Things that Kill Strategy Execution #1: Compensation

I've spent the first part of the year talking about strategy because it's still where I focus most of my time with my advisory clients.

I've written and spoken at length about what strategy is and yet I find it's one of those "head nod" type topics... a topic that people hear, nod their heads along with, and then still get stuck when it comes time to actually do it—executing strategy effectively.

So, let's flip this on its head...

Over the coming weeks, I'm going to write articles on the things that derail strategy execution. Maybe talking about it in this way will spark some new "ah-ha's" as to where you might be missing the mark or getting stuck.

Let's remember what's at stake here: When done right, defining and executing strategy is the #1 way to make your firm relevant and sustainable.

Let's start with the first thing that can derail strategy execution: compensation.

A Strategy Example

If compensation is a constraint to executing strategy, you have the wrong comp plan. (read that line again; it's important...)

Remember, people are likely to behave aligned with how they are rewarded. So if your strategy is to do one thing but your compensation plan rewards the opposite, that's not good!

Let's use Marcum (now a part of CBIZ) as an example, since they had their mission and vision posted on their website. To be clear, I don't have any inside knowledge of their strategy, so this is purely based on public knowledge.

💡 If your firm doesn't have a unique strategy, your mission statement and vision can often be a good starting point.

Here's how they state their mission on their website:

​For Marcum, this mission should be the foundation of their strategy, meaning, everything they do should align with accomplishing those three things.

If a decision doesn't support executing this strategy, it's "off strategy" and shouldn't be pursued.

How a Compensation Plan Can Derail Strategy

Let's hone in on that last part of their strategy—"to provide the services that will help [clients] achieve their business and personal financial goals".

Notice they used the word "services"—plural—to describe what they aspire to provide. That means helping clients identify what they need and providing multiple services that might enable the client to achieve their goals.

Do you know what typically contradicts delivering that level of service(s)?

The vertical compensation plans that many firms employ.

Vertical compensation plans reward vertical behavior. If partners are rewarded based on origination and their individual contribution to pipeline, then they are likely to spend their time trying to grow their own book of business.

Doing so means they are likely focused on delivering a single service or a smaller suite of services... and that's going against strategy!

If the strategy is "to provide the services that will help [clients] achieve their business and personal financial goals" then we want people to collaborate across service lines and maximize cross-serve (my preferred term to "cross-sell") opportunities to increase the number of services per client.

But remember... people behave aligned with how they are rewarded.

How to Implement a Compensation Plan That Enables Strategy

In this Marcum example, to incentivize the desired collaborative behavior, we'd need to adjust our approach to compensation to reward people for delivering multiple services per client.

Before you say, "Ok, Whitman, but I can't just change my comp plan...I'd have to wait until next year, at the earliest. And that's incredibly difficult to do...".

Guys, I get it. And, no, that's not what I'm suggesting.

Don't change it, add to it.

So what could be added to start incentivizing people to behave differently this year?

Well, that might mean implementing something that tracks and rewards influence on the total firm pipeline.

And what if any earnings you achieve by incentivizing Partners to collaborate and cross-serve are put aside and split up based on new criteria?

That's doable in the short term.

Once Partners have a real incentive to refer clients to other service areas within the firm, they'll be much more likely to do it.

If they don't? They miss out on the opportunity for additional income—but no one goes backward.

Now we have an adjusted compensation plan that enables strategy instead of being a constraint.

Balcony Exercise: Evaluate Your Strategy vs Compensation Plan

Start by considering your firm strategy.

If you don't have one, use your mission statement.

Like we did with Marcum's mission, break down any parts of your mission into bullet points of what they might mean as far as actions that should be taken in order to execute that strategy/mission.

Then think about your compensation model...

In what ways does your compensation model incentivize people to act in accordance with your strategy?

Whatever you come up with here, GOOD. That means parts of your compensation model are in alignment with strategy.

In what way might your compensation model disincentivize people to act in accordance with your strategy?

Whatever you come up with here needs to be addressed. For each thing, ask "What will it take to ensure we incentivize people to act in alignment with strategy?"

Whatever answers you come up with are worth discussing as a leadership group. Otherwise, you have a problem.

All roads lead to/from strategy—that includes compensation. In order for your firm to scale faster, everyone needs to be aligned to executing strategy and your compensation plan needs to be a catalyst for that, not a constraint.

These are the kinds of exercises I counsel CEOs and firm leaders on. I've been in this position at Baker Tilly and we made changes to our compensation model that further enabled strategy execution and contributed to our ability to scale the firm.

I'd welcome a conversation to discuss this part of executing strategy with you. You can use the link below.

With intention,
Alan D Whitman

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    Things that Kill Strategy Execution #2: Objectors

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    What I'm Paying Attention To - January 2025