22 Feb 2022
Unlocking the value of human capital
>>Watch the video
Adam Levine, entrepreneurial lawyer and founder of Rockwell Group Holdings, shared insights he has gleaned during 25 years of local and international transactional experience, and his view of the value that can be unlocked by focusing on human capital.
22 Feb 2022
Building a global brand through your people
The below article is a transcript from Christian Beck’s guest presentation at the recent Smartequity launch event in Sydney. Christian Beck is an entrepreneur and the Founder of LEAP Legal Software and Infotrack.
I started LEAP legal Software a long time ago and my father was quite influential as I wrote a program for his practice originally.
He employed a lot of people himself and he had a theory with people - two important things:
- Keep the good people.
- Remove the people that are not good for the business.
My father talked about how important it was to recruit the right people, but no matter how hard he tried, he could never get to the point that more than about a third of the people were really ‘good’.
I believe that myself. You can work on picking the right people, but in my experience, it is hard to get all good people. The only way to get all good people is to make sure the good people stay, and move the ones that don’t work out for you.
What employee shares are about is retaining the really good people. Over time, that has become increasingly important.
Steve Jobs once said that good programmers are about 30 times as good as the average programmer. 30 years ago, the good workers might be 30% better than the average – good programmers are about 3000% better. That is because you can’t really supervise what programmers are doing, they are fairly autonomous, and the good ones are extremely important to your business.
I believe that is somewhat true in programmers, and especially true in management. I’m not as extreme as Steve Jobs, but I feel with good programmers or managers they are at least three times as good as average. So I’m willing to pay them, through shares and equity, twice as much as the normal market rate for them would be. That is one of the ways we’ve retained staff over a long time – we pay well through shares and cash.
I recently saw an interview with the NetFlix founder. He had quite a number of economic problems around the year 2000. He had about 120 staff and had to make about 40 redundant. And ultimately what he found was the company operated just as well after those redundancies, as it did prior to them. What it came down to was talent density and keeping several really good people in the company.
We (at LEAP Legal Software) focus on that as well. In all the companies we are involved in, we try to make sure there is a very high proportion of really good people.
I find employee shares work exceptionally well if the shares employees own in your company represent their biggest asset. The absolute number or value of the shares is less important than the proportion those shares are contributing to the employees own personal wealth.
If your employee’s biggest asset is shares in your company, they will treat the business like it is their own business, and have a mind-set closer to you as an owner.
What I generally try to do is set up a situation where the really good people can earn a lot. They can take a proportion of their earnings as shares. They can get a large shareholding that’s probably bigger than any other asset they have. Once that experience is engrained, you have teams of people who are very invested into the company. If you have the CEO and the rest of the executive team in that situation, the company seems to run really well.
It sounds like a lot, but it is not really. For most young people, for example, if they have $30K or $50K invested in your company - that is probably their biggest asset. Comparing the cost of losing good people and replacing them with the value of those shares – this approach ends up being really good value in my experience. Obviously with the more senior people it requires more money, but then the returns are better again.
Also, we have always tried to ensure the valuation of the company is going up. If the valuation is increasing it all works beautifully. If the value goes down, the outcomes of this approach can also be negative. The main way we have done that is to focus on the valuation and make sure it is realistic.
It was fairly hard to raise money for tech companies about 15 years ago in Australia. The valuations we could get were not very good. We had staff who could see that in the long-term the company was going to work and they really wanted to have shares. So when we got the external valuation and offered it to staff members, who it looked attractive to, and they took shares. And then as a consequence it reduced our staff costing, increased retention and over time that went really well.
It was a beautiful thing for the company, but also for the staff as many of them are millionaires out of shares these days.
If you are a smaller company, or a distressed company, you do have a lot more potential to grow the value of shares than a big company, because the ability of a big, successful company to double or triple the value of their shares is next to zero. And the ability of someone to come in, take shares, make a difference and create wealth through shares is very difficult. Whereas in a small company, it is quite common for a small company to double, triple or even quadruple share value over a number of years. And if employees can get in there and experience that impact - starting off with $30K in shares and see it triple in value - that is a really positive experience for them, and also obviously for the shareholders.
