Board-level compensation committees take the wrong approach in evaluating top managers, former Basel private bankers Christoph Gloor and Mathis Büttiker write in finews.com.

Faced with a generation of young talent and job seekers who are asking the question of the purpose and meaningfulness of their professional activity much more loudly than their predecessor generations, companies are facing major challenges.

The employer's recipe for success of good pay and long-term job security in the post-war years has fallen victim to the spirit of the times. So, what motivates young workers in the western industrial nations?
As early as 2008, a publication by the authors Nitin Nohria, Boris Groysberg and Linda-Eling Lee appeared in the «Harvard Business Review», which identified four dominant motivating factors for employees in the context of corporate management.

Underlying these motivational factors are the human needs of acquiring, understanding, bonding and defending.

Secret of a Success

Acquiring includes material acquisitions such as wages and bonuses, but also intangibles such as reputation and social status within a company. Understanding arises from the primal need to understand the environment and to be able to orient oneself within it. In a corporate context, this means insight into the meaningfulness of work and the desire to make a relevant contribution. The bonding need is the desire for relationships with colleagues and for belonging to a group or a company. Finally, the defending of values and ideas and of one's own possessions is another strong need and an important source of motivation for employees.

There is no doubt that a satisfied and motivated workforce is the basis of a successful company, which is why these needs of employees must be met. In this respect, company management has various possibilities for exerting influence.

Readily Recognizable

Companies have created compensation systems with the motivation factor of acquisition in mind. Important elements of a successful compensation system are a high correlation between performance and compensation, the setting of individual and group goals in line with the corporate strategy, the recognition of individual performance and financial comparability with the competition.

The need for employees to understand must be met by the company through work and workplace design. Positions, job specifications and work models should be interesting, challenging, varied, competitive and meaningful. The employees' contribution to the customers, the company organization and the outside world should be readily recognizable.

Natural Need to Protect and Preserve

A company can only succeed in fulfilling the employees' desire for loyalty through an appropriate culture. It must promote elements such as common goals and values, transparency, teamwork, a sense of belonging, appreciation, openness, inclusion and friendship. The sense of community, responsibility and concern for the whole and the individual must be visible and tangible at all levels of the company.

The desire of employees to defend and maintain the status quo is a natural need to protect and preserve what has been achieved. Accordingly, employees often resist change, which is also known as the phenomenon of «resistance to change». Ideally, a company counters this occurrence with comprehensible structures and maximum transparency and objectivity in the decision-making and change processes. Assignments and tasks, resource allocation, performance measurement as well as signs of recognition and appreciation must be carried out in a fair manner.

More Surprising

It can be taken for granted that employees are highly motivated when a company is able to address and satisfy all four motivational factors or needs independently of each other.

It, therefore, seems all the more surprising that only compensation committees are widespread and formally institutionalized at the board level. This may be due to the fact that - apart from the potential legal requirement - the tasks and competencies of these committees can be simply and clearly defined, and that the determination of a remuneration system is a relatively mechanical matter.

The Board's Core Responsibility

This approach, however, does not go far enough, as it ignores the three other factors and needs that contribute just as important to employee motivation. Boards should neither fully delegate nor entirely leave the duty to address motivational factors and needs to the management.

Employee motivation is a core responsibility of the board of directors. Aspects such as values, culture, appreciation, training, talent development, transparency, etc. – in addition to an appropriate remuneration system – must be constantly present topics in the board of directors or one of its committees. The «tone at the top» starts at the board level and not at the management level.

Regular Items

Keeping these motivational tasks as permanent items on the agenda of the full board of directors may overload its agenda and be inappropriate. In any case, they should be regular items on the agenda of the compensation committee, which is primarily responsible for these important issues. The committee should therefore be renamed «Motivation and Compensation Committee» to reflect its mandate more appropriately.

Both authors look back on long careers in management positions at Swiss financial institutions. Mathis Büttiker is a member of the Compensation Committee of the Basler Kantonalbank and of the Compensation Committee of the Endress+Hauser Group. Christoph Gloor is a member of the Compensation Committee of the Baloise Group.