Aligning Compensation And Rewards

Leading at Light Speed is a powerful leadership book by Eric Douglas revealing the 10 specific ways an organization must act and behave to build trust, spark innovation, and create a high-performing organization. In the Sixth Chapter, Stimulate the Creative Flow, Eric talks about 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, making the success of the organization the optimum goal, rather than the success of one person or group, opens the floodgates of creativity. When it comes to aligning compensation in order to springboard the flow of creativity and imagination, you may wish to consider the following:

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. Therefore, if $50,000 is the lowest, then an executive’s maximum payment 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. A cash bonus is given to every employee, regardless of position. In order to build trust in the process, each employee’s bonus should be based on well-understood measures of success.

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 best advice is to ensure that no one team consistently wins the award; the rewards and recognition should be shared over time.

Take this free work survey to see if your organization practices the 10 Quantum Leaps of high-performing organizations.

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