The other thing to mention about shares is the impact on lifestyle. I have a few businesses now and I don’t actually work in any of them. I’m a director in some and a chairman for others but I don’t have a full-time role in any of them. I feel really comfortable doing that, mostly because for the CEO in all of them definitely have their biggest asset as shares in the company, and most of the executives are the same, so they tend to treat the company like their own. That gives me a lot of lifestyle choices. I can be out of those companies and not worry about it too much. I think that is a really good thing about shares.
Our view is: the best investor you can have is your own employees - employees first, customer second. Also friends and families of the employees can be great investors. If family take shares, they tend to encourage their loved ones to stay with the business, and be successful in the business to help it succeed. We have a lot of parents of employees who have been really good shareholders for us for a long time.
One final thing to mention is to consider providing annual liquidity. Every year our employee share plan needs to buy some shares in order to offer them to staff. When that happens we work out the valuation and give all the shareholders the opportunity to sell at that valuation. We give a preference to employee shareholders over the larger equity shareholders. So at least once a year there is a liquidity option for all staff members.
At that point when outside investors come in, we also offer all shareholders the ability to sell (before we bring more money into the company).
Those sort of liquidity options have worked well for us as a private company.
22 Feb 2022
Staying in touch
By John Day and Alex Tilley
Today’s technology enables us to carry our work with us wherever we go and ensures our capacity to connect is almost endless.
But such capabilities have blurred the boundary between work and home. New research suggests that some employees don’t know how to leave work when they leave the office. ‘Smart’ devices are changing the paradigm of the traditional workday; ‘working nine to five’ may no longer be the way to make a living.
Possession of a Smartphone enables many people to fit the epicentre of their office into the palm of their hand, allowing them to monitor multiple inboxes, and providing instant access to a world of information. We can view presentations, type and edit documents, research statistics, and conduct face-to-face meetings with people on the other side of the globe at the touch of a screen. There can be no doubt that we are more connected than ever, but are we less capable than ever of disconnecting?
A recent survey conducted by CareerBuilder.com suggests that many people remain ‘checked in’ to the office long after they have left. Of the 1,078 participants, 63% agreed they struggled to switch off mentally after leaving the office, and 38% said they frequently worked outside of office hours. One in four people admitted to checking their work emails whilst with family and friends.
Concerns have been raised about the impact this may to have on an employee’s health, personal relationships, and on their overall work/life balance. Mark Cropley, a professor at the University of Surrey in the UK outlines some of the health consequences of being constantly connected, “Physiologically, people who can’t switch off are tense and irritable, they have high blood pressure, a high heart rate, and that puts stress on the cardiovascular system. We’ve also shown that people who can’t switch off have high levels of cortisol, the stress hormone, they have sleeping problems, concentration problems, and other issues.” Cropley also noted that being constantly “checked in” to the office may even be counterproductive. “People find themselves working in the evenings, either finishing projects or checking emails to make life easier for the next day, but this means they can’t switch off. They’ll be in bed and their mind will still be on work. They’ll go round and round in circles thinking ‘I’ve got to do this, I’ve got to do that.’ Then they go back to work the next day feeling more fatigued and more likely to make mistakes.”
What is interesting about the results derived from the CareerBuilder survey is that 62% of the participants reported seeing constant connection as a choice, rather than an obligation. Indeed in a society as fast-paced and device-reliant as ours, it would be pointless to try to resist these technologies. Instead we need embrace these advancements and ask ourselves, how can we use them to our advantage? Perhaps the answer lies in the eradication of the ‘nine-to-five’ mentality of our workforce. Dissolving this dated concept could make room for a new era shaped by new technology. "Workers want more flexibility in their schedules, and with improvements in technology that enable employees to check in at any time, from anywhere, it makes sense to allow employees to work outside the traditional nine-to-five schedule," says Rosemary Haefner, Chief HR Officer at CareerBuilder. "Moving away from a nine-to-five work week may not be possible for some companies, but if done right, allowing employees more freedom and flexibility with their schedules can improve morale, boost productivity and increase retention rates.”
