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Rewards That Work™: The Wilson Group Newsletter | Articles

Rewards That Work™
The Newsletter for Clients and Friends of the Wilson Group, Inc.
Vol. 1, #1

Amazing Amazon.com
Many Sacrifice Real Desks For Stock Options

Adapted from Rewards That Drive High Performance: Success Stories From Leading Organizations, by Thomas B. Wilson, which will be published this spring by AMACOM and ACA. Amazon.com is a Wilson Group client.

When Jeff Bezos decided to take advantage of the Internet's rapid growth, he recognized that he needed to create a business unlike any that existed off line. So he created a bookstore with 3 million titles.

His business, Amazon.com, is the most successful example of electronic commerce yet, having grown from sales of $511,000 in 1995 to $147.8 million in 1997. Revenues in the first quarter of 1998 were $87.4 million - a 446% increase over the previous year.

At age 33, Bezos has a net worth of $12 billion, but, reflecting the intense competition and low margins of the book retailing business, the culture at Amazon is frugal. All employees, including the top executives, use desks made of recycled doors, while milk crates serve as filing cabinets. This Spartan approach frees capital for expansion.

Bezos does not want a culture at Amazon that will appeal to everyone. He seeks to attract only those who share his passion - transforming the way in which people buy products over the Internet.

Along with spectacular revenue growth has come a rapid expansion of the employee population, from 150 at the end of 1996 to almost 900 in mid-1998. What has remained constant, however, is the quality of people the company hires.

Hiring the Best for Less
A Princeton graduate, Bezos seeks to hire the best and brightest, and to keep them motivated - while paying wages that are below market at the upper levels. Why would the top candidates, who can find jobs practically anywhere these days, take a job at relatively low pay at a company where the offices are austere, the benefits are meager and the perquisites are practically nonexistent?

The answer: stock options. Amazon.com went public in May 1997 at an initial public offering price of $18 per share. Less than two years later, the stock has climbed to more than $450 a share. An amazing increase in itself, but double it to $900 to adjust for the stock split that took place in 1998. As of this writing, it is more than $200 a share.

Bezos believes all employees should retain some level of ownership in the organization. The $18,000-a-year warehouse workers have benefited from paper gains exceeding $100,000, while the top executives experienced gains worth six or seven figures. So who's going to complain about having to use a door for a desk?

While making the most of available capital and positioning his company for continued rapid growth, Bezos is also ensuring that he will attract the type of employee who shares his long-term perspective. His employees are young, bright, forward thinking and ambitious. His approach also screens out potential employees who are averse to risk and who do not share his entrepreneurial spirit.

Amazon.com's approach has its challenges, however. Given the company's explosive growth, there is a danger of stock option dilution. Benefit strategies will have to be reviewed, and pressure on salaries will increase. However, Bezos' long-term view extends to his reward systems. Amazon.com is already exploring what changes will be needed to adjust its reward systems to changing market conditions.

* * *

Pay Raises Remain Modest,
But Variable Pay Plans Increasing
With unemployment at record lows, attraction and retention of key talent was a critical topic during 1998. Despite problems in the Asian economy that are having a worldwide impact, it is likely to continue to be critical through 1999.

Interestingly, while hiring bonuses were frequently used to attract needed employees, companies did not typically hand out large pay increases to retain employees.

What is needed most to attract talented employees may be different from what it takes to retain them. For example, a Watson Wyatt survey found that "paying above market" is the number one attraction technique, but is only the number three retention technique used by companies. Companies are using more creative pay strategies, according to a "Special Report on Compensation & Benefits" from HRFocus, which adds that workers are accepting these new compensation arrangements.

Some interesting facts:

The U.S. jobless rate is at a 28-year low, leading to labor shortages in virtually every labor market.

The American Compensation Association's 1998-1999 Total Salary Increase Budget Survey noted that salary growth in 1999 would most likely remain at 4 to 4.5 percent.

63% of respondents to ACA's survey currently use at least one form of variable pay. Of the 37% who don't, 28.5% are planning to use variable pay within the next year.

HRFocus found, based on the ACA survey, that the percentage of companies offering stock-based incentive plans increased in nearly every employee category from the previous year, with increases ranging from 2% to 7%.

Stock options are moving further down the organization. About 63% of respondents to ACA's survey offer stock-based plans as part of compensation. 52% of this group offer stock options to some nonexempt employees and almost half intend to offer stock options further down the organization in the next year.

Up Close

Thomas B. Wilson, President

Hobbies: Adventure hiking, white water canoeing, reading nonfiction, guitar

Quote: "Business is an adventure."

Strange but true: Obtained pilot's license at 17.

Scariest moment: Jumping off a waterfall in Maine.

Favorite tradition: Turns his home into a haunted house every Halloween.

