Turning Employees into Millionaires
SAP, the conservative German software company announced a month or so ago that it will pay out $ 381 million in 2010, to a few hundred managers, if the company is able to increase its market cap by 100% from a $57 billion starting point in 2006. The explanation to shareholders was “if you want extraordinary performance, you have to offer extraordinary incentives”.
This is a great example of what we believe needs to be done to attract, retain and release talent in your organisation – they must be able to benefit from their contribution. But there are some things SAP needs to be careful of:
- You cannot give people accountability (or incentives like this) without also giving them responsibility to go with it. Are SAP going to allow staff members to be innovative in their pursuit of the target?
- What if they get close, but exactly there? There might even be incentive by shareholders and senior leaders to skupper the process in the last few months in order to avoid paying out the incentive. SAP need to put safeguards in place, not only so that this does not happen, but that it does not appear to happen at all.
- There is a possibility of manipulation. There always is when it comes to share price related issues. The danger is the “Aproi Moi, la deluge” issue – I wrote about this sometime last year – read it here.
I am sure that SAP are dealing with these and many other issues. This is a great thing they’re doing, and I wish them success.
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Why only the managers?
Will this not further engender the practice of managers shifting the blame of non-delivery to their subordinates and taking full credit for the successes of those same subordinates.
I hope they’ve taken this into consideration. And made the necessary allowances.
Otherwise the incentive is nothing more than the age-old practice of a case of beer for the manager who met this ‘targets’ and nothing for his poor minions.
Maybe if each manager and his/her team becomes a business unit with the responsibilities and accountability to actually run their own business within SAP, then the teams who contribute most to increasing the market cap are the ones who benefit.
Wonder how many managers who were considering resigning have now changed their minds? A pretty big carrot here.
So a few hundred? Say 500 managers who each get their share of $381 million – they can look forward to pocketing $762 000 each in 4 years time. And if they’re then asked to share that with their teams and there are 10 people per team (incl the manager), then that’s $76 200 each. Carrot’s shrinking.
Maybe I’m being very sceptical here, but the words ‘conservative’ and ‘German’ next to each other in the same sentence tend to bring out the cynic in me.
Great insight, Anj.
I will try and find out about the incentives and give more details soon.