Page 52 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

38 The Complete Guide to Executive Compensation

Typically, companies will select one business strategy as their dominant theme with
another as a supporting strategy. What one does to excel is the business strategy. How one
excels in this strategy is based on the organization’s core competencies.
It is critical that an organization have core competencies that support its intended strat-
egy. Operational optimization will require strengths in producing products and services;
product/service innovation will require strengths in research and development; and customer
satisfaction requires strong sales and marketing competencies. It is easy to see the difficulty
in shifting from one strategy to another because of the changes required in developing
new core competencies. Only by linking the organization’s core competencies with an appro-
priate strategy does the organization have a chance at achieving a sustainable competitive
advantage.
Companies typically start out with a single product or service. Only over time do they
expand their base. Often this is done without clearly defining their strengths. As a result, the
market may penalize their stock value. As organizations seek new products and/or markets,
it is critical they be consistent with core competencies and strategies. If not, one or the other
must be changed. Constant discipline and communication is essential. New products, servic-
es, and competitors require a review of business strategy to ensure optimal targeting.
Downsizing may produce financial savings; however, sustained growth requires increas-
ing the capital- and employee-resource base while also increasing the productivity of both.
Companies that have focused on downsizing may have weakened their effectiveness. Reduced
labor costs may improve the income statement, but is the company able to maintain, much
less expand, its market share? Has cost cutting positioned the company for sustained produc-
tivity enhancement or is it simply making do with less? Is sufficient investment being made
in research and the development of intellectual capital? It is difficult to grow to greatness
from a shrinking base.
In setting strategy, one must identify the extent of uncertainty of future events and deter-
mine how and when such ambiguity will remain. The greater the uncertainty, the more flex-
ible the strategy must be in order to adjust to changing circumstances. Typically, decisions
must be made quickly with incomplete information. And even the best strategy will have to
be periodically updated. Business is what happens while making future plans!

Annual Planning Process
An example of a schedule that might be employed in a planning and review process is
found in Table 1-17. As one can see, it is a never-ending loop. The one shown is annual. It
could be condensed into a fraction of that time.

SUMMARY AND CONCLUSIONS

The opening chapter looked at the various ways one could define an executive, namely, by
salary, job grade, key position, job title, reporting relationship, or some combination. It then
went on to introduce the five elements of compensation to be described more fully in later
chapters, namely, salary (Chapter 5), employee benefits and perquisites (Chapter 6), short-
term incentives (Chapter 7), and long-term incentives (Chapter 8).
Having defined both executive and compensation, the chapter moved on to the important
considerations in executive compensation. Strategic thinking was defined in terms of vision,
mission, objectives and goals, threats and opportunities, strategies, and core competencies.