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Performance Pay Or Lotto

The question that everyone is NOT asking is – "How did Jodee get rich?" We all know.

Jodee Rich and Brad Keeling were paid $7M each when the market capitalisation of One.Tel reached $1 billion. A 300% increase in market valuation of shares may tempt any one of us to part with a mere $14M as a sign of our gratitude to the key people who made it happen.

Simple logic, simple solution – simply stupid! This entrepreneurial approach to performance pay is, and has been, a recipe for pain - just ask the Enron shareholders.

The former Chairman of One.Tel, John Greaves, proudly said he did not seek advice on the performance pay system - he accepted Jodee Rich's proposition - lucky Jodee!

The advice to anyone contemplating performance pay / bonuses for key staff to drive real and tangible improvements is as follows:

bpur.gif (807 bytes) Always measure performance and value through a balanced set of measures to test whether real value has been created. It is all too easy to pump up market price or overstate profit. One.Tel was not even able
to invoice most customers; how is that for underlaying value! Use:
bpur.gif (807 bytes) Share price bpur.gif (807 bytes) Measure of service or product quality
bpur.gif (807 bytes) Profit
bpur.gif (807 bytes) Sales volume bpur.gif (807 bytes) Efficiency of key processes
bpur.gif (807 bytes) Forward orders bpur.gif (807 bytes) Capability profile etc.
bpur.gif (807 bytes) Never rely on any ONE measure - too easy to distort.
bpur.gif (807 bytes) Pay for short and long-term goals.
bpur.gif (807 bytes) Tie performance to the business plan and the market if possible.
bpur.gif (807 bytes) Don't be afraid to change your performance measures and targets as the market and business change.
bpur.gif (807 bytes) Extend the payout period into the future to ensure that when managers leave, the organisation is in a fit state. 70% short term and 30% long-term payouts (over 3 – 5 years) are preferable.
bpur.gif (807 bytes) Keep It Simple.
bpur.gif (807 bytes) Always seek outside assistance and Board approval - litigation and ensuing liabilities are high!
bpur.gif (807 bytes) Independent audit of the programme is preferable.
bpur.gif (807 bytes) Make the payout amounts worthwhile. Most performance pay systems are insignificant and rarely serve as a motivator. One.Tel is of course the exception and scores 110% on this criteria.

What Next?

If you are interested in more information please give us a call on +61 412 026 909 and ask to speak to one of our consultants. 

Alternatively e-mail us at info@emdgroup.com.au or use the form on our Contact Us page.

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