But what about the aforementioned health concerns of constant connection? These may be a consequence of the current transitional phase, where employees are attempting to adhere to the nine-to-five and be constantly connected. Flexibility and trust from employers is key to empowering employees to manage their work/life balance. Lizzie Penny, Co-founder and Joint CEO at Huckleberry Partners and Futureproof, notes that the concept of nine-to-five is older than electricity, and was born from conformity rather than practicality or productivity. Penny predicts that empathy is the way of the future when it comes to business, “In order for an employee to feel connected to and motivated by their employer, mutual understanding is crucial. This requires the employer to truly empathise with the person behind the employee, and appreciate the richness and complexity of their lives outside of work. Failure to do so may encourage the employee to seek out a more “caring” work environment, or follow the growing trend towards self-employment.” She argues that “Future-thinking businesses must trust employees to manage their own workload and abandon presenteeism.”
What we are seeing is massive shift towards constant availability, if employees are willing to work outside of ‘traditional’ hours, what is there to gain from strict adherence to a nine-to-five routine.
22 Feb 2022
UPDATE Draft Taxation Ruling TR 2014: Income tax - Employee Remuneration Trusts
By John Day
Draft Taxation Ruling TR 2014/D1 Income tax: Employee Remuneration Trusts was published on 5 March 2014, and explains the Commissioner’s preliminary views on the taxation consequences for employers, trustees and employees who participate in employee remuneration trust arrangements established by an employer as a means of delivering benefits to employees via a trust.
The intention of draft ruling was to clarify ambiguous or grey areas of the law, primarily to ensure ERT’s are implemented and administrated in accordance with the law.
Comments received when TR 2014/D1 was issued, have been considered. Given the nature and range of the comments received, a second draft version of TR 2014/D1 is expected to be issued towards the middle of the 2016 calendar year.
The ATO has prepared a discussion paper, intended to facilitate further consultation in relation to particular aspects of the views in TR 2014/D1, and to clarify the scope of the second draft.
The ATO is seeking written feedback on the Draft Discussion Paper.For more information, please contact John Day on 0418 327 209.
22 Feb 2022
10 employee retention strategies to keep your most valuable employees
Implementing a program that rewards and recognises work and behaviours and supports the mission, goals, values and initiatives of the organisation, is critical for employee retention. Congratulating an employee on a job well done costs very little, but to your people, it's priceless. When people feel that leaders notice and truly value their contributions, their motivation and loyalty grow.
Critically, a reward and recognition program motivates employees to change work habits and key behaviours and build a positive and supportive culture.
Incentives, both financial and non-financial, can be offered based on performance and be applied consistently across the board.
Financial retention strategies
1. Employee equity ownership
Financial studies have shown by far the most effective means of retaining valuable employees is the participation in long-term incentives through equity ownership plans.
Equity plans, properly designed, align the internal shareholders with the external shares to attract, motivate and, most importantly, retain valuable employees.
They provide an increased sense of ownership and association with the organisation, improve awareness about decisions, directions and corporate plans of the organisation.
2. Competitive remuneration
Remuneration is another critical factor to employees. When you pay people below market value, it suggests that you do not truly value them or their work. If you withhold raises and bonuses during the downturn and have yet to implement any positive changes, you are at real risk of losing staff.
3. Employment agreement
The conditions contained in an employment agreement are critical to retention. It is not uncommon to have a six-month notice period and six-month redundancy payment.
By extending the redundancy notice period, particularly for senior employees, you are giving these employees additional time to seek employment elsewhere. Generally, it takes between six and nine months for an employee to secure an equivalent position as senior employee positions are very limited in any industry, particularly in the oil and gas industries.
As a result, a six-month redundancy payment would offer some financial stability to the employee, which enables them to focus their energies on the operations of the company rather than stressing about the volatility that may be present. Not only can a six-month redundancy payment be used to thank departing executives for their long-term and/or outstanding service to the company, it also provides an incentive for employees not to disclose corporate information to competitors or cause adverse publicity when leaving the company.
4. Flexible remuneration packaging
Offering employees the ability to choose how they receive their remuneration within their total employment cost can increase their feeling of economic security. For example, salary packaging with education and learning benefits, employee discounts, novated and associated car lease, etc.
