Strategy and Reward; why does Business plan for the future but reward for the past?

WHY does business plan for the FUTURE but reward for the PAST? Paul Williams, Warwick Business School 25 February 2008 STRATEGY AND REWARD

PAUL WILLIAMS’ CV – 5 RADICAL CHANGE SCENARIOS ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

TYPICAL “WOW” STATISTICS ,[object Object],[object Object],[object Object],[object Object],Professor Robert Daine - Stanford Graduate School of Business

“ THE BIG ISSUE” ,[object Object],[object Object],Michael Jensen & Kevin Murphy HBR

CLASSIC PROFILE OF EXECUTIVE REWARD STRUCTURE ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

CLASSIC QUANTUM OF CEO REWARD (UK) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

“ LONG TERM PERFORMANCE” - UK ,[object Object],[object Object],[object Object],Deloitte Executive Directors Remuneration Guide 2007

“ LONG TERM PERFORMANCE” – US TOP 250 Category Performance Measures Percent of Companies Using Profit Earnings per share, net income 51% EBIT/EBITDA, operating income pretax profit Total Shareholder Return Stock price appreciation plus dividends 38% Efficiency Return on equity, return on assets, 34% return on operating income, return on capital, economic value added Other Cash flow, revenue growth, 28% discretionary, individual performance Frederic W. Cook & Co. Inc.

WHAT ARE THE REASONS FOR THIS SHORT TERMISM ? ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Parc 2007 Report: Resilience – How Companies prepare for Success in the Future

“ Top managers and the main players in the financial markets have tended to become part of a “system” of connected and symbiotic interests. This system, whilst informal, is coherent and well understood by insiders and can create huge opportunities for rewarding the players” Don Young, Founder YSC

THE COMMON LIFE CYCLE – ALL THINGS Maturity Birth Maturity Demise Renewal

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],CLASSIC GROWTH v MATURITY MODEL ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

THE NEED: A NEW FRAME OF REFERENCE FOR REWARD STRATEGY ,[object Object],[object Object],[object Object],[object Object],Professor Sir Andrew Likierman - LBS

SUSTAINABILITY (S) AND RESILIENCE (R) DEMAND DIFFERENT METRICS WITHIN A TYPICAL STRATEGY MODEL ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

A REALITY CHECK – 6 “CASE STUDIES” ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

BUT NO ROOM FOR COMPLACENCY: the number of Emerging Economy companies in the Fortune Global 500 2003 2006 2010 20 40 ? - - - Challenging “old” approaches to strategy & organisation Led by Brazil, Russia, India & China

BUT WHO CARES? ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

SOME POSITIVE IDEAS FOR DEBATE & FURTHER RESEARCH ,[object Object],[object Object],[object Object],[object Object]

[object Object],In 2004 the Enhanced Analytics Initiative (EAI) was launched by institutional investors to examine the obstacles to investors taking a longer term and more rounded assessment of corporate performance – in particular to take a hard look at the current focus of much sell-side research. In City jargon the intention is to give more emphasis to “extra-financials and intangibles” which in the words of Peter Moon, CIO of one of the founding members (USS Ltd) “can account for a significant proportion of the value of a company, especially over the long term”. Current members of EAI include amongst others; ABP Pension Fund BNP Paribas Asset Management BT Pension Scheme Hermes Pensions Management Investec asset Management Deutscher Investment Trust/Dresdnerbank Investment Management Universities Superannuation Scheme EAI member institutions collectively own or manage more than US$ 2.6 trillion in assets

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TWO QUOTES FROM MICHAEL PORTER ,[object Object],[object Object],HBR January 2008

AND FINALLY ………… ,[object Object],[object Object],[object Object],[object Object],Albert Einstein

Strategy and Reward; why does Business plan for the future but reward for the past?

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Strategy and Reward; why does Business plan for the future but reward for the past?