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How To Retain Your Best People Without Creating Entitlements

An entitlement mentality is a painful, cancerous mindset to have in an organization. But by examining the practices that might be perpetuating it and making a commitment to align compensation with business objectives, a company can create a new, organization-wide “ownership mentality”. Here’s how:

First, here are four primary reasons employees stay with a company or decide to go.
  • Compelling future
  • Positive work environment
  • Opportunities for personal and professional growth
  • Financial rewards
Progressive companies must learn to balance each of these areas without creating an entitlement mentality.  You have to focus on the economics that sustain the company as you construct and carry out your rewards philosophy. You have to create a unified vision for growing the business without over indulging the desires of employees.

What Get’s Good People to Stay?

This balance means that a business tries to create a culture that is based on everyone feeling they have some amount of ownership.  An ownership mentality is the opposite of entitlement.  In most organizations, these two mindsets represent polar opposites and pull in employees in one direction or the other.  Let’s examine each of these.
Entitlement
Employees with an entitlement attitude have not learned that you only earn value as value is created.  They feel entitled because of the way their rewards systems have been structured or by precedents management has created when they address individual concerns and desires.  For example:
  • Annual bonuses are distributed each year without a structured, tested formula for determining payouts
  • Employees feel they deserve stock if they work in a closely held business
  • Management implements incentive plans that don’t correspond with critical performance thresholds and incentives are paid based on individual performance even when the company is not profitable.
  • Employees aren’t meeting their key performance indicators and yet expect income increases each year
  • There is no stated rewards philosophy to guide decisions about pay.
  • Employees are skeptical about management plans and sometimes even undermine efforts directed at improving performance
  • Long-time employees have a “tenured” mentality and feel they deserve more compensation regardless of performance
If your organization is experiencing these symptoms, don’t be too discouraged.  You are not alone.  Unfortunately, such trends are common, particularly in privately owned businesses.  These issues usually emerge when a business has been built over time and compensation has been dealt with on an individual basis as a way to hire and retain key people.  The result is a patchwork solution to something that should be aligned strategically with the company’s business plan.
“Whatever!”
It’s a term teenagers use when they aren’t willing to concede a point – but have become bored with the discussion.  “Whatever!” means simply that the issue just isn’t that important to them – they’re neither hot nor cold on it.  In essence “whatever” is short for saying, “you can do whatever you want with/about (fill in the blank) because I don’t really see that it’s going to impact me all that much.”
Employees with this mindset are obviously not fully committed to performance. Although they may not have an entitlement mentality, they also don’t yet see the relationship between the company achieving its financial goals and their ability to achieve their own. Company leaders have not captured their “hearts and minds.” Again, this happens when companies aren’t strategic and consistent in building rewards systems and programs.  “Whatever,” is a mindset you’ll also find in organizations where there is a lot of talk about change, improvement, and opportunity, but little corresponding action is ever taken.
Ownership
In a company where the workforce has an ownership mentality, both employees and shareholders draw the same conclusion about “what’s important.”  Key people understand where the company is headed and have a commitment to reaching specific goals.
An ownership mentality, however, does not just occur because employees understand clearly what the company wants to achieve.  This is an assumption too many business owners make.  “I have told my employees about my vision and what I expect of them – why aren’t they more focused?  Why am I not seeing results?”
Employees invest their talents in helping a business grow because there is alignment between their goals and those of the company. This alignment begins to take hold when employees come to work understanding the goals of the company and believe they can be achieved. Furthermore, achieving these goals is important to them and they can see how they can make a contribution that helps the company meet its objectives. They see the connection between the achievement of their goals and those of company and it’s meaningful to them.
Understanding, importance, belief, contribution and connection—When these five things are at work, employees come to work with an entirely different attitude. Their daily decision making is informed by these questions:
  • “What has to happen?”
  • “What can be enhanced?”
  • “What might be hindered?”
  • “What impact can I have?”
In other words, these employees have developed an ownership mentality.
Changing from an entitlement mentality to an ownership mentality begins with a belief that there is a greater cultural experience to be realized through participation in the organization.  However, the commitment on the part of the workforce must be coupled with a dose of humility on the part of management. Executives have to recognize that they don’t have all the answers and that they will need help if they want to achieve better results.
So if you want to make positive changes, you should consider adopting the following:
Seven Steps For Creating An Ownership Mentality.
Step One – Communicate a Compelling Future
Before you can get others excited about the future, you have to be able to see it clearly yourself. Your present company is different from your future company So, you have to be able to tell your people how it is different, in concrete terms.  If you can make the future have meaning and purpose, it becomes compelling.
Here is a list of key questions you need to answer about your “future company” in order to communicate a compelling vision:
  • What will the company look like?
  • What will it do?
  • How big will it be?
  • How will it create external value?
  • How will it create internal value?
  • Why is this important?
  • What will happen to the “present company” once the “future company” is operating?
Step Two – Present a Clear Path