Non-Financial Retention Strategies
Though often not appreciated, so-called non-financial (even though they still cost money) strategies, can have a stronger impact on employee retention. By far, the strongest is sustainable, clear leadership. My personal experience is that a company with a strong leader (CEO) is inevitably more successful. Part of that success is due to the retention of employees. Non-financial strategies include:
5. Freedom and flexibility
Flexible working arrangements (e.g. flexible working hours, working from home) give employees the ability to balance work and personal demands which can help to reduce absenteeism. Offering your employees flexible working arrangements shows that you care about them, which leads to strong loyalty to your organisation.
6. Professional and career development
Continuous and ongoing professional development helps overcome skills shortage and retain expertise within your organisation. By providing ongoing professional development, you can ensure that your organisation has the skills and capabilities required, and that all employees are making the best possible contribution. Development also allows your organisation to strengthen individual employees’ skills in the direction of existing skills and knowledge gaps.
7. Performance management
A well-implemented performance management system can help to achieve the organisation’s business objectives. By providing employees regular feedback, they know what to aim for, when they are doing well, and what they need to improve on. Studies have shown that effective performance management systems can lead to happier, more motivated and better performing employees.
8. Employee engagement
Employees who are engaged are more productive and content, and more likely to be loyal to your organisation. By measuring employee engagement, you will have an accurate assessment of an employee’s commitment and contribution to the success of your organisation.
9. Clear Career Path
Employees want to know they have a future at your company.
10. Clear Communication
Last but not least, unambiguous communication is the foundation for all your other retention efforts. Keeping employees in the loop helps them feel they are a key part of the organisation and that they have a role to play in upcoming plans.
21 Feb 2022
Placing value on valued employees: building an effective remuneration strategy
A well-designed employee remuneration strategy firmly anchored in business objectives helps organisations attract, retain and motivate employees, says John Day, Director, Equity Plan Management Pty Ltd.
How employees are remunerated affects how they think, work and behave. If employee behaviour and actions are to align with the objectives of directors and shareholders, it follows that remuneration – particularly short and long-term reward structures – also aligns to business objectives.
Demonstrating the value of the employee
As the notion of the ‘employee’ transforms to ‘stakeholder’ and ‘major business asset’, it is essential organisations establish a set of company values that are not only belief-oriented, but also acknowledge the value of high performing people.
Remuneration planning is one of the most efficient and effective means of not only communicating company values to employees, but also obtaining their inherent acceptance by encouraging the employee to maximise her or his value.
Moving away from fixed pay
The traditional view of remuneration planning is set to shift over the next ten years, as effective remuneration planning becomes less about paying employees, and more about rewarding employees and developing their sense of connection with the company.
The emphasis of the next decade will be on customised, organisation-specific, remuneration programs that on one hand, build support for changing and evolving business strategies; and on the other, are sensitive to each employee’s unique personal needs and goals.
The trend towards performance-based pay
A 2014 major Worldatwork study1 revealed 85% of companies were setting base remuneration levels at the market median, noting that “the market isn't compelling employers to accelerate wage growth in any significant way”. In contrast, ‘pay for performance’ was thriving, with 72% of respondents indicating they have a rating system with performance scores tied to pay increases; and 82% of organisations using bonuses to deliver performance-based pay.
Furthermore, it was shown that an employee's understanding of the organisation's remuneration strategy tended to be higher when there was greater differentiation in pay increases between average and top performers.
Today, this trend continues and is accelerating, with more companies keeping fixed pay at a minimum. This provides companies with an opportunity to differentiate using performance-based incentives.
Using incentives to attract, retain and motivate
Implementing the right mix of performance-based incentives will help companies stand out in attracting, retaining and motivating key talent.
Short-term incentives influence behaviour to achieve certain specific immediate organisational requirements. Bonuses tend to be the most frequently used pay variable.
Long-term incentives aim to imbue an employee with a vested interest in maximising the organisation’s long-term value. An employee equity plan is an effective way to achieve this, as employee and shareholder interests become aligned. When shares in a company represent a significant asset for the employee, they begin to treat the company like their own – an excellent motivator.
