Pay and Performance - Still a Hard Link to Forge for Many Companies

IRVINE, Calif. - June 3, 2013 - PRLog -- Businesses intuitively know pay should be tied to performance but often don’t know how to effectively make that connection, according to Ken Gibson, Senior Vice President of The VisionLink Advisory Group, a compensation consulting firm headquartered in Irvine, CA.  As a result, many companies create compensation programs that are not tied to the achievement of appropriate results. Beyond that, they sometimes institute programs that actually diminish performance, the firm leader said.

“Some organizations think you can ‘buy’ performance and you can’t,” Gibson explained.  “What successful companies have figured out is that pay is a strategic tool that is not one dimensional. It has many facets that must work together much like asset classes do in an investment portfolio to achieve a ‘total return.’  It’s less about ‘how much’ you pay people and more about ‘how’ (or in what form) you pay them.“  

Given the importance of this topic to so many businesses, VisionLink will be broadcasting a free webinar on June 18, 2013 entitled, “How Does Compensation Impact Performance?” (More information and registration for this event can be accessed at: http://www.vladvisors.com/business-growth-strategies/event-details.aspx?ID=114.)

According to Gibson,  a rewards “portfolio” has to be organized in a way that creates alignment between a company’s vision, its business model and strategy, the roles and expectations associated with those elements and how value will be shared once those expectations are fulfilled.

“Only compensation that is properly distributed between a range of ‘asset classes’ (so to speak) can achieve that,” the compensation expert said. “A one or two dimensional approach won’t get you there any more than one or two stocks can be counted on to generate the total return you’re seeking in your investment portfolio.”  

VisionLink’s senior vice president went on to say that just paying someone a higher salary than the competition doesn’t communicate anything to that employee about what, for example, needs to be done to grow the business. “If my company has plans to double revenue in the next three years, and I am paying a key person $10,000 more a year in salary than most of my competitors, what connection is there in his mind between his remuneration and my growth target? There isn’t any,” Gibson asserted.  “What I need is for that employee to ‘own’ the revenue goal–to have a sense of stewardship about it.  I can talk all I want about how important that goal is to the business, but unless that employee and I have defined a financial partnership for achieving that outcome, it’s not likely he will fully adopt an ownership mentality towards it. We’re not aligned.”

The pay consultant went on to say that instead of trying to “buy” performance, companies should be trying to create alignment (line of sight) by effectively defining how value is created in the organization and how and with whom it will be shared.