Business Growth & Strategy

Think OUTSIDE the Paycheck: Effective Alternatives on Exec Compensation

The retention of a company’s executive and leadership teams is critical to the success of a business. But how can you effectively compensate them so that they remain happy and productive in the business?

The answer may not be as simple as offering more money or stock in the company. Daniel H. Pink, author of the book Drive, argues that more money doesn’t always work to keep employees. There is a certain threshold where financial incentivizes no longer work, and in some cases he argues that they probably will achieve the very opposite effect.

The problem with financial incentives, whether through revenue strategy such as a bonus program, or through an equity strategy such as fractional company ownership in any form, is that the amount of compensation will always need to increase for the program to potentially remain appealing.

I personally believe that all company incentive programs should be uncapped, only if a company’s employees are properly selected, engaged, motivated and in alignment with the company. Whether the program is a bonus where employees revenue share or an equity program where they have an ability to participate in the ownership of the company, there should be a fixed mechanism that allows them, if they meet or exceed expectations, to be compensated commensurate with the value that they create.

Employees do not stay long term (and happy) in a company because they get paid a lot of money. The recognition of this principle allows the entrepreneur to be creative. The entrepreneur has the opportunity to create an environment and design relationships, responsibilities, and roles in the business where the employees are contributing at their best.

If a position is designed around employees’ best talents, then, even if they are not highly compensated, there is a significant likelihood that they will be loyal. Why? Because they love their job; they love the mission of the company; they love the people they work with. So, there’s a much greater chance that they will stay long term. They stay (engaged and happy) because of a sense of community and purpose.

In one of my businesses, I had a team of 12 people helping me to generate in excess of $40 million a year in transactional revenue. These twelve employees had a base pay that was close to the minimum wage and they were included in the design of a company-wide aggressive incentive program based on bonuses. They were responsible for incredible amounts of value created in the business, and the bonus program reflected that.

The bonus program worked not because of the bonuses, but because we create the right culture in the company. We had a culture in which the employees were well-chosen and their abilities were in line with their work. They loved their work, they loved each other, and they loved their customers. Management of these employees was easier because they were not looking to be managed; they were looking to do and love their jobs, and we facilitated the process as managers.

These employees would consistently get opportunities to work elsewhere for more money, but because most of them loved our system, believed in the mission and the growth of the company, were working within their “unique ability,” and had friends at work, they stayed for the long term.

Designing work around an employee’s best talents and conative abilities will likely result in loyalty and create an environment in which you, as the leader, are seen as a person who truly cares about the future and the contribution of that individual, as well as the culture of the business. The mission, culture, and community of your company are really what contribute more to retain the right person than simply paying more.

This topic and more are included in the Vistage Connect™ CEO peer advisory sessions. Learn more.

Hugh Stewart, founder and CEO of Confident Solutions Coach, has both a substantial education background and diverse entrepreneurial background. Stewart was not only a nuclear fuel designer, but he has created and operated more than 17 businesses in the past 10 years in industries such as money services, real estate, advertising, reinsurance consulting, and coaching.

Stewart seeks to help business owners who are struggling or simply wish to move their business to the next level. You can reach him at coach@myconfidentsolution.com, or sign up for a free business consultation here

Category: Business Growth & Strategy

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