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Remuneration

Remuneration. Some thoughts for FDs’ Academy. My own prejudices. MA FCA FCIPD. ‘Some things are exceptionally difficult to measure - particularly anything that has a human being at the heart of it.’. Finance Directors, Rupert Merson, Profile Books 2003.

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Remuneration

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  1. Remuneration Some thoughts for FDs’ Academy

  2. My own prejudices • MA • FCA • FCIPD

  3. ‘Some things are exceptionally difficult to measure - particularly anything that has a human being at the heart of it.’ Finance Directors, Rupert Merson, Profile Books 2003

  4. Rational causes and real effects… Ideal but difficult to design for non-routine work Yes Can individual influence measure? Complete No Limited control (eg ‘profit’, ‘share price’ etc) Is measure complete? Objective Incomplete Nature of measure Dysfunctional behaviour Can individual influence measure? Yes Subjective Ignored by individuals No Motivating only if trust is high

  5. ‘Staff are encouraged to focus on those aspects of their roles which will increase their income at the expense of those that do not.’ Finance Directors, Rupert Merson, Profile Books 2003

  6. Performance-related remuneration • Some people love it • Some people hate it • Can be a clumsy tool for change • Often a political tool • Dictatorship masquerading as empowerment • The rules of the game should be changed at least every three years. • Can be a very effective change agent

  7. The grass is always greener • Another firm’s staff are always better than yours • Someone else’s job is always better than yours • To recruit someone to eat your grass you will have to bribe them • Recruitment is inherently inflationary

  8. The grass is always greener 2 • When you set your salaries you always want to be ‘upper quartile’ compared to the competition • Salary benchmarking is inherently inflationary

  9. Equity • Equity should reward ‘capital contribution’ – cash, the idea, the long term; not ‘revenue contribution’ – ie just ‘doing the job’ • Be careful when using equity just because you can’t pay people proper salaries • Equal-share equity presumes equal contribution – rarely the case • Just because founders are excited by equity, don’t expect everyone else to be

  10. Owners, Rupert Merson, Profile Books, 2004 ‘Tax is the cart, not the horse, and a potential shareholder in any business, big or small, should never forget which comes first.’

  11. Remuneration – towards right thinking • Forgotten elements of remuneration • Promotion • Benefits • Corporate culture and values • Job satisfaction • Training and development • Remuneration is a reward for past achievement and an incentive for future performance • Remuneration is always only part of the problem • Remuneration is always only part of the solution

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