Steps to motivating employees through remuneration
- Agree on realistic performance targets with employees and provide meaningful incentives to achieve those targets
- Enable employees to share directly in the benefits generated by achieving targets
- Empower employees by allowing remuneration to be taken in a form that helps them more easily satisfy immediate financial needs, and to achieve financial and lifestyle goals sooner.
Regardless of the ultimate remuneration mix, it is essential the remuneration structure is consistent with management values and overtly supports the achievement of business objectives.
1. 2014, Compensation Programs and Practices, WorldatWork 2014
21 Feb 2022
Smooth sailing: employee share ownership is easier than you think
By Alex Tilley
An employee share ownership plan (ESOP) is an arrangement under which an employee is provided with shares, or the opportunity to buy shares, in the company they work for. Participation in an ESOP transforms an employee into a part owner; increasing employee engagement, productivity, and retention in a way that no other form of remuneration can compete with. When a plan is structured correctly, business owners can provide equity to their key employees with no adverse tax implications.
A key benefit of employee share participation is the alignment of employer and employee interests. Though not always measureable, significant costs to the company are incurred when the interests of the employee are not congruent with those of the company. Most notably the impact can be seen in low productivity, low employee morale, and poor employee retention. Additionally, customer satisfaction is directly influenced by employee satisfaction. Unless a business ensures its employees feel engaged, valued and satisfied, it is unlikely to have customers that feel engaged, valued and satisfied. It goes without saying that a company’s greatest asset is its employees, and a great company nurtures great employees who do great work.
Imagine two boats. The captain of the first boat is motivated, hardworking, and has a clear understanding of where his boat is headed. His crew however, aren’t clear on where the boat is going and they don’t really care, they get paid just for showing up. On the second boat, captain and crew share the vision of where their boat is headed, each member working as hard as the next to reach their collective destination. The captain of the first boat is equally as keen to reach his destination as the captain of the second boat, but with a disconnected and unenthusiastic crew, he is unlikely to get there. Ask yourself, which boat does your workplace resemble? Are your employees truly “on board” with the company’s objectives?
In many companies, employee retention is a critical issue. Without an effective talent management strategy, a company can easily lose big money replacing employees who have “jumped ship”. According to Josh Bersin, Principal and Founder of Bersin by Deloitte, “Many studies show that the total cost of losing an employee can range from tens of thousands of dollars to 1.5-2X annual salary.” Not to mention the damage done to productivity, employee morale and workplace culture. Whilst the costs of recruiting and training a new employee are easily measured, the true impact of high employee turnover on productivity, morale and workplace culture is less calculable, but can be equally damaging to a company. Even with quality initiation and training, a new employee still may not reach the productivity levels of their predecessor for several years. This is not necessarily a reflection on the individual, rather the simple fact that the longer an employee is with an organisation the more productive they are likely to be. It takes time to learn a company’s systems and products, and to build relationships within the organisation with suppliers, customers etc.
Most new employees will be a cost to the business before they become valuable. In addition to this, high employee turnover distracts from the company’s long-term objectives and hurts business. Talent retention is a crucial element of business success, so how do we ensure it? Employees expect to be financially rewarded for their work, and financial incentives such as commissions and bonuses can be effective, but even companies with higher than average wages, bonuses, and commissions still experience issues with employee retention. Research suggests that employees are seeking more than just financial remuneration from their company; they want to influence the management of the company and have a say in the decisions affecting daily work, they want fair treatment and a sense of community. Employee share ownership is an immensely powerful strategy for satisfying these criteria and ensuring your valued employees don’t “jump ship”. When employees feel they have a direct interest in the performance of the enterprise, their commitment to the company and the objectives of the company is greatly enhanced. ESOP’s facilitate employee engagement in the company and provide incentives for employees to achieve high levels of productivity. As part owners these employees don’t just expect a return from their company in the form of salary, they want to contribute.