Although the Wilson Group was founded in 1994, the ideas it represents began to evolve in the late 1960s, when Tom Wilson was a student at Southern Methodist University.

Active in student government, he was part of a core group that reorganized SMU and has been interested in organizational change ever since. He focused on business strategy and organizational development at the Vanderbilt Owen Graduate School of Management, worked in the governor's office of the State of Tennessee and created a management-development function at Bankers Trust Company in New York.

Moving with his wife to Boston, he took a position leading organizational development projects as Director of Consulting Services for The Forum Corporation. Attracted by the challenge of designing compensation plans, he joined the Hay Group, Inc. Within a few years, he was promoted to Vice President and General Manager for the New England Region and implemented a successful turnaround.

Tom then joined Aubrey Daniels & Associates as Vice President of Reward Systems because he was attracted by the firm's approach to integrating behavioral sciences into programs to improve performance. His work there evolved into his first book, Innovative Reward Systems for the Changing Workplace, he said, "and when you come up with a book, you ask yourself, why not start your own firm? Let's see what happens."

What Happened
He did. Wilson Group was formed on August 1, 1994 by Tom and two others from Aubrey Daniels, including Lauren Sagner, who is still at Wilson Group. "We sold a project on our first day in business and had a half dozen clients after our first month," he said. "What attracted clients then, as now, was the difference in our approach to driving desired performance."

While Wilson Group has grown considerably since then and now includes some of the country's largest and most successful companies as clients, Tom said, "We're just getting started. There's a tremendous opportunity to make a difference for our clients.

"We align people's actions with the strategy of the business, strengthen their commitment to accomplishment, and enhance their ability to compete. I think it's important to apply these ideas to our business, too. We live by the principles we teach our clients."

Applications

What's New in Sales Compensation?
Sales incentives have been in place for decades. Most organizations have them; many are changing them. At the heart of the change is a change of the organization's strategy. Many companies are moving to a closer partnership with customers, away from transaction-based selling. Customers want solutions, not just features and benefits.

This means the salesperson no longer "owns" the account, but is the link between the customer and the company. In most progressive companies, says Bob Petrossi, President of Sales Research Institute (founder of The Science of Selling™ and a strategic partner with Wilson Group), "there is a well defined sales process that engages every member in supporting the company's ability to deliver for the customer." The top performer is not just the salesperson who achieves desired results, but one who uses a sales process that creates a competitive advantage.

This means that traditional sales incentive systems must change to align with the organization's broader approach to sales. This has powerful implications on the design of sales compensation. The implications include:

Increasing the number of people rewarded for sales results by providing team incentives or including them in direct commission participation.
Using modifiers to results-based incentives for the sales "process."
Changing compensation programs for those responsible for partner relationships with customers from commission to account management measures.
Increasing the variety of measures, including customer satisfaction, on-time delivery, business line and customer profitability.
Using sales compensation administrative systems to produce real-time feedback and reduce the hassle of errors. This can now be done with the programs of Incentive Systems™, another Wilson Group partner.

The bottom line is that the sales compensation plan needs to align directly with the strategy of the business and its primary sales process. Then it must encourage and reward the behaviors needed for success. Thus, how sales people are paid has become more important than how much they are paid.

HReviews

Order This Book!

Tomorrow's HR Management: 48 Thought Leaders Call for Change
Dave Ulrich, Michael Losey & Gerry Lake, Editors
Published by John Wiley and Sons, 1997
By Jack Dolmat-Connell, Vice President and Managing Director

My habit of highlighting passages and scribbling notes in the margins of books as I read proved self defeating with Tomorrow's HR Management: 48 Thought Leaders Call For Change. The highlighting and scribbling are so pervasive, it would be just as easy to re-read the book. Which isn't a bad idea, since it is both thought provoking and inspiring throughout.

When a book includes contributions from 48 senior HR executives, consultants and scholars from around the world, you might expect some unevenness, but the caliber is consistently high. "48 Thought Leaders" is truth in advertising when contributors include Michael Beer, Bruce Ellig, Jac Fitz-Enz, Ed Lawler, Jeffrey Pfeffer and Len Schlesinger.

Not only are the contributors well chosen, but the book is organized in a manner that makes it practical for the HR professional. Each of the six sections teaches a separate lesson: "Manage Human Resources Like a Business," "Play New Roles," "Respect History, Create a Future," "Build an Infrastructure," "Remember the 'Human' in Human Resources" and "Go Global."

Each of these topics is examined from many perspectives, but the focus is consistently on increasing HR's productivity, efficiency and adaptability. Each chapter analyzes the obstacles HR faces and provides strategies to overcome them.

Read this book today. Chances are, your boss already has. Check his or her copy for notes in the margins.

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Wilson Group, Inc.
100 Main Street, Suite 240
Concord, MA 01742
978-287-4994
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