The dynamic of the modern world pushes business toward the new horizons in development. The key skills mainly are concentrated around the ability to take leading positions and find innovative approaches in decision-making. These two skills are connected with the ability to find the best way to influence owners on compensation policies and practices. Today innovative approaches in the decision-making are closely connected with the leadership. In addition, the leadership style defines approaches which the executives will use in order to organize and influence on the compensation policies and practices.
The vast majority of the companies are ready to use innovations. Though, the percentage of those, who regularly review and reorganize the providing of compensation is actually very low. Furthermore, there are different reasons, but the main can be the market opportunities and customers demand. Nevertheless, the position of the company usually depends on the leadership style. The new CEO leadership style of the company according to the shareholder can include three components such as flexibility, strategy of the company and limitation in decision-making.
The first element of the leadership flexibility is the indicator of the company, share holders and customers on the ability to change and adapt to the needs of all mentioned groups. As a result, the flexibility is closely connected to the strategy of the company. Usually, the point is that the way company develops is definite by the CEO as he/she has this power. Moreover, CEO is responsible for looking of the new directions for the company, the ways of their development and implementation. CEO is identified with new approaches and strategies. Despite this fact, CEO’s often can not choose the optimal change for shareholders. One of the reasons is that the decision can be too dramatic for them. The other reason is that shareholders have the right to choose the best solution for them, according to the terms, value and ability for outcome.
Before the company emerges on the market as one unit, it is exposed to various influences. This in turn affects the company and the way of providing the compensation. Banks, public and private pension funds, insurance companies, mutual funds and investment companies are those institutional owners that influence the company and often define the company development. However, every development is accompanied by the control, especially on the compensation issue.
There are two types of control such as institutional and investor’s control. Institutional control, as it was mentioned above, is often definite by terms, interests and ability for outcome. This causes the control of the cost by investors. The influence provided by both shareholders effects compensation in different ways. Though, there are two factors, which definite the quality of compensation. The first one is based on equality. The second is award-based compensation. The difference lies in approaches used for analysis of efficiency and influence on the company development. Nevertheless, the institutional shareholders can organize a yes/no-vote campaign, which will cross all principles of providing compensation. In addition, often institutional shareholders use proposals provided by companies as a lever to influence on the decision of compensation policies and practices.
The level of compensation varies from company to the company, and often is determined by different social and political factors. However, there is one interesting observation such as the higher persistent of the investors is the lower compensation executives will get. In addition, the long-term perspective of the institution helps to achieve the transparency in compensation procedure for executive. As a result, there are chances that CEO will get higher compensation, just implementing new ideas on improving the image of the company in the eyes of the customers. This type of the compensation is close to the pay-for-performance.
The strategies to influence the shareholder depend on timing and nature of the company’s response. The timing issue can be responsive or anticipatory. As a result, the tension in relationships between shareholder and executive can reach the higher level or never occur. This attitude of the company helps to define the nature of the company’s response, which is substantive and symbolic.
If substantive nature of the company within the timing is responsive, the compensation for the executive will be definite as deem for shareholders. In this case, it is hard to influence the decision of the shareholders as it was made according to the policies, which limit the decision-making power of the CEO. In addition, the substantive nature of the company is defined by the anticipatory timing underlines concerns of the shareholders on the compensatory policies.
The symbolic nature of the company response creates the need of relationship ties between executive and shareholders. Shareholders are ready for looking and adopting the desirable compensation policies. Interesting fact, though is, that often they even cannot be implemented, if to speak about the responsive timing factor. Though, the anticipatory timing element can create the alignment that will not influence the compensation policies discussed between shareholder and company. On this basis, the strategies, which executives can use to influence shareholders policies and practices of compensation, depending on the case, can differ.
The long-term relationships between shareholders and executive are evidence of relationships with low risk of failure. The compensation in this case will be used as a tool to find the best CEO’s. As a result, the level and the procedure of the compensation defined the marketplace of the company and is a signal for executives. On this basis, they can easily understand if the company has means to provide all necessary tools for work and, what is important, the reliability in the question of compensation.
Companies use different types of goal-setting so they could control the process of the implementing the strategy related ideas. On this stage, most of the companies have developed or borrowed the measurement systems of performance success. Key performance indexes, KPI include quantitative and qualitative data. For shareholders, this can be the basis for the compensation package as the details have been discussed previously. KPI can include measurements on different types of relations between customers and the company or in-company relations, profit, quality measurements of the product and even development of the employees.
Despite KPI the shareholders need to pay attention on the personal characteristics and attitudes toward the ideas of the company from the perspective of the long-term relations. Another important factor is the ability to manage the crisis and arrange the agreement. This is important if the number of the shareholder has changed, or the value of the product on the marked is decreasing. However, this allows providing the CEO outstanding results.
Another important factor for implementing the compensation policies and practices is the communication between the company and shareholders. This will help to organize the process of compensation according to the image of the company. In addition, such cooperation will help to look through the plans of the organization and see, where are gaps in the compensation policy implementation. On the other hand, the time for decisions in this case will enlarge. As a result, this can cause misunderstanding and finishes with the yes/no-vote procedure. In order to avoid unpleasant situations with the compensation procedure, it is important to arrange the clear communication process with shareholders. In the process of discussion the issue it is important to define time gap, basic measurements for compensation discuss extra details and inform this to the executive.