Leaders often talk about how the traits of accountability and transparency helped make them who they are, but to retired Navy Adm. Mike Mullen, who served as the chairman of the Joint Chiefs of Staff for four years under President George W. Bush and President Barack Obama, leadership is quite simply how you listen, learn and lead.
It’s not just a coincidence that communication is as important in the war zone as it is in an organization — and that’s where Mullen emphasizes listening to what his team members have on their minds.
Smart Business talked with Mullen about the challenges of being in command:
Q. What do you see as the most important trait that any leader must possess?
A. Integrity. Be true to yourself, and obviously true to your values. The value of integrity intrinsically has been a driver for me since I was a midshipman at the U.S. Naval Academy. It has served me exceptionally well.
Integrity encompasses being honest, truthful and consistent — both publicly and privately in leadership positions — and representing that in every situation. It is most evident in the toughest decisions you have to make.
Q. And how can you ensure integrity is present in leadership?
A. What I loved about command was the responsibility and authority that came with it. But more than anything else, the other piece was accountability — accountable leadership. That is not just having someone hold you accountable, but having enough strength yourself as a leader to hold yourself accountable.
I just found that even with those decisions that can be very unpopular, if you are true to that value of integrity, even if it may not seem to some to be the best decision, it [integrity] holds you in the best stead as a leader over the long term. And because of that, it becomes incredibly supportive of those very, very tough decisions.
Q. So what can help a leader make those tough decisions more effectively?
A. As a more senior leader, I learned to keep a diversity of views around me. The more senior I got, the more diverse the people, the recommendations and the discussions had to be in order for me to make the right decision.
I had people around me who were willing to say, ‘Hey, this is when you got it wrong,’ as opposed to the opposite, which is isolation, where nobody will tell the emperor [he] doesn’t have any clothes on.
Q. You’ve mentioned the importance of listening to others in order to help you become a better leader. How did you do that?
A. Everywhere I went, whether we had a town hall meeting or we could call an all-hands meeting, I would take questions from the audience. So, for example, when a young enlisted man would give me a question of which I didn’t know the answer, I said, “I don’t know the answer, but give me your email address. I will go research it and get back to you.”
I did that. I went back and looked at whatever their concern was. And some of those concerns generated significant changes in the military, or in the particular service they were in. For me, as chairman, that was a vital part of trying to understand what I was asking them to do, and then taking that feedback and trying to fix the problem that they raised — if it made sense to do it.
A good leader can make such a difference, and create something out of nothing, whereas a bad leader is unable to do that. The ingredient that makes a difference is leadership. ●
Retired Navy Adm. Mike Mullen served more than 43 years in the Navy, having served as the chairman of the Joint Chiefs of Staff from 2007 to 2011, and as chief of naval operations from 2005 to 2007. He will be the keynote speaker at the Dec. 5 American Red Cross Hero Awards. Learn more about the Hero Awards at www.clevelandheroes.com.
Consider this business scenario: You’ve landed a big account for your company by converting a highly prized prospect into a valuable client. The new client has hired you to handle a specific scope of work and is counting on your team’s ability to deliver work that goes above and beyond.
While nothing is more important than delivering great customer service to satisfy the client, you may not realize that you’re probably overlooking unrealized opportunities to forge a stronger relationship with your customer.
In today’s business landscape, most large companies offer an array of products and services. More often than not, however, your clients use you for a specific service or skill set. And unfortunately, in this scenario, most companies focus solely on the task at hand — delivering what they’ve been contracted to deliver — failing to take ample time to think about the bond they’re creating with the client and what could be next.
In more simple terms, it is one thing to provide service that keeps a customer; it is another to keep that customer and expand the relationship to become a trusted partner.
Provide value in a deliberate way
The good news is that this is an easy fix. Establish a content marketing program that allows you to distribute thought leadership to your clients.
A content marketing program will help you provide value that other service providers may not, and when clients see you as an informational resource and partner, it will be easier to expand the relationship.
Take this example into consideration: You are an insurance provider and your main product is life insurance, therefore most of the communication you have with your clients surrounds that topic.
