Page 51 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

Chapter 1. Executive Compensation Framework 37

Market Phase Matrix
High

B A

$ Return

D C

Low
Weak Strong
Market Performance
Figure 1-14. Market phase … dollar return vs. market performance

• Combination B: Investment needs are directed to improving strength of market per-
formance. However, this must be assessed in terms of probable success; investment
with out improved market performance may turn this into a D combination.
• Combination C: Probably not likely to be a candidate for additional investment, this
situation could provide a source of capital for other projects.
• Combination D: This is a prime candidate to be deleted; continuation is based
on the extent to which deletion would adversely affect the product line (and/or
currently absorbed, overhead charges) and lower other products to C or D
combinations.
This type of analysis is very helpful since it places each product in perspective as well as
showing where new products are needed and what to do with the current product line.
Suffice it to say that from these reviews, issues will be identified and strategies described on
how to overcome the obstacle or maximize opportunities to achieve the goal.
Companies must determine what their customers want most and do a better job than
anyone else in providing it. Is it price? Product differentiation? Quality? Customer service?
Purchase ease? Successful companies will prioritize these and identify a primary and second-
ary objective. They will strive to be the best with the primary objective and at least as good
as the competition with the secondary objective. Successful companies will also build entry
barriers making it difficult for other companies to enter the market. Large capital require-
ments and a strong brand name are two examples.
The relationship between objectives and goals and the executive compensation
program, especially incentives, must be clear and understood by all stakeholders.
Naysayers claim that pay for performance would do nothing to motivate employees to
work any harder. They are already going “full speed.” This is probably true. Pay for
performance would do little to increase their efforts, but it will do a lot to focus their efforts.
It will reward them for achieving their goals and penalize them (by withholding pay) for
not achieving them. Pay for performance is not about working harder—it is about working
smarter.