A future becomes more compelling when the path to its fulfillment is clearly defined.  Companies that are ambitious about growth must be able to match their vision with a strategy statement and an accompanying business plan.  At the same time, employees must be able to see that the path to the future is not only clear, but achievable.  If you want this to happen, You must have a business plan with the following characteristics.
  • Key initiatives that are clearly defined
  • Remember that simplicity equals clarity
  • Remember that achievability equals believability
Step Three – Define Opportunities
Once a company’s future has been defined and a plan created, your key talent wants to know where it fits in.  “What is my role and what is expected of me in that role?” they will ask, “How will my unique abilities be applied and rewarded?”
Knowing your role in the future of an organization is part of what makes that future compelling.  If there are opportunities to grow as the company grows, then employees are going to see their roles differently than if such things are undefined. Consequently, employers wanting to develop an ownership mentality in their culture need you to articulate the following very clearly:
  • What are the opportunities for professional growth?
  • What are the opportunities for personal growth?
  • Are Career Paths available and flexible?
  • Will entrepreneurial spirit be recognized and reinforced?
  • Will creativity be rewarded?
Step Four – Nurture Openness
If you want employees that are “invested,” they need leadership that is willing to communicate with key people exactly what ownership believes is important for the company.  You can’t expect employees to think like owners if they don’t know what ownership is thinking about. So you have to have conversations with your workforce about the following:
  1. Mission critical” issues especially about the economics of the business.
  2. Respect for the risks and rewards of capital investment.
  3. All the many costs of growth.
  4. Clarity about profits and how they are determined.
  5. Ongoing and open discussions about the state of the company; its growth and its profits.
  6. What plans you have  for “down times” and how the company should respond.
  7. What we do when business is slow.
  8. What it means to have a “partnership” relationship in the company.
Step Five – Set Clear Pay Standards
Compensation is a strategic tool.  To use it successfully, a company must develop a philosophy of how it will pay its people and how its rewards strategies are determined for everyone. Start with a rewards philosophy statement that clearly answer the following questions:
  • Why do we pay?
  • How do we pay?
  • At what level do we pay?
  • Who participates in each pay component?
  • How do we share value during good times?
  • What happens during down times?
A philosophy statement is a way of looking at the components of a compensation “pie” and determining how much weight should be given to each.  Although not every company is going to have every component, it should be able to articulate the balance the organization will try to maintain between guaranteed versus incentive compensation and short-term versus long-term pay.
Here is a sample of what a philosophy statement framework might include for a given company:
  • We pay salaries at market (not necessarily to be above market)
  • We provide significant upside for exceeding annual expectations (goals must be meaningful)
  • We provide significant long-term wealth accumulation opportunities for helping to sustain growth (we share value)
  • We provide benefits at market with upside value in strong years (flexible benefit structure)
Step Six – Share the Wealth
A clear compensation philosophy provides the foundation for a company to share the value that employees help to create.  It recognizes that if a person  helps the company grow, he or she should feel invested in the success of the future company.  When that participation aligns with their personal wealth building objectives, an ownership mentality begins to emerge.
It is important to recognize that in sharing the wealth of the organization, there must be economic priorities guiding the strategies.  Any strategies must:
1. Place shareholder value creation first
2. Make shared value meaningful
By ordering things this way, the company protects the interest of shareholders while enabling a greater commitment from key people.  You are recognizing the interdependence of the two visions that exist within an organization—that of ownership and that of employees.
Sharing the wealth within a pay-for-performance framework means recognizing that compensation is an investment management is willing to make to fuel a superior return.  The elegance of this approach is that it is self-financing.  Value is only paid out if value is created.
Consequently, this kind of strategic compensation design anticipates the potential equity value that superior performance might create.  You can determine how much of the additional value you are willing to share (invest) to generate that return.  Compensation design, then, becomes a process of “reverse engineering” that allows you to arrive at a structure and payout plan you can present to employees in  simple terms.  “If you perform this way, you will receive this in the future.”
Step Seven – Balance Short and Long-Term Rewards
The biggest challenge most companies face is in balancing how much compensation should be paid out for short-term performance and how much for long-term.  This dilemma can be resolved when a company follows these two key principles:
  • The present company is financing the development of the future company; therefore, short-term performance needs to be adequately rewarded to maintain a consistent effort and focus
  • If a company has a long-term business plan (more than one year), then it needs a long-term compensation plan that reinforces it
As a general rule of thumb, approximately half of incentive compensation should reward short-term performance and half should be devoted to long-term results.  In employee terms, one focuses on the cash flow and standard-of-living issues while the other addresses wealth-building ambitions that most quality employees have. For the company, consistent short-term execution builds patterns of success that create a culture of confidence.  The culture that emerges is the foundation of a competitive advantage and the basis for breakthrough growth. As superior growth occurs, shareholders experience the equity increase they sought and are therefore happy to “share the wealth” with those that helped to create it.
Hopefully, it is apparent that such an approach to sharing wealth transitions employees from an entitlement frame of mind, past a “whatever” reaction and into an ownership mindset.  Employees that are rewarded on the same basis as an owner tend to think more like one.
If you have questions or would like more information about how to align your compensation strategies with your business objectives, contact:
Clarke Langrall, Jr.
clarke@forecastadvisors.com

410-583-1777