Time to tie remuneration to innovation
Sylvia Falzon is a fan of having a transparent focus on innovation as a target for executive remuneration.
Perpetual and Regis Healthcare director Sylvia Falzon says having a transparent focus on innovation as a target for executive remuneration can achieve a “shift in mindset’’ in the executive ranks to help companies better cope with disruption.
Ms Falzon said she was a strong believer that “what gets measured gets done”.
“As many companies are thinking through an innovation strategy — what does it mean, how do we do it, what capital and resources do we allocate, time horizons etc — then having a transparent focus on innovation can help achieve the mind set shift required,” she said in a round table forum with The Australian, hosted by the Australian Institute of Company Directors.
“Once innovation becomes an operating rhythm within the company and ‘that’s how we work around here’ then it may not longer be necessary as an explicit KPI measure,” Ms Falzon added.
“You need to start somewhere, establish a baseline and set goals that can be measured. It’s important to keep in mind that reward doesn’t also need to be financial. Some of the best ways to motivate people is through non-financial recognition.’’
Her comments follow recent criticisms of companies adopting non-financial targets for executive remuneration.
Commonwealth Bank came under fire last year for its executive pay policies after experts urged shareholders to stage a revolt against a greater slice of bonuses being linked to non-financial measures some claimed were “essentially HR policies”.
It comes against a backdrop of a wider community backlash about executive remuneration, highlighted earlier this year by the uproar over the $5.6 million pay package for departing Australia Post CEO Ahmed Fahour.
But Ms Falzon said moves by companies in recent years to enforce targets relating to workplace safety provided a useful model, given they had helped dramatically improve the working environment for employees.
“If we think about where companies were 10 and 15 years ago around Work Health & Safety,” Ms Falzon said.
“WH&S became a key focus area for businesses and their stakeholders, and the corresponding mind set shift and ongoing focus businesses and communities have around keeping everyone safe, has been an outstanding achievement.”
Macquarie Atlas Roads chairman Nora Scheinkestel, who is also a director of Telstra, Stockland and AusNet Services, said innovation was no longer simply the responsibility of the company’s chief financial officer.
“It ought to be implicit in every one of the targets (for executive remuneration),” she said.
“Given the disruption that is happening in our markets ... unless you are innovating, you are not going to succeed. Because what is now required is not the mere tweaking of the cost base. You are talking about fundamental rethinking of the business.
“And unless you are using innovation, you are not going to get there,” she told the forum.
Asialink deputy chairman Kee Wong said companies should be encouraged to adopt remuneration models that paid the most to the best innovators within the group, “not necessarily the CEO’’.
“In Silicon Valley there has been a new remuneration model where the person not at the top of the tree might get the biggest salary,” he said.
“It is someone who adds the most value to the business.”
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