Commentary For The Denver Business JournalIt's that time of year when Colorado CEOs are tracking the 1Q numbers to see where they are in their 2005 plan. Many will be delighted to learn they're headed for a great first quarter, and so they'll want to raise the performance bars even higher for the rest of '05. After all, if you're good, you want to get even better, right?
Right.
Unfortunately, far too many CEOs are being surprised to learn their 1Q results aren't going to be that good. Their numbers crunchers have informed them quite unemotionally that the organization's performance is flat over 2004 – or even worse, down from the same month a year ago. If that's the case, they know instinctively they've got to act boldly to limit the heavy bleeding to 1Q if possible. Or die trying.
Although there are many tactical performance improvement initiatives that can be applied right now, there exists an all-important page on the financials that too few CEOs identify as a key element of their long-term success: Top people – who contribute to an organization's long-term success – require top compensation to be attracted and to stay. Remember the adage "you pay peanuts you get monkeys?" If your business is underperforming at this point in 1Q, one of the first things you must do immediately is examine the level of quality performance and compensation of all the key positions in your company (and not all of them report to the CEO). If you've got managers in critical slots anywhere in your company who are making industry median pay, then you have just identified one of the factors of the organization's performance problem: It's average.
These managers are at the top of the pay and performance bell curve – remember, that's the median – and are probably functioning in a pretty average way. Isn't average performance unacceptable? Certainly.
Although I recognize the solution I am about to suggest is especially problematic and counter-intuitive for CEOs and owners of small to medium-sized businesses with cash-flow issues, you simply must undertake a hiring and compensation plan that will attract the best and brightest who will perform at three, four, five or even six levels (sigmas) above the median. These are the stars who are way out there to the east end of the bell curve in a land populated by the very few. At the end of the day, the only job you have as a CEO is to grow the value of the enterprise. And that happens when you make plan. There are many factors that support your success in making plan, such as having clear objectives and solid strategies, overcoming obstacles, organizational accountability and individual performance measurement, but the most important is having superior people in your key positions. And that requires an appropriate investment.
Yes, you are entirely right, it will cost more in the near term. But in the long term, these high achievers being compensated and operating three-to-six times above the effectiveness of men and women in the median pay scales will ROI themselves in numerous ways – ironically, the most valuable of which is by making it necessary to have fewer of them. Instead of having X-number of people, you have 80 or 90 percent of X, so, you will likely end up with a payroll that's pretty close to your original one because the superior performers make up the difference. The good part is that you may not have to pay what I have begun to call a six-sigma salary to get a six-sigma achiever. If the mean (average) salary for the position is, say, $75,000, and a three-sigma salary is $90,000, you may have a shot at attracting a top performer for that amount who has what can be termed six-sigma performance potential.
And, drum roll please, these high performers will get you back on track to making plan consistently, quarter after quarter, so you can sit back and enjoy the applause from the shareholder gallery when your residual income increases in predictable fashion.
Oh yes, there's one other added benefit: You'll sleep better at night, and your family is going to love that.
Larry Valant is president of Denver-based Valant & Company, a nationally recognized business-performance improvement consultancy.
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