Despite this, the perceived complexity of employee share ownership is still holding some businesses back from realising the numerous benefits of implementing an ESOP. ESOP’s have been criticized as being legislatively problematic or administratively demanding, but carefully designed policy can address each of these shortcomings. The benefits of employee share ownership are dependent on the strategic design, implementation and management of the ESOP, as well as adherence to relevant legislation. This should not be a deterrent to companies however, as these administrative and legislative ‘hurdles’ can be managed by competent Advisers and Administrators. Relieved of these burdens, companies and their employees are free to realise the immense benefits of employee share ownership.
21 Feb 2022
Remuneration Design
By John Day
An appropriately designed, and strategically based, employee remuneration system is capable of serving many purposes for an organisation. These purposes are often summarised as fulfilling the need to “attract, retain and motivate” employees.
But it is also broader than this.
How employees are remunerated will affect how they think, work and behave. If behaviour and actions of all employees are to be aligned to achieve the corporate objectives of the Shareholders/ Directors, it follows that the remuneration structures, particularly the short term and long term reward strategies need to be also aligned to those corporate objectives.
Total Reward
The total reward structure comprises base pay, performance-based pay, compulsory employer provided benefits (such as superannuation and various paid time off such as sick leave, annual holidays and long service leave), as well as those benefits provided at the discretion of the employer (eg employee share plans, cars, health care, study leave and the like).
These are factors that will have a direct impact on employee productivity and morale. For this reason, the design of a total reward structure must be consistent with the management philosophy and values of the enterprise, and deliberately support its achievement of its business objectives.
Performance Based Pay
Another important aspect of reward is to link it with the performance of the employee and the organisation. Performance based pay systems are attracting the attention of many organisations in the Australian public and private sectors, and across all industries.
There is evidence to suggest that a well-designed incentive plan, combined with effective job design, can impact performance positively for both the employee and the organisation. Incentive plans vary from individual plans to sales incentive, managerial and group plans.
Similarly the rewards may be paid annually or more frequently, and may be in cash or, as often applies to senior executives, in Shares.
Employees – Stakeholders
The transformation of employees to stakeholders, and to becoming a major business asset requires the establishment of a set of organisational values which reflect the value the organisation places on itself and its workforce and then the effective communication of these values to all employees. Remuneration planning is one of the most efficient means of communicating these business values to employees and a most effective way of obtaining their acceptance of these values. The aim of this communication is to encourage the employee to maximise his or her value to the organisation, and correspondingly, enables the employee to be remunerated according to this increased value of the organisation.
It can be achieved as follows:
- Agree on realistic performance targets with an employee which provides a real incentive to achieve those targets;
- Enable the employee to share directly in the benefits generated for the organisation in achieving those targets; and
- Allow remuneration to be taken in a form which enables the employee to more easily meet their financial needs, and achieve their financial and lifestyle objectives earlier.
Remuneration planning
Remuneration planning communicates organisational values to employees in strong and often unintentional ways. They can reinforce existing sets of behaviour or stimulate the development of different ones.
A well-planned remuneration program can successfully link organisational values with employee values, thereby bonding the employee to the organisation. The highly competitive environment into the 21st century will demand more than ever the use of remuneration as a strategic organisational tool, central to the achievement of organisational goals, such as improving productivity, increasing profitability, improving shareholder value and building employee commitment.
The emphasis of the next decade will be on customised, organisation-specific, remuneration programs that build support for changing and evolving business strategies on the one hand, and on the other, strategies which are sensitive to each employee’s unique needs and objectives.
Remuneration planning is really concerned with retaining valued employees and deriving income by remunerating employees in such a way that motivates and encourages them to achieve their personal goals as well as those of the organisation to recognise their role as stakeholders in that organisation. At the same time, they can be provided with an environment that provides the security of protection from many of the financial risks and hardships inherent in one’s lifestyle.
Effective remuneration planning is, therefore, not just about paying employees, but is also concerned about rewarding employees. Those rewards can be classified into three distinct types; base remuneration as well as short-term and long-term incentives.