With a comprehensive content marketing program in place, however, you can educate your clients on the recent trends in the insurance industry and how that affects the individual. At the same time, you can give them an overview of your company’s wellness program and let them know that if they joined, they could reduce their monthly premiums.
As you can see, you’re not just providing your client with the original service, you’re also providing them with both your thought leadership — aka value — and additional offerings.
Personal connections payoff
Aside from providing value to the client with the content you distribute, a strong content marketing program allows you to showcase your brand’s personality. Clients will be able to connect with your brand on a more personal level.
Providing continually updated content through the right channels to the right clients enhances your day-to-day communications. Clients start seeing you as thought leaders and partners instead of just service providers.
It will help you expand relationships and, as a result, generate new business through more products and services.
Show them more than just what they see on the surface — show them how active you are in the community, or how much fun you had during a recent company outing. If may sound trivial, but your clients do similar things, and seeing you connect with the community and/or employees will help forge a more personal connection. You never know; you and your client may support the same charity, organization or team.
Open communication also will help strengthen relationships to the point where you can capture a premium price and eliminate price-jumping clients. Clients will pay more for a valuable relationship than simply look to get the lowest price elsewhere. ●
David Fazekas is vice president of marketing services for SBN Interactive. Reach him at firstname.lastname@example.org or (440) 250-7056.
You would think someone like Douglas Merrill would be a heavy multitasker, with multiple devices in hand, fielding several conversations — both real and virtual — simultaneously.
But you would be wrong.
Merrill, who was the CIO at Google until 2008, doesn’t like to multitask. He says that when you do it, you aren’t using your brain’s full capacity and aren’t as effective. He recommends focusing on one thing at a time.
Billionaire Mark Cuban has his own time management strategy. Cuban, owner of the NBA’s Dallas Mavericks, says you should completely avoid meetings unless you are closing a deal. Otherwise, he says, they are a waste of time.
Both of these proven leaders have learned that how you manage your time is paramount to your effectiveness.
As a CEO, you are swamped every day with calls and emails from people wanting a piece of your time. Some are internal, some are charity requests, some are from friends or family members and others are from service providers.
To help wade through this sea of information, it’s important to have a system in place to help you free up time to think about your business and the things that matter most in life. These open times are what author Richard Swenson refers to as “margin.” They are the spaces between ourselves and our limits that are reserved for emergencies.
But for many business leaders, there are no spaces left.
The way out of this trap is to set clear goals and values for yourself and your organization. Once you do that, you will have a filter through which to evaluate everything. Everything will have an immediate yes or no answer, eliminating the “let me think about it” category completely.
The key is to establish what your goals are first and then prioritize what is important. With your priorities straight, you will find more time to put toward important things on your goals list, but don’t forget to leave time on your daily schedule. There is no way to foresee all emergencies, so by leaving yourself some margin, when something unexpected happens, you already have time built in to deal with it.
Once you have margin built into your life, you have to have the discipline to stick to it. There will always be the temptation to take every meeting or answer every email. But if you use your goals and priorities as a filter, those requests are easily either accepted or declined based on where they fall on your priority list.
If you want a life where you can experience more peace and joy and less anxiety, start looking at your priorities and establish some margin in your daily schedule. ●
Deny, deny, deny; fall, tuck and roll; or put your head in the sand?
The quick answer to this headline is none of the above. A leader, by definition, must do exactly that — lead, which means being in front of a variety of audiences, including employees, investors and customers. Not everyone is going to be a gung-ho supporter. Sooner or later you’ll encounter a naysayer who either has a point to prove or is on a mission to make you and your company look bad.
Many of these verbal confrontations come out of nowhere and when least expected. As the representative of your organization, it is your responsibility to manage these situations and recognize that sometimes a “win” can simply minimize the damage.
When under siege, it’s human instinct to fight, flee or freeze. Typically these behavioral responses aren’t particularly productive in a war of words. Engaging in verbal fisticuffs could simply escalate the encounter, giving more credence to the matter than deserved.
If you flee by ignoring the negative assertions, you’ll immediately be presumed guilty as charged. It’s hard to make your side of the story known if you put your head in the sand.
