Welcome back!
Our goal is to make the Corner Office Gazette E-Notes your go-to source for topical information regarding sales-force effectiveness, the productivity of your organization and staff, the rapidly changing world of executive compensation and those every-day decisions a senior executive must make.
If there are issues of immediate importance that you feel we should be looking at, please call or write. Our webmaster Christopher again wants me to remind you that copies of our E-Notes from prior months are available at our website.
www.wilkeningco.com
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IF RIP VAN WINKLE AWOKE TODAY | PT II
EXECUTIVE PAY PLANS AND LONG-TERM INCENTIVES
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We are periodically looking at changes that have occurred in our practice areas over the last two decades to commemorate our 20th year in business. Last month we talked about sales management. Let’s shift gears a bit today and talk about the subject of executive pay plans and long-term incentives.
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Executive pay has always been a specialized and separate reward tool available to Boards of Directors and ownership. It has been an area whose practices, regulations and objectives have created challenges quite different from those experienced in any other field of compensation design or management. Of course, when I speak of executive compensation I really refer to long-term incentives for the executive—because in reality, executive salaries and short-term (annual) incentives generally differ from those of other employees only in terms of scale. We believe two words best describe what we have seen happening to long-term executive incentives since 1989. These words are: SHIFT and MORE.
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- Shift—
- There has been a general shift in Focus (and most likely in dollars) from other types of classic compensation tools (salary and annual incentive) at the executive level to long-term incentives.
- There has been a shift in eligibility - from only a small cadre of positions at the top of the house to a larger group of executive/management positions within the company. However, in no way are these rewards being offered to any employees except those contributors determined to be most important to future success. A contradiction to this, however, is the widespread use of stock options within some public companies. Yet this practice may represent more of a benefit than a form of executive compensation and pay for performance.
- There has also been a shift to longer-term payout horizons to stress the importance of key employee retention. Where we once saw many three-year plans and payout tables, I now see (and recommend) increased use of arrangements that pay out between five and ten years into the future, within IRS guidelines.
- More—
- There is more interest (and a greater prevalence) in long-term incentive tools being used in private and family companies today. In 1989, long-term incentives were the province of the public company—with a few exceptions. Today, private company owners and Boards have become enthusiastic users.
- There is more science utilized in measuring and evaluating long-term incentives. In today’s environment there are demands to know what a “share” is worth, what the value of a payout will be 10 years into the future and precisely what factors will drive both reward and future valuation. Terms like, cost of capital, variability, liquidity discount, Black-Scholes Model and binomial distribution have now routinely entered discussions in the Board room. The quantification of this field of executive pay is clearly evident when we see the present value of executive long-term incentive awards now reported in major annual executive pay surveys—for all levels of executive.
- There is much more involvement by the Board of Directors in any and all executive compensation decisions. Where a Board once delegated most pay decisions to the CEO and management team, it is now integral to the decision process itself—how much, who, why, when. In fact, many Boards now retain their own executive compensation counsel for advice and guidance. This was rare ten years ago. We now consider this to be a best practice for public and larger-private companies. Wilkening & Company provides this kind of service.
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Does your company use long-term incentives? Have you experienced these or other changes? (See our background discussion regarding long-term incentives in the September edition of E-Notes available on our website).
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WHAT WE HEAR ON THE STREET
THE COST & RISK OF BASIC BUSINESS DECISIONS IS RISING - ARE YOU READY TO COUNTER?
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Last week I met with an insurance broker to finalize details of a commercial real estate liability insurance policy. While we were talking about the business climate in general, he told me that he had recently experienced a series of claims from employees of his clients unlike anything he had ever seen before. During the last six weeks he had seen two claims where former employees were asking a court or government commission for damages for an “unwarranted” or “improper” discharge and another by a current employee for the maintenance of a “harassing” workplace environment. In all cases the claimants were asking over $10,000 in damages.
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In the two discharge complaints, it was believed both employees (from different companies) had been discharged in an appropriate manner (within company policy and known employment guidelines) because of a diminution of work. They sounded like routine downsizing actions.
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In the other case, a current employee was claiming that the company had created an environment where the employee could not effectively do the job. Consequently, the employee was claiming financial damages.
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We all know that these types of claims can be filed with little or no merit, but will routinely be settled by some insurance carriers to get them off the books. Further in this economic environment, employees (both current and former) are looking for ways to generate additional income—and the court, a hearing agency or insurance company can be seen to be a soft touch.
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Are you ready to avoid or face these type problems? We recommend two actions for you to take—
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- Make sure your human resources (and labor) professionals create the cleanest discharge procedure and process possible—audit it yourself if in doubt.
- Contact your risk-management advisor or manager and be sure that—if something does go wrong—your firm has appropriate and adequate insurance coverage for either real or contrived claims.
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But, do not misread my above comments. Run your business as it needs to be run to increase its value, and do not spend your valuable time trying to avoid risk. Just exercise a bit of due caution and preparation—and manage your risk. There is a big difference.
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Let's Talk About Cold Calling
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Last year we were approached by a large company that is a seller and provider of professional advice within the financial services market. A top company sales executive shared with me that the company was finding it necessary to reach out to and cold call upon CFOs within their market with whom they had never done business with before. But, he then shared that the real problem was not talking to the CFO, but getting through the secretary (or another gatekeeper) to get an audience with the target CFO. He asked if we could create and run a hands-on training session for the company sales force on successful techniques for cold calling and engaging gatekeepers—one in the same as it turns out. We prepared and conducted a successful, interactive training session late last year.
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We found that our session and discussions ultimately revolved around what we call: the three truths about cold calling. What are they? Glad you asked!
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- The person on the other end of the phone is just as reluctant and scared as you are. They seem to have all of the power, but they actually do not. Here’s why…
- They are insecure with your presence or arrival. They do not know who you are or what you represent—we are all skeptical and cautious of the unknown.
- You are likely getting in the way of them doing something that is likely both important and in whose outcome they are confident—classic impatience and anxiety. Instead, they are talking to a stranger who may be wasting their time. (What do they say—you have 10 seconds to make your point?)
- You are asking them to take a risk for which they may not be rewarded. “So let’s see: you want me to tell my boss to speak with someone I do not know or trust?…I don’t think so!”
- If you cannot get the person on the phone to like and trust you (in about 2-5 minutes), you are sunk. How do you warm up that call?
- Let’s get personal—state your name and company immediately;
- Ask for the person’s help (always a great ice breaker);
- Establish that you belong in the same office with the CFO, or that you have been working with a known colleague or friend recently;
- Create a bond—who told you to call?
- Establish why you are not a risk to them or the next person to whom you may speak. (“I have been in this field for 27 years and I have grandchildren!”)
- Be ready for the unexpected. Have you ever had the President pick up the phone when you expected to talk to the switchboard or secretary? You had better be ready—need I say more?
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As we discussed and validated the three above truths during our training session, we also made sure that all members of the client sales force had a chance to practice cold-calling techniques in a group setting and with immediate feedback from peers. The session was both productive and fun. Try it yourself.
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Is your sales force increasingly required to cold call and do they do it well? To learn more about our cold-calling training and group-learning program, please call or contact us at www.wilkeningco.com or 847-823-5090.
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NEXT
TIME:
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Converting your legacy sales-commission plan to a new and improved growth model
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