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Aligning Compensation and Rewards

Guest post by: Eric Douglas

Article Overview: Here’s a way to think about aligning compensation to help spark creative flow and innovation.

Aligning Compensation and Rewards

Many companies link compensation to performance, believing that it will motivate people to make the organization more successful. And on some level it will. However, to release creative flow, the focus needs to be on the success of the organization, not on the success of one individual or a select group of individuals. Here's a way to think about aligning compensation to help spark creative flow and innovation. First calculate the Total Maximum Compensation (TMC) that a person should receive. Some forward-thinking companies, such as Google, limit the amount of compensation for its highest paid executives to a certain multiple of the lowest paid, e.g., 10 times. Thus if $50,000 is the lowest, then the maximum that an executive could be paid would be $500,000.

I think corporate executives and senior leaders should be paid up to one half of their TMC in guaranteed, base compensation. So if the TMC for a particular leader is $1 million, then the base could be as high as $500,000. The remainder should be in bonuses, tied to the company's overall performance targets and balanced scorecard.

Here are some forms of forward-thinking compensation you can use to reward people for performance and spark creative flow:

Gain sharing: This is an awards fund that is based on how well an organization does in meeting its strategic or business goals. Every employee, regardless of position, receives a bonus in the form of a cash payment. Every employee's bonus should be based on well-understood measures of success - so that there is transparency and trust in the process.

Team innovation awards: By announcing you'll reward teams that do a superb job achieving specific innovations, you can motivate everyone without eroding trust. My recommendation is to make sure no team consistently wins the award; the wealth and glory should be shared over time.

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Article Tags: behaviors, compensation, creative flow, executive pay, innovation, rewards



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