The nexus of compensation and culture was highlighted again this week with further revelations that sales in the Wells Fargo brokerage division was potentially driven by a compensation structure that encouraged advisors to use “loopholes to reach lofty – and in some cases unattainable – goals” leading to incentive payments three times greater than the company budgeted. While much has been written about the oversight of culture by management and the board, it is worth revisiting a recent paper by Pearl Meyer & Co., “Supporting Culture Through Compensation, Recognition, and Reward Systems,” that discusses the growing trend of compensation committees also having responsibility for oversight of corporate strategy and how the alignment of talent and compensation helps to give the committee and the board a more complete picture of culture.
Specifically, the document states that when compensation reinforces a performance culture based on the talent and management strategy of the company it suggests the organization is more likely to thrive. However, “if people get ahead through “political maneuvering, brute force or excessive risk-taking then that is what will define the true culture.”
The document suggests three threshold questions for the board in reviewing the alignment of compensation with talent and performance objectives:
- How is talent below the C-Suite developed and rewarded?
- Does the culture support the long-term business and leadership strategies? and
- Is there alignment between compensation programs and other forms of recognition?
- Is the compensation plan aligned to long-term business and talent strategy?
- Are metrics associated with financial success over time?
- Does the program incorporate non-financial goals that target the behaviors that reinforce the company’s culture?
- Are programs market competitive with respect to critical talent
- Do compensation programs provide discretion to allow recognition of individual performance of key talent.