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Scaling Up Compensation
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Scaling Up Compensation

5 Design Principles for Turning Your Largest Expense into a Strategic Advantage

Verne Harnish and Sebastian Ross
ForbesBooks, 2021
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9

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Recommendation

Ideally, you would reward people according to the value they bring to your company. But pay, benefits and incentives trigger emotions, making their design complex. Employees will think disproportionately about it unless they believe their pay is fair. Verne Harnish and Sebastian Ross urge you to build your compensation system to remove pay as a distracter. Through case examples, the authors show how a “total rewards” strategy aligns worker behaviors, decisions and actions with corporate values and culture.

Summary

To get compensation out of sight and out of mind, design it strategically from the beginning.

For most firms, salaries, bonuses and other compensation represent a huge expense. Salary may not affect people’s motivation to work harder over the long term, but getting your compensation system right matters enormously.

Like every component of people management, compensation management delivers the greatest returns when leveraged strategically. This means structuring pay not equally but equitably, by recognizing differences in performance, skills and the value people bring to the firm.

Strategic compensation includes the extras beyond base salary – bonuses, commissions and other rewards. Tread carefully when designing “total rewards,” including incentive programs. People act and behave according to the incentives you give them.

People react emotionally to pay. More than two-thirds of employees believe their firms pay them unfairly; three-quarters of employers believe the opposite – a clear disconnect.

Connect pay to your company culture and values.

Don’t borrow another firm’s compensation strategy; ...

About the Authors

Verne Harnish founded Scaling Up and the 16,000-member Entrepreneurs Organization (EO). Sebastian Ross is the Director of the School of Founders Program at IESE Business School. 

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