Aligning Compensation Strategy with Corporate Objectives

June 29, 2020
Low angle of a modern building with the sunrise behind it

Are your overall corporate goals aligning with the behaviours of the entire organization? In other words, are your people being evaluated and incentivized towards one common objective? Larry Baldachin, a Managing Director of Farber’s Performance Acceleration practice, shares his experience on how to get everyone heading in the same direction.

All organizations need to set the right goals—goals that embody the desired results of the business as a whole. Ultimately, that success is achieved by setting targets and rewarding behaviours that meet those goals.

That all sounds simple enough but, taken alone, success can mean something different to each employee or department within the company. Designers create, assemblers build, budgeters save, and sellers sell. Everyone may be doing their best. The problem arises when those functional areas set objectives and reward behaviours that take the business in different directions.

That said, it’s imperative to look at the overall business goals and ensure employee behaviours are aligned—across the entire organization. That means assessing your current compensation and performance management processes to make sure everyone is rowing in the same direction. As you will see from my experience, it’s easy for misalignment to rock the boat.

Sales Makers Usually Do What They’re Paid to Do

I’ve learned some lessons more than once by witnessing the effect of misaligned goals in organizations and setting about to fix them. When I came out of Dell’s consulting business in 2009, and took charge of their national enterprise business, there were big challenges to confront.

Though it accounted for a sizable chunk of the company’s revenue, it was steadily contracting. There were several reasons, but it was clear that our corporate objectives were not being mirrored in the way we were compensating our field team from a sales perspective, or in the activities we were asking them to drive.

At a corporate level, we were concerned with profits and sales, with measuring our ability to retain customers, sell solutions and earn a larger share of wallet. Our sales people, on the other hand, were measured only on their top line—namely new customer acquisitions. This meant that the salesforce was being evaluated and rewarded as being successful when the business wasn’t.

With that in mind. we needed to take a hard look at our compensation strategies from a business perspective, and change them across the board so they were aligned with what we wanted the business to do. That’s easier said than done, because we had to shape behaviours without tying people’s hands or measuring them against outcomes over which they had no control.

In our case, it wasn’t fair to make salespeople responsible for the bottom line, since they couldn’t contain operating costs. However, they were able to affect gross margin, or the mark-up. We also found ways to measure and incent our people on selling services, such as storage or security. So, if a person sold a server as well as software integration or a support agreement, they’d receive additional compensation.

We also changed the way salespeople reported on their pipeline, including how business was brought in; and since these activities bolstered our net margin, the company’s performance began to change dramatically. To be fair, we lost some salespeople along the way—those who couldn’t make the adjustment—but those who embraced the shift saw greater personal success with the realignment.

The Easier Your Compensation Strategies Are to Understand, The More Effective They’re Likely to Be

When I went to Rogers Communications in 2011, I saw a similar disconnect, but the solution there was a bit different. As you know, Rogers is largely a subscriber business, providing continuous service to a client base. Although we were paying our people to maintain the overall base of customers, we weren’t distinguishing between existing customers and new acquisitions.

In many cases, a rep could be losing customers out the back door, while incenting new ones to enter at the front. Customer churn brings long-term repercussions for company reputation, but it can have immediate consequences for profitability as well. Typically, new business costs more than existing business, both in terms of the expense of acquisition—incentives such as free phones and hardware—and in lower margins on the monthly subscription.

Our salesforce was being measured on their ability to maintain their subscriber base at year-end regardless of profitability. So, we started measuring people on acquisition margin, customer retention, and their ability to sell data, security and professional services. We found that the service business was critical, not only for its higher margins, but because it forced us to really understand our customers’ needs and what success looked like for them.

At Rogers, it took us about four months to make the pivot towards realignment of corporate and sales goals, but we were able to reverse the trend in a contracting business with shrinking margins.

Incongruent goals tend to be prevalent in field-based situations involving the customer-facing workforce, but it extends beyond the realm of sales dollars. Inbound call centres might measure their people on the number of calls they handle in a day from customer inquiries and complaints. However, the company itself may be more concerned with customer service stats such as NPS (net promoter score) or the tendency of its customers to recommend. That can result in misalignment, since resolving customer problems—as opposed to merely processing them—can be time-consuming and result in fewer calls processed.

At the end of the day, addressing complaints results in happier customers and fewer call backs, even if it seems less efficient on activity-based measures.

Alignment in Compensation Strategies Makes All The Difference

Divisions within a company can also find themselves working at cross-purposes. The finance department may be evaluated on its success in cost reduction, while the marketing team is measured on its ability to broaden and penetrate its client base. Unfortunately, if finance is squeezing the bone dry on the funding side, marketing will lack the resources it needs to achieve targets. In these cases, clear goal setting at the corporate level is needed to arbitrate the prudent level of expenditures needed to get the desired results.

In all of these situations, the starting point is defining what success looks like from the corporate perspective. If we then recognize that our best employees tend to be results-driven (which is a good thing), it really becomes a matter of setting objectives, encouraging behaviours, measuring results and providing rewards that are consistent with those corporate goals and can be influenced by employee actions. The corporate boat will chart a faster and straighter route with everyone rowing in the same direction.

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Larry Baldachin is a Managing Director of the Performance Acceleration practice at Farber, a group dedicated to helping businesses recognize and leverage opportunities for growth and optimize results. Larry can be reached at 416.613.4641  and