Build shareholder value

Business analyses are increasingly researching quantifiable measures to determine a company’s current and future worth. The sudden collapses of companies like Lehman Brothers, Black Rock and Enron are instructive in predicting sustainable performance, writes Rod Waddell from Performance Path. Second in a two-part series.

Differentiation between rewards and gifts is critical. A reward provided before results is a gift. Over time it may be seen as an entitlement. Consider cost of living raises, annual bonuses, vacation time, and extended benefits. If they are not linked to performance, then they are gifts. How much does your gift-giving cost you? 

Some may argue that gifts such as these are necessary in order to attract top employees. I would argue top employees would love an opportunity to earn vacation time, pay increases or extended health benefits.

Employers must promise and deliver terrific rewards for terrific performance. They should also warn employees that poor performance will not be tolerated and then follow through.

So before we get into a full discussion on rewards, let’s define accountabilities. Many organisations try to anchor accountability with employee goals. Goals do increase accountability; however, at best, goals are lag measures. Their success or failure can only be determined by looking in the past. Unfortunately management by goals or objectives is like driving your car by looking in the rear view mirror. By the time you see the results, it is too late to do anything about it. You only get to measure results after the fact. 

Organisations need a measure that predicts the future. Marketers are constantly looking at current data and predicting where the market is going, what features will be most desired and where is the best price point. But organisations are different than free markets. Organisations have decided what strategy, technology and operating structure is needed in order to outperform the competition. And, it all gets filtered through the brains and backbone of their people.

Which begs the question: What do their people do to maximise their results and drive the enterprise forward? Where is the blueprint that tells frontline employees exactly what they should do from day-to-day and which of those day-to-day things have the greatest impact on future business results?

Or another way of saying it, “How do you know if your managers are creating value or destroying it?” 

HR professionals would say we have policies, procedures and job descriptions to ensure frontline activities are aligned with the goals and objectives.

In fact, most of the procedures and job descriptions have not been updated in years. 

Frequently the organisations rely on their managers to set work priorities, maintain compliance, assign duties, coach, discipline and direct the daily activities of their staff. 

I ask you a simple set of questions: Are any of these things directly related to the rewards that managers receive? Do employees recognise anything in their day-to-day activities that directly links them with contingent rewards? Do frontline managers believe they have significant impact on the organisation’s profits? Do they believe their share is equitable? Could they do more to improve efficiency, control cost, quality, customer retention, etc? 

Employees often work to the pay plan. Using measurable job standards linked with rewards focuses employee efforts on the key business drivers versus the pay cheque. The result: Increased accountability, performance and profits. 

Linking compensation and benefits with job performance attracts top performers and creates a culture of achievement, not entitlement. Change is sustainable when everyone knows what to do, consistently does it and is rewarded in meaningful ways for their achievements.

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Rod Waddell

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