The Need for Long Term Gains – #5

Very few Manager compensation plans or annual expectations are based on Long Term Gains. Instead their focus is based on short term periods such as quarters or annual achievements. If you add-in a Manager turnover rate and you can start seeing points that forego opportunities for making required changes. That’s why we don’t see too many Manager compensation plans based on five year growth, or the development of new products that eventually result in new markets and the on-going growth of the business.

My experience of 30+ years of Manager compensation plans verified the fact that most of them focused on quarterly and annual achievements. Only a few attempts at looking at the long term were made in plans that rewarded stock options for meeting and exceeding certain Division targets over the upcoming five year period. If Manager compensation was spread over a longer period of time, we might avoid those quarterly phone calls that put severe pressure on the meeting of quarterly projections, and if missed, what affect this would have on company’s stock etc..

Virginia Rommety CEO of IBM Corp. has missed quarterly and annual targets for 8+ quarters, and has the financial press putting an undue amount of pressure on her as to why IBM was missing their numbers. In other words, they were after her on the basis of the first woman CEO at IBM unable to handle the job. Little did the financial press know about Ginny’s longer focus on gains in AI (Artificial Intelligence – Watson) and the major change needed at IBM in terms of less focus on hardware and more on software, and the role of data going to the cloud. Before she became CEO at IBM, she visited the McCormick School of Engineering at Northwestern University of which she was a graduate, to practice her world-wide introduction speech with the Advisory Board. At the time, I was fortunate to be on the board and had the pleasure of meeting her personally. She indicated then that IBM will need to change to meet the requirements of the future – she was going to be the change agent due to the fact that she had been in charge of the Price Waterhouse acquisition and integration and her overall experience after numerous years with IBM. Thanks for the board at IBM understanding the need for time in creating the long term gains that we are starting to see making a payoff for IBM.

How will your business fare in the near-term future, as well as the future? Do you have plan in place that reflects longer term order for your Company to keep growoing.