CEOs and Incentive Compensation: Partners or Strangers?
Do CEOs become involved in the design of incentive compensation programs, or just pop their head into a meeting and ask, “Will this cost me more or less than it did last year?” Are there advantages to either approach?
Somewhat surprisingly, in a lot of large companies we see CEOs or presidents that are very involved in the compensation design process. It doesn’t mean that they’re getting down to the details of the process – modeling numbers and trying to be creative about SPIFFs. What it means is that they are giving strategic direction and staying informed throughout the process.
We recently worked with a large telecom company whose CEO is really involved in the sales compensation design process – for thousands of employees and a lot of different job types. It’s an important message for the CEO to communicate, and it’s a positive reinforcement to the sales and sales operations organizations that there is indeed a connection between the c-suite and the front line: incentive compensation.
In our experience, a C-level executive generally asks questions about how the business priorities are represented in the compensation plan. One key question is: are the problems associated with the comp plans really compensation issues or are they broader sales effectiveness issues? Sales compensation kind of has a magical quality. It’s a tactical program that churns up more strategic issues. For example, a problem that may first be blamed on a poorly designed sales compensation plan might really be the fault of vague and uncertain job roles. Sales compensation demands specifics, and because of that it can quickly identify other issues – kind of like a circuit breaker that pops.
So how do you get the C-level involved? Some CEOs are naturally involved, some are not. Often the CEOs who came up the organization through sales have more engagement. CEOs with a background in finance might be more interested in the cost rather than the potential to incent behavior.
It’s worth consideration. Several years ago we designed a new sales compensation program for a manufacturing company. Right before we were supposed to interview the CEO, the project leader, who was the head of sales, stopped us and said, “I’ve got to tell you that the CEO doesn’t know why we need to meet.” I couldn’t believe that the leader of this organization really didn’t understand the importance of the program. We had the meeting, and about half way through the CEO got it. Ever since he’s been very deeply involved.
The CEO connection is critical for the sales organization, in terms of strategic involvement. Whether it comes naturally or has to be coerced, it’s a worthwhile partnership.
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