Page 45 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

Chapter 1. Executive Compensation Framework 31

vision in the famous “I have a dream” speech, which unfortunately is proving more difficult
to achieve.
If the vision has been attained, it must be replaced by a new vision. This suggests that
shorter-range visions will require more updating than longer-range visions.
The Mission

Since there is a recognizable gap between the now and the vision, the journey needs to be
described. This is the mission, or how one achieves the vision. Building on the previously
described vision, perhaps the mission is “to earn the trust every day of thousands of new
customers while retaining the trust of existing customers, never having lost one because of
violated trust.

Core Competencies
Core competencies are the things a company is very good at doing. They must align with the mis-
sion and vision. If not, either the vision and mission must be altered to conform to core com-
petencies or the latter must be changed to enable achievement of the mission and vision.
Obviously, it is much easier to do the former than the latter, that is, to develop a business plan.
Companies sometimes stray from focusing on core competencies and seek to diversify
their investments and/or capitalize on perceived resulting synergies. However, investors
often do not concur with this boardroom logic—if they want to construct a diversified port-
folio, they will do it by selecting an appropriate mix of companies themselves. Companies
that attempt to replicate a diversified portfolio within their organizational structure may find
that the composite is worth less than the sum of its parts. The result has been companies sell-
ing off noncore businesses and returning to focus on what they do best. By being the best in
their industry segment, they hope to be the selection of every investor who wishes to put
money in that market sector.
However, even companies apparently in the same sector are often significantly different.
For example, in the insurance sector, property and casualty companies require large amounts
of capital to respond to natural catastrophes, whereas life insurance companies must balance
a lump sum payment protection of dying too soon vs. an annuity payment of living too long.
Objectives and Goals

The mission is further refined in terms of qualitative targets, or objectives. The objectives are
broken down into quantitative targets, or goals. An example of an objective might be “to bring
to market products that enhance the customer’s quality of life.” A goal that might relate to
this objective could be “to introduce product ‘A’ in all of North America by the second quar-
ter next year and in the European community by the first quarter of the following year at a
price recapturing cost and return on investment within three years.” Some reverse the terms,
calling the goals the qualitative and the objectives the quantitative. For this reason, confusion
sometimes exists when talking to someone from another company. Hopefully, there are no
such confusions within the company. Defined goals and objectives could also be identified as
critical success factors (CSFs). Performance standards tied to these CSFs must be put in place
with a measurement basis if a pay-delivery system is to be a reinforcement of desired out-
come. The performance measurements are reviewed in Chapter 2 and should be tied closely
to the core competencies so critical to success.