People want to get recognized for what they do

In a career spanning two decades in Compensation & Benefits space, Frank Zwecker has worked with leading consulting firms like Ernst & Young as an Associate Director (International Compensation) and Dell as Director (Comp & Benefits). He currently holds the position of Vice President, Global Compensation and Benefits function of Lenovo. 

In this exclusive interview, Frank shares his views on the paradigm shift in the compensation & benefits ecosystem. From the dot-com bubble of the 1990s, to getting to terms with the renewed startup boom and competing in the ever-intensifying war for talent, he talks about the emergence and establishment of innovative ways like equity-based long-term incentives, pay for performance, and flexible benefits. 

The emergence of the technology sector and the increasing war for talent has shaped the compensation and benefits scenario the way it is today.

Companies have become much more aggressive than they were in the past. The ratio between the salary of a CEO and someone at the entry-level has gone up to almost 500 times from 20-25 times in the past. This is because of the rise in the use of equity-based compensation methods like restricted stock, and stock options. Technology companies started this trend and other industry segments had no option but to react. Nobody had heard of stock options or restricted stock units before, but they became the key differentiator of organizations in no time. Promoted as a tool to align management rewards with shareholder interests, these became the vehicles to deliver huge value to management and the broad employee population in growing organizations. They also gave companies access to talent and became a must-have value proposition for them.

The last two decades also saw the increase in the relevance of pay for performance. Companies started challenging the conventional system of compensation and questioned why shouldn’t the people who create more value to the organization be paid accordingly? Paying for performance is not a new concept but companies are starting to question whether past differentiation, for example through merit increases and annual bonuses, has been sufficient. Companies are now leveraging new compensation elements for a much significant differentiation in the recognition of their top talent.

People want to get recognized for what they do, and the rise of equity and pay for performance has led to a value-directed behavior in the compensation space.

Benefits, on the other hand, have become more tailored to different employee groups. It isn’t so much so about providing more, but providing employees with the opportunity to select the benefits package that fits their specific needs and wants. It is important to recognize that employee priorities change based on lifestyle, family and cultural affinity. There are clearly some generational differences as well. 

Lenovo has changed significantly over the last few years, and has moved from being a pure PC company to encompassing Mobile, Enterprise, Cloud, Services and much more than just devices.  

What we have realized is that a one-size-fits-all approach doesn’t work in compensation and benefits. Such an approach leads to complex and convoluted program. Lenovo as a company with multiple business verticals, carefully shapes it business strategies and operating models to succeed in the respective markets. For instance, Lenovo’s enterprise business and mobile business both have different competitors; both businesses operate in different industries, have different economics, and also require different kinds of talent and leadership. 

Using a single compensation model doesn’t work effectively across all the verticals because the business strategy for each of them is different and we can’t ignore the nuances required. In the end, we had to realize that by having a universal approach, we could not keep our employees happy. So instead of trying to fit it all into one – we thought we will differentiate. 

We classified our business into different parts and we checked each business for various aspects like profitability, business objective, rapid growth, etc. Now for each classification, the compensation and incentivizing approach is different. For example, if the priority of a more mature hardware business is focused on maximizing profits while continuing to grow — in the incentive plan, profit contribution would be a leading metric defining the payout. In another business, if the primary objective is to grow the market share and become a top player, we would specifically incentivize the contribution to the topline in that business.

The compensation strategy stems from the business strategy and our incentives plan is shaped according to what we do as a business. All businesses follow some ground rules — the pay should be fair and we follow a pay for performance model.

The first thing I, as a Comp & Ben head, want to achieve is to eliminate distractions and take care of employees’ basic needs. We do not want employees to be worried about their paycheck, or whether their family will be covered in case of illness, etc. To take care of basic needs is our first priority. But if you ask whether this is enough to make people happy, the answer will be ‘No’. It is just one element. There are many other factors that contribute to employee happiness like work environment, leadership, opportunities, quality of work and work-life balance etc. As a matter of fact, I don’t see compensation and benefits as the tools to keep employees happy. Instead, I see them more as hygiene factors that need to be handled in the right manner to avoid dissatisfaction and distraction in employees so that they can focus on the right priorities.

Organizations often underestimate the importance of consistency. People often want faster results and change things if they don’t work. But if organizations constantly tinker with the compensation plan and keep changing things around, it does not engender a lot of trust. 

Consider this — you put in place an annual incentive plan. You set certain goals, launch the plan and then after two-quarters, you see that you are not achieving your results. You feel that your employees will be very disappointed and it may impact their morale. You don’t want your employees to lose focus on the second half of the year so you get rid of the plan, revise it completely. However, the reality is that the second half is usually tougher than the first half. So in the quest of trying to protect your employees, what did you eventually achieve? Minor tweaks that allow the plan to remain credible and motivational might be appropriate — but keep the core plan. Having a correct plan in place and sticking to it is important, in my opinion.

The business landscape has changed a lot — now there is a lot of diversity and we are competing with a lot of different organizations. The perception of old companies has also changed as they are struggling with a shift in attractiveness. People now intend to work for local companies and startups and compensation is the least of their worries. Startups pay the exorbitant amount of money to acquire talent — people at middle management level are thrown a million dollars at sign off. Global companies like ours have to be profitable, the pressure of which is not all startups have. Also, as an organization with a large workforce, it is also important to maintain parity in pay — something which startups do not have to worry about always. The fight for talent is a big challenge especially when we are transforming as an organization.

We have recalibrated who we are competing with and we have to devise innovative compensation and benefits strategies to acquire the best of talent. We have become more aggressive in devising and offering retention bonus, on how we hire graduates, and the way we use stocks.

It becomes increasingly important for us to effectively communicate a more holistic view of our value proposition to candidates and employees. 

We rely on our core differentiators — being a global profitable company of such a scale, we promote our characteristics of talent mobility, opportunity of working across the globe, stability and better work-life balance as our differentiators.

We are witnessing start-ups reeling under the pressure of profitability. Many of them may fold and talent may get disillusioned by the aura of startups. We have already seen people coming back from start-ups to established companies because of the poor work-life balance in startups, lack of stability and their inexperience in people management among other things.

To answer that question, it is important to understand why people leave. If they leave for money — then there is nothing much we can do about it. We try to retain them, but if they want much more than we can offer, then there is not a lot we can do about it. 

But some people want to leave because they look for opportunities outside — some want to be entrepreneurs, some look for a different role. We generally like such behaviors. We give them these opportunities in the framework of Lenovo. Develop your ideas, start a new company, leave your mark. We are actually looking for such talent that can become the future of our organization, and we are focused on nurturing and investing in them and their dreams.