Great job! You filed your proxy and your executive compensation program is bullet-proof. You received more than 90% say-on-pay support from your shareholders. Mission accomplished. Or is it?
We can all agree on the criticality of ensuring that you have strong shareholder support and demonstrating that your executive compensation program is aligned with shareholders. But it’s equally important to ensure that your program and reward opportunities are well understood by participants. After all, didn’t you just tell your shareholders that your program is designed to pay for performance?
Recent research conducted by Towers Watson highlights the importance of effectively communicating your executive pay programs. Specifically, senior employees at companies that were identified as highly effective communicators were nearly twice as likely to agree that “there is a clear link between my job performance and my pay” as senior employees in companies identified as weak communicators (89% vs. 51%).
The differences in other areas explored in Towers Watson’s 2012 Global Workforce Study were equally dramatic. Companies with highly effective communication outscored their counterparts in the market in ensuring that their senior employees understand:
- The company’s business strategy (91% vs. 66%)
- How their job contributes to the strategy (90% vs. 63%)
- That their pay is set fairly compared both to others in the company (89% vs. 54%) and to the broader marketplace (89% vs. 50).
Some Work to Do
Today, regardless of industry, the competition for high-performing senior talent is fierce. Attracting and retaining them is no easy task. And, of course, there’s the motivation part because these are the people you need to drive your business results. Thus, it’s imperative for companies to clearly articulate the connection between the drivers of performance that executives can influence and their compensation outcomes. Our research suggests that a number of companies have some work to do in communicating not only how pay and performance connect, but how pay is set for similar roles internally, as well as in the market.
This means that having a substantive communication strategy that goes beyond your shareholders is not a “nice to have.” Executive participants need to understand the linkages between incentive plan designs, performance drivers and performance management results, ultimate payout opportunities and value creation. And from a longer-term career perspective, executives — especially those below the C-suite — need to understand how pay may evolve as their careers develop and advance.
Having a clear roadmap for communicating your program helps ensure that you get real value for the investments you are making in your most valuable talent pool. The best roadmaps are both strategic and practical — they are built to engage leaders around their line of sight to business results and strategy. But that’s only the beginning. Developing the right materials for your executives is where the rubber meets the road. And one of the broader findings of our research is that technology is a critical component to communication effectiveness. Not a surprise for always on-the-go executives.
Finding the right balance of media, editorial tone and distribution timing for your communications roadmap can really pay off. Recognizing that your executives use different tools (e.g., smartphones, tablets) to stay connected, have sophisticated levels of business acumen and don’t have time to navigate through emails or read long, complicated plan documents are all important factors in the equation. And, the answer to effectively engaging your executives lies in a using a variety of tactics, such as online tools, face-to-face discussions, leadership videos, personalized information and talking points.
So, as we head into the second quarter of the year, ask yourself a few questions:
- Do you know empirically how your executives and senior managers would answer the questions around: the link between pay and performance, their understanding of the business strategy and how they can impact it, and how their pay compares to others?
- Does your approach to communication reflect the significant investment you make in executive pay, especially in incentives?
- Do you use the right technology, suite of tools and media to ensure your senior staff is engaged?
- And for succession candidates, do they have a clear picture about what the future could hold for them from a reward perspective?
With the 2013 proxy season almost behind us, now is a great time to think about these issues, build your communication roadmap and start developing content that both engages and informs your top talent. Because when you do it right, “pay for performance” becomes more than just a trendy tag line in your proxy. It illuminates your company’s unique strategy and recipe for success for a very special audience.
Sharon Podstupka is a director in Towers Watson’s communication and change management practice in New York. Also based in New York, Todd Lippincott leads the firm’s executive compensation practice in the Americas. Email firstname.lastname@example.org, email@example.com or firstname.lastname@example.org.