By Derek Irvine
Opinions of executive pay, and whether performance is better under fixed or variable schemes, depend in large part about basic assumptions of what motivates executives. This debate was recently the subject of a pair of articles in the Harvard Business Review, which I discuss in this post over at the Compensation Cafe.
With evidence supporting both positions, it may be that a better answer to executive motivation lies in a supplementary solution: executive recognition. Recognition is uniquely positioned to balance the benefits associated with both approaches, while minimizing the potential downside.
What are the arguments on both sides that recognition may address? Those in favor of variable schemes suggest that linking pay to performance is the only way to avoid “coasting.” Executives need to be incentivized to make difficult decisions and perform at the highest levels. Others suggest that variable pay is ineffective because it goes too far in the other direction, encouraging cheating and a focus on the short term. Executives are mostly intrinsically motivated anyway, so a fixed salary is all that is needed.
Here is what I wrote over at Compensation Café about leveraging recognition as an effective motivator, in addition to whichever pay scheme is implemented:
Recognition, on the other hand, may be a valuable alternative that addresses arguments made in both articles. To start, it is tied to specific behaviors and actions the executive takes, and can be frequently provided by any member of the executive’s top leadership team or other individuals with clear insight into particular issues facing the organization.
Recognition also works to improve the intrinsic motivation of behavior because it communicates meaning, value, and contribution- and because it is unexpected, avoids the “crowding out” phenomenon. Executives can be recognized for their creativity in challenging situations, ethical choices in response to crisis, as well as other behaviors that represent the full continuum of what makes an executive successful within a specific organizational culture and/or industry. The frequency and specificity of recognition also encourages positive cycles of performance, avoiding the potential pitfall of “coasting” and inaction.
Click through here to read the entire post. Executive recognition may be a strange concept in an age of traditional command-and-control leadership, but will become increasingly important as organizations shift away from that model and toward a more empowered human-centered design.
What do you think – is your organization ready for executive recognition?