Market practice
A recent study shows that 85% of Companies are Targeting the Market Median when, setting employees’ Base Remuneration levels. A recent study observed that: "85% of the respondents indicated they target employee base salary at the 50th percentile. Employers tend to largely assess the market value of jobs on an annual basis and address current market conditions on an as-needed basis. Currently, the market isn't compelling employers to accelerate wage growth in any significant way." These are the findings of a survey, titled "Compensation Programs and Practices," published by WorldatWork, which is a leading USA based human resource association. The survey of the association's membership, conducted in 2014, focuses on the prevalence of base and variable pay programs, as well as common practices used to administer and communicate these programs. Similar surveys were conducted in 2012, 2010 and 2003.
As Kerry Chou, CCP, WorldatWork Senior Practice Leader observed, "the percentage of organisations providing minimal pay-related information to their employees is increasing, up to 39% in 2014. The report also shows that pay for performance continues to thrive, with 72% of respondents indicating they have a rating system with a performance score tied to pay increases”.
Furthermore, the results indicate that each employee's understanding of the organisation's remuneration philosophy tends to be higher when there is greater differentiation in increases between average and top performers.
Delivering performance-based pay
Additional highlights:
- 82% of organisations use bonuses to deliver performance based pay, which is the most frequently used variable pay plan for some or all employees.
- A majority (59%) of base salary structures for employees are still adjusted once a year, with 14% of companies adjusting their structures once every two years. This is a five-percentage point increase from the previous two surveys.
- In 2014, as in 2012 and 2010, individual performance based pay levels only resulted in moderate variations, with top performers receiving 1.5 times the average increase being the most typical variation in salary increases between average and top performers.
Short-term variable remuneration is over and above base remuneration
Its purpose is to provide specific incentives to influence behaviour to achieve certain specific organisational requirements. For example, the short-term valuable remuneration is often based on Divisional profit improvement, increased sales or other specific empirical or judgmental objectives.
Long-term bonus provides an employee with a vested interest in increasing the value of an organization and is often achieved by rewarding performance with a stake or share in the organisation. This is often achieved by using an employee equity plan.
The key objective of the equity based reward is to focus an employee’s attention on the organisation’s owners (ie the shareholders) objectives, which are maximising the long term value of the organisation, rather than focusing attention on the short-term or annual returns of the organisation.
Conclusion
With the trend to “fix” base remuneration to the market median, there are a lot of opportunities in designing remuneration, by having increased emphasis (% of Total Remuneration) on well-designed Short Term and Long Term Incentive arrangements. In so doing, the organisation will achieve the Optimal Remuneration Mix, in order to achieve the objectives of Employee Attraction, Retention and Motivation, while at the same time achieving and maximising the Directors’ and the Shareholders’ corporate objectives.
21 Feb 2022
The role of equity in innovation
The below article is a transcript of Matthew Howard's guest presentation at our recent Smartequity launch event in Perth. Matthew Howard is the Director and Company Secretary of Strategic Elements, an Australian ASX-listed company that invests in Australian innovation.
When John phoned me last month and asked if I wanted to catch-up for breakfast and that it was his shout, I immediately accepted his invitation. So here I am today, evidence that there is no such thing as a free breakfast! Really, it is a pleasure to be here.
My name is Matthew Howard and I am a Director and Company Secretary of a small investment fund that invests into Australian innovation using the private capital from our shareholders. So essentially, it is Australian capital investing into Australian innovation. Principally, our fund invests into the Resources sector and the Technology sector.
I would like to talk briefly on the role of equity in innovation and some general thoughts and observations I have.
Firstly, if you consider the role of equity today, when you analyse it, equity probably sits behind cash in terms of being the preferred instrument within Australia. The Equity Capital Market is a large driver of the Australian Financial Market - from ‘mum and dad’ shareholders purchasing shares to small corporate transactions in the resources sector, or as a method of motivating employees in a small start-up. All of these scenarios, and many others involve the use of equity or derivatives of it.
Specifically within start-up entities, equity is a vital instrument, it is the oxygen of the company, which is used to control the Company, protect the ownership of the founders, reward and motivate key individuals and act as a vital pathway for the flow of capital.
Of interest to me is how equity can be a very effective method of rewarding and motivating founders and employees. The psychology of owning a portion of the company and building this is one of the drivers for most people in start-up entities. This motivation permeates through the business and drives a culture of innovation, pushing the barriers of what is present day.
Equity is critical to innovation and without it, innovation would be very different.