Continuing on the theme of reward strategy being more or less a metaphor for life strategy, it is interesting to consider the illusion of scarcity, and how this holds firms back from success in their approach to compensation. A fundamental underpinning to so many reward consulting engagements is helping clients get comfortable with the idea that they ultimately want a smaller slice of a much larger pie. Whether it is giving up some equity to help grow the firm, giving up a higher commission percentage to increase the aggregate sales volume, or a dozen other scenarios, at the end of the day, the decision is this: can you let go of more in the short run, to participate in something much more valuable longer term.
Thinking quickly about life decisions, whether relationships, educational pursuits, hobbies, you name it, it feels like there is a similar construct at work. You give up some time, you give up something, you have a bit less, with the hope that the greater thing you participate in is worth it.
Consider the illustrative example of M&A Boutique XYZ. It is founded by three partners who each own 33% of the firm. They are solid bankers, produce reasonable revenue and the firm largely stagnates. You need deal flow to become relevant to more clients and a destination other bankers want to join. As they try to recruit, they have few arrows in their quiver. Bigger firms can pay guarantees, sign-on bonuses, have a more prestigious name on their business cards – you name it. XYZ really has two primary tools to offer: pay joiners a greater share of the revenue they produce, or give up some equity with the hope that their diminished owner’s stake becomes worth more.
XYZ knows this intellectually, but they are loathe to let go of the equity. They know that currently the equity is largely valueless, as their firm revenue is modest, with no real growth story. Who would want to buy it? But they can’t seem to make peace with letting go. So they don’t. And no one else joins.
The non-reward life examples are plentiful, if you stop to think. Consider entering into a relationship – letting go of some autonomy, some independence, some free time, and more. Instead of owning 100% of yourself, you wind up owning 50% of something that is hopefully worth more than twice as much. It is the same with having kids.
So, go forth and be brave. In your life choices. In your comp design. Free yourself from thinking everything is a “zero sum game”. It is not. There is no scarcity to fear. Find great partners, whether in life or in business and share. If you pick the right partners, you will wind up with a smaller slice of a much larger pie.