Using Pay to Change Culture

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Members of the compensation committee play a key role in reinforcing corporate culture change through compensation program design and administration. Many companies, at critical junctures in their life cycles, must transform their cultures to regain or sustain success. A number of factors combine to define a company’s culture (see table), but across all factors, pay can be a key lever for sending signals about changes in priorities, influencing behavior, and driving transformation.

Consider two examples of cultural change that a company might undertake: The first, to transition from a focus on individual business unit results to overall corporate results. The second, to reorient from a “growth at all costs” mentality to a more balanced focus on growth with healthy, risk-adjusted returns. Pay can be a powerful driver of change in both cases.

Cultural change is built on three pillars: (i) establishing a “burning platform” for change, (ii) developing the infrastructure to support change, and (iii) ensuring accountability for change — and this third pillar is where compensation plays a crucial role. Each of the pillars is described briefly below, followed by a more extensive discussion of how to use compensation to support and ensure accountability for cultural change. Download the entire article, “Using Pay to Change Culture.”

This article originally appeared in NACD Directorship.