Annual share grants used to be part of our annual merit planning process, but for some reason that has not been shared with me, it has been decided to run this as a separate exercise this year. As this is all new, I have been asked to support the European executives on this.
The first question I could ask is why me, when theoretically this is variable compensation, not strictly part of my responsibilities. However, I will not ask because I suspect it is a compliment of sorts. There are few of my colleagues who can handle the Higher Beings, our executive leadership team. Big Bad Boss, of course, can get the better of them, but he cannot be seen to be doing something so operational.
The second question I would ask is why we are involving the executive team in any of the annual processes at all? I wouldn’t. If it were down to me, I would run the whole thing as a purely mathematical process. Base pay increases would be a function of budget and position in the pay range alone. I would remove any link to performance, except perhaps to veto any increase for the lowest performers, hopefully encouraging them to shape up or move on. I would limit performance-related pay to bonuses and, again, I would make it a mathematical function of target and performance rating with no manager discretion. Manager discretion assumes managers know what they are doing. They categorically do not, even when they have it spelled out through training and guidelines.
Long-term incentives
Annual share grants are, by their nature, rather different. A long-term incentive, vesting over three years, an employee has to stick around to feel any benefit. Indeed, retention is perhaps the main reason for granting them. Another reason would be to make the recipient invested in the success of the organisation as it manifests in the share price. In practice, at senior levels, we have to offer them to match total reward offered by our competitors. Therefore, I would question whether it makes much sense to tag the annual grant to a manager’s opinion of the employee in question. If we just want to give a benefit to help people stick around and contribute to the business, surely that applies to everyone, unless there are people, again probably those lowest performers, that you do not really want to stick around. I would offer a competitive grant for the job or level and just veto a few with demonstrable lack of performance.
The problem with putting the allocation in the hands of leadership, even with strict guidelines and limits, is that their assessment is nearly always arbitrary and subjective. Someone could have done a particularly good presentation, and they will be seen as the next rising star. Someone else, quietly churning out fantastic results which are not visible above their own manager, may be cast aside on the basis the decision maker has not heard about their success.
Simplify the process
The old annual process went through our HRIS system and this separate process will too, but I would like to try and influence the outcomes differently. I suggest pre-loading an anticipated grant based on sensible guidelines and ask leaders merely to make changes where absolutely necessary. If they are busy, they might just accept the proposals saving everyone a lot of time and stress. That is how I am going to sell it: a time-saving exercise rather than telling them what decisions to make, though that is my real intention.
The problem is for lower grades; we have a ridiculous eligibility allocation as well as a target grant, so for junior managers only 80% of them can have a grant although, in theory, everyone is eligible. Increased pay transparency will make the unfairness of this practice very visible, particularly if there are no proper justifications for who gets a grant and who does not. I am going to try something rather subversive here too, rather than loading a target grant to, say, the top 80% performers in that group, I suggest loading 80% of the target to everyone. If a leader wants to give more to one employee, they will have to give less to another and write a comment justifying the change to both. The idea is not popular with my US colleagues, but for once, Big Bad Boss backs me up, pointing out the unjustified differences in grant will create pay differences to justify further down the line.
It takes me a while to amend the guidance notes to cover these changes, but hopefully all will be clear. I point out that as this is now a separate process, we are trying to streamline to limit the amount of time leaders need to spend on it. Where the proposed grants are accepted, it can be a two-minute task to approve and move on.
I am delighted to find that, in the main, my idea works and there are very few changes made to my proposed grants, that is, until it gets to the Highest Beings in C-Suite. Here the usual bias to known favourites creep in, and there is a last-minute flurry of robbing Peter to pay Paul. As always, there is a scramble to get the results in and managed to budget. Big Bad Boss has a meeting with the European president on the total and I hear he was happy that everything was in good shape. I even get a little pat on the back from Big Bad Boss. Rare praise is cherished I can tell you.
For sure, the overall results are more objective and rule-based than with the old way of doing things, and I think we saved managers quite a bit of time. I wonder if I can manage to influence the other annual processes in the same way.
