Harmonizing Rewards And Compensation

Leading at Light Speed is a powerful leadership book by Eric Douglas revealing the 10 specific ways an organization must act and behave to build trust, spark innovation, and create a high-performing organization. The Alignment of Compensation and Rewards is discussed in Chapter Six, Stimulate the Creative Flow.

Many companies link compensation to performance, believing that it will motivate people to make the organization more successful. In some cases performance does increase. However, to promote the most creative productivity, the emphasis must be the overall success of the organization, not simply that of one person or team. Here’s a way to think about aligning compensation to help spark creative flow and innovation:

First calculate the Total Maximum Compensation (TMC) that a person should receive. Some forward-thinking companies, such as Google, limit the amount of compensation for its highest paid executives to a certain multiple of the lowest paid, e.g., 10 times. Thus with a low-end compensation of $50,000, an executive’s maximum payment would be $500,000.

A guaranteed base compensation of up to one-half of their TMC seems a fair payment for corporate executives and senior leaders. Case in point: if the TMC for a particular leader is $1 million, then the base could be as high as $500,000. The remainder should be paid out in bonuses, based on the organization’s overall performance targets and balanced scorecards.

Here are some forms of forward-thinking compensation you can use to reward people for performance and spark creative flow:

Gain sharing: This is an awards fund that is based on how well an organization does in meeting its strategic or business goals. Every employee, regardless of position, receives a bonus in the form of a cash payment. Every employee’s bonus should be based on well-understood measures of success – so that there is transparency and trust in the process.

Team innovation awards: By announcing you’ll reward teams that do a superb job achieving specific innovations, you can motivate everyone without eroding trust. It is highly beneficial for all involved to make sure no team is always the “superstar” - the wealth and accolades should be enjoyed by all.

Take this free work survey to see if your organization practices the 10 Quantum Leaps of high-performing organizations.