Great, You Saved on Executive Compensation, But to What End?

Great, You Saved on Executive Compensation, But to What End?

Low price is the last refuge for marketers who don’t have the patience or guts to demonstrate value for those that need it. – Seth Godin

When it comes to buying gas for your car, fertilizer for your lawn, or for that matter the price Apple pays for the copper in your iPhone, lowest price makes sense. These are the classic definition of the word commodity – something which comes from the ground and whose price rises and falls with supply and demand.

Unfortunately, we all now use the word commodity to mean much more, applying the sense of generic-ness to just about every product and service available to us. If you are marketing soap, for example, you face over 1,000 competitors on Amazon. If however you’re the marketer behind Tesla or NetJets or the Chicago Bears football team, your job is simpler. You won’t sell as much, but your product is so highly differentiated that when your customer wants you, there’s no close substitute. You are not a commodity. You are unique.

High Value at Lowest Cost Doesn’t Usually Work

Now think about your company – your most prized asset. These are the crown jewels. You’ve already moved your call center and some of your programming and development projects offshore, and other divisions and projects have been outsourced. You can do this because the work is somewhat fungible and transferrable without hurting your company or quality.

But when it comes to your senior management team and their executive compensation, what is their worth in creating results now and bigger results in the future: is a sale on CFOs or CTOs, or the lowest priced CIO, a good thing? Is one just about the same as another? Of course not. To quote a little bit more from Seth Godin’s blog post:

High value is not the same as low price. The price is obvious. It can be seen from a mile away. But value is more subtle. It often needs to be experienced to be understood. The price is the same for every person who buys that item at retail. The value is different for everyone.

Your situation is unique. Your company’s needs are unique – if you are bound and determined to keep a dominant position in your market. When it comes to executive compensation, your emphasis is rightly placed on the most bang for the buck as you can get. But first in that equation is high value. Quality rules when it comes to creating company value.

Calculating Your ROI

To look at the strategic and tactical value of bringing the right executive on board, try a thought experiment. Ask yourself:

  • What is the upside for your bottom line within the next 12 months of having the right leader on board?
  • Is your goal to realize millions in new revenue that doesn’t exist now?
  • Are you currently throwing cash away that could be addressed by a new executive, focused on efficiencies now?
  • Are there issues with staff turnover, communication, morale, revenues or cash flow that could get worse by having a void on the team?
  • Are there people who have become stagnant, or just stick with the status quo, no matter what?
  • What is the downside of not bringing a good leader on board now?

The CEO of Nvidia is fond of saying, despite their massive success, “we are 30 days away from going out of business.” Does your team have the same fire in the belly?

About the Author

Robert Jordan

Robert Jordan is CEO of InterimExecs, matching organizations around the world with executives who specialize in growing and transforming companies. Jordan got his start in business by launching Online Access, the first magazine to cover the Internet, landing on the Inc. 500 list of fastest-growing companies. After selling Online Access, Jordan took on interim CEO engagements and authored a book of interviews with 45 company founders who had created $63 billion in value from scratch, titled How They Did It: Billion Dollar Insights from the Heart of America. He is the publishing partner of Start With No (RandomHouse), a best-selling book on negotiation and is a graduate of the University of Michigan and the Kellogg School of Management at Northwestern University.