and other books. Connect with Dan on LinkedIn. Or follow him on Twitter at @DanFutureSense.

What Are Your Accidental Values & How Much Are You Paying for Them?

I've always made it a point to ask about organizational values in every compensation philosophy session and in every discovery conversation at the front end of a problem solving engagement.  The responses can vary from "Values? I can't remember but I think you can find them on our web site" to a passionate discourse on the guiding principles of how people behave and make choices in the organization.

Some of the more interesting - and frankly most helpful from a reward standpoing- exchanges I've had about values have been centered on the concept of accidental values.  Renowned author and speaker Patrick Lencioni first coined that phrase in his book The Advantage: Why Organizational Health Trumps Everything Else in Business, where he takes the notion of organizational values and breaks it into four distinct categories:

1. Core Values. These are the deeply ingrained principles that guide all of a company’s actions. They serve as cultural cornerstones and must never be compromised. They are the source of a company’s distinctiveness – their brand identity.

2. Aspirational Values. These are the values a company needs or wants to have to bring future success, but currently lacks. Aspirational values are beneficial, yet they need to be carefully managed so that they don’t dilute the core.

3. Permission-to-Play Values. These simply reflect the minimum behavior and social style of team members. These values qualify candidates for acceptance on a team, yet they are not the defining characteristics that set an organization apart from its competition.

4. Accidental Values. These arise spontaneously within a team over time, without being intentionally cultivated by leadership. They can be beneficial or they can produce negative forces, even to the point of toxic.

The concept of accidental values is particularly important to those of us who practice in the field of rewards because reward delivery - who and what gets reinforced with rewards - can be a key signal of an accidental value.

A few examples can help illuminate this point:

One leadership team realized that they had an accidental value of minimizing their investment in front-line workers, paying their customer facing employees as little as possible.  How did they discover this?  By realizing (and a credit to them for their honesty and willingness to look without flinching at their decisions) that they had a long history of making the lowest investment in wage and structure adjustments that would still get them in "a competitive range" for these roles.

Another company's management group came to realize that they had an accidental value of reinforcing those who stop at nothing (including stomping all over their colleagues and subordinates) to maximize their personal revenue generation.  How did they know?  Because these toxic individuals -- well known to everyone in the organization -- consistently earned the biggest awards under their incentive program (and scored the biggest merit increases as well).

You won't find accidental values framed on the boardroom wall or memorialized on the website, but employees know that they are there and their presence may mean that you are investing precious compensation funds in actively undermining your desired culture.

I find that using the framework of company values and particularly the concept of accidental values is a useful approach for confronting leadership teams about reward practice disconnects -- gaps between what they are saying and what the organization is doing with its compensation spend -- in a way that gets their attention. With that, this could be a good addition for all of us to carry in our mental toolbox.

What experiences can you share about accidental values in your workplaces?

Ann Bares is the Founder and Editor of Compensation Café,  Author of Compensation Force and Managing Partner of Altura Consulting Group LLC, where she provides compensation consulting and survey administration services to a wide range of client organizations.  She earned her M.B.A. at Northwestern University’s Kellogg School and enjoys hiking, reading and hanging out with family in any spare time. 

Creative Commons image "Face Plant" by Neil