3 Ways Pay for Performance is like a 50 Foot Putt…on Glass

Stickman 50 foot puttI watched an amazing video the other day. Professional golfer, Rory McIlroy, was challenged to attempt a 50-foot putt on a glass surface. After missing his first attempt, Mr. McIlroy was successful on his second try. How does this relate to compensation you ask?

1. Focusing on accuracy is essential…regardless of the environment

Golfers must putt on all types of surfaces in all types of weather. The best professionals have similar scores in almost every tournament, regardless of the conditions. It’s not always possible to know what to expect. When you watch the video, you might be tempted to write off Rory’s success to luck. But, his first attempt only missed by a mere half an inch. Amazingly, this meant that as the ball was hit there was only a margin of error of five one-hundredths of an inch between success and failure. He focused on the correction, made a tiny adjustment and the ball dropped in on his second attempt. Accuracy at the start is critical to accuracy at the finish.

2. You have to practice…a lot

We often focus on a task only when a deadline looms. Worse, we seldom spend time “trying out” compensation ideas during our slower times. Ask any professional athlete, musician or artist and they will tell you they practice more than you can imagine. Great golfers have made hundreds of thousands of putts during practice. Photographers publish one picture for every hundred or thousand they take. How many sales compensation plans have you designed just to track potential results? How many long-term incentive programs have you created in a hypothetical mode to prove your proof of concept before you make it real?

3. If you miss your goal, you have to be ready and willing to try again…immediately

Adjustments should be expected. Almost no one, not even the pros that practice all the time, get it right the very first time. Failure is not necessarily a reason to jump to something else. You may just need to adjust and try again (and again). Have a plan for how you would approach things differently if it doesn’t work. Be ready to put that plan in action as soon as it becomes clear that the prior attempt is unsuccessful.

So much of what we do is like putting on glass. The surface is unfamiliar and things move faster than expected. Something that looks smooth at first glance is bound to have curves and undulations over time. Our margin for error is small and success may offer only fleeting praise. But, focus, practice and quick adjustments can allow you to be successful in even the most challenging and unexpected conditions.

When Considering Pay: Everything in Moderation, Including Moderation

Stickman Moderation in EverythingCompensation professionals do a lot of moderating. We work to moderate expectations. We work to moderate misunderstandings with incentive pay. And increasingly, we seem to be working to moderate pay itself.

Someone once told me that when animals are in a big herd only those at the edges have a decent view of what’s really going on. Those in the middle just have to trust that everyone around them is moving at the right pace and in the right direction. While others often decry Continue reading

Hey Startups! Tomorrow IS too late!

Stickman  Tomorrow is Too LateWe’ve all heard the phrase “It’s never too late.” I am sorry to tell you that everyone has been wrong. As it turns out when it comes to compensation issues, today may not be too late, but tomorrow almost always is.

One of the most consistent and pervasive issues that I deal with is helping companies fix what they didn’t do (or what they didn’t do correctly.) This is especially true with small companies who often don’t have a dedicated compensation professional. The problem may come to light when a key employee is lost, but it is Continue reading

Don’t be Your Employees’ Grandma

Stickman Paying Like GrandmaGrandmas are awesome.  They are sweet, loving and great listeners with too many other good things to list. But, they consistently have one flaw. I know it’s mean to talk about Grandma’s flaw, but it is the same flaw many HR and compensation people also have.  While it may be totally endearing in a Grandma, it’s completely counterproductive and infuriating when found in compensation professional.

Remember when you told your grandma you loved silver dollars and couldn’t get over the pair of gloves she gave you on your fifth birthday?  The next thing you know, you are receiving a pair of Continue reading

Uncertainty Motivates No One

stickman uncertaintly motivates no oneHave you ever been asked by an executive or compensation committee to create a compensation solution for a problem that was poorly or incompletely described? Nearly everyone reading this has had this happen. Admit it. As you walked away you were probably uninspired even though you may have said yes. That’s because uncertainty isn’t motivating. In fact, when you ask people about their most common driver of procrastination most will say it has something to do with not being certain of how to move forward. The list includes: big projects that require you to delve into Continue reading

Pay Can’t Fix Anything! Fix it then Pay, Not the Other Way

Stickman Fix It FirstOften companies come to me with a request to design a compensation program, philosophy or market analysis hoping it will fix a critical problem in the company. Sometimes the company needs people to perform better. Sometimes they want employees to act and/or feel more like owners or investors. Let’s be clear, regardless of the issue, compensation CANNOT fix it, at least not in the long run.

Compensation can be effective at fixing (or hiding) problems for a short period. A bonus program to Continue reading

Equity Compensation: Equity and Inequity

Stickman Equity InequityIn the 1980’s, some tech execs in the Silicon Valley decided they could get more and give more through their board use of stock options. Equity compensation had been around for decades prior, but generally only as a top executive tool. The new revolution of equity compensation was one of sharing, distribution and a sense of “we each win if we all win.” Of course, stock options made a few very very rich, but it also made many really well off. By the mid-1990’s nearly every company in the Silicon Valley used equity as a way to combat large companies for Continue reading

QuickScore 2.0 – Compensation and Governance for 2014

Stickman QuickScore 2On January 27, 2014 ISS released their updated QuickScore document. QuickScore is intended to help shareholders identify governance risk in the companies they do, or may, invest in. Let’s start with the name, QuickScore. This questionnaire is anything but quick. There are currently 329 questions covering four “pillars” of governance: Board Structure, Shareholder Rights, Compensation / Remuneration and Audit. Many of the questions apply only to a specific market (ex. United States, broken into Continue reading

★ Do software engineering companies typically give you to stock packages to vest together over 4 years (you get x amount in 2013 you have been doing really well lately and get x amount in 2014?

Orig question and answers on Quora

Dan Walter’s Response

Performance-based equity compensation is becoming more common.  Usually these awards are given as Restricted Units. There is generally a number of units that vest over time, based on service (you keeping your job). There is then another layer of units that can be earned over a period of time+performance metric+(maybe)change in control.  The timing usually tracks with the service based schedule. The performance metric is usually company based (EBITDA, Revenue, Number of things made or clients won etc.) It may be group/project based and for some executives it can be individual based.

These are most often combined into one award, which can be complex. But, since these awards are mostly given to smart people (like those reading this response) the complexity can usually be explained with a few slides, a few words and decent modeling tool.

Performance-based options are still pretty rare.  Since there is already a price hurdle built into options most companies feel that adding additional hurdles may make these demotivational (and there is some research to support this.)

P4P is Growing Up! NACD Provides New Guidance for Executive Compensation

Stickman P4P Grows UpFive years ago most executive compensation consultants were still discussing a more structured approach to pay for performance as if it were a pleasant, but unimportant, children’s story. There were a few vocal proponents who expressed a need to stop leaning almost exclusively on stock price. But, the crowd generally drove with their eyes in the rear view mirror instead of the mountain on the horizon. There seemed to be plenty of data showing how the old ways linked pay and performance, so there was Continue reading