By freezing, you’ll appear intellectually impotent. Worse yet, pooh-poohing a question will only fuel the aggressor’s determination to disrupt the proceedings. You could use a SWAT-type police and military technique to elude a confronter by falling, tucking and rolling to safety, but that usually only works on the silver screen.
Perhaps the best method to manage unwelcome adversaries is to be prepared prior to taking center stage. This applies to live audiences or a virtual gathering when you’re speaking to multiple participants, which is common practice for public company CEOs during quarterly analyst conference calls.
Most gatherings of this nature include a Q&A segment where the tables are turned on the speaker who must be prepared to respond to inquiries both positive and negative.
Before any such meeting, it is critical to contemplate and rehearse how you would respond to thorny or adverse statements or questions.
A good practice is to put the possible questions in writing and then craft your responses, hoping, of course, that they won’t be needed. This is no different from what the President of the United States or the head of any city council does prior to a press conference or presentation. The advantage of this exercise is that it tends to sharpen your thinking and causes you to explore issues from the other perspective.
In some cases you’ll find yourself in an awkward or difficult situation where there is no suitable yes or no answer, or when the subject of the interrogatory is so specific it is applicable to only a very few.
The one-off question is easiest to handle by stating that you or your representative will answer the question following the session rather than squander the remaining time on something that does not interest or affect the majority.
The more difficult question is one that will take further investigation and deliberation, in which case the best course of action is to say exactly that. Answer by asserting that rather than giving a less-than-thoughtful response to a question that deserves more research, you or your vicar will get back with the appropriate response in short order. This helps to protect you from shooting from the hip only to later regret something that can come back to haunt you.
Effective speakers and leaders have learned that the best way to counter antagonism is through diplomacy. It’s much more difficult for the antagonist to continue to fight with a polite, unwilling opponent.
Finally, when being challenged, never personalize your response against your questioner; always control your temper; and don’t linger on a negative. Keep the proceedings moving forward and at the conclusion keep your promise to follow up with an answer. This will build your credibility and allow you to do what you do best, lead. ●
Michael Feuer co-founded OfficeMax in 1988, starting with one store and $20,000 of his own money. During a 16-year span, Feuer, as CEO, grew the company to almost 1,000 stores worldwide with annual sales of approximately $5 billion before selling this retail giant for almost $1.5 billion in December 2003. In 2010, Feuer launched another retail concept, Max-Wellness, a first of its kind chain featuring more than 7,000 products for head-to-toe care. Feuer serves on a number of corporate and philanthropic boards and is a frequent speaker on business, marketing and building entrepreneurial enterprises. “The Benevolent Dictator,” a book by Feuer that chronicles his step-by-step strategy to build business and create wealth, published by John Wiley & Sons, is now available. Reach him with comments at email@example.com.
My 7-year-old son Cole recently gave me a Rainbow Loom bracelet, which is made of linked rubber bands. It is today’s school-age children’s craze, and Novi, Michigan-based Choon’s Design LLC is churning out the kits at a record pace.
With more than 1 million units sold in the last 24 months, Rainbow Loom is the brainchild of Choon Ng, a former Nissan crash safety engineer who invented it while working on a craft project for his daughters.
And Rainbow Loom, it turns out, isn’t its original name. When it was created, it was called Twistz Bandz.
Timing is everything, and Twistz Bandz may have sounded a bit too much like Silly Bandz — the last “wrist” craze that swept the nation. Between November 2008 and early 2011, every school-age child in sight was wearing layer upon layer of Silly Bandz on their wrists. It was as hot a product as anything since Beanie Babies.
Twistz Bandz’s arrival, it seems, happened just as Silly Bandz ran into what every hot new product eventually faces: competition. Look-a-likes with similar-sounding names began flooding the market. They were cheaper, and you could buy them more readily at more retail locations. The core brand quickly diluted. So Ng did what any smart businessperson would: He changed the dynamics of the situation.
Thus, Rainbow Loom was born.
Enter social media
Within a few months, the product — which allows its young owners to custom-create bracelets — was gaining attention. Much of this was due to a full-tilt social media blitz, including videos on YouTube and an engaging Facebook page, where users could share their designs.
More recently, Ng has become vigilant in protecting his patent and U.S. trademark — battling all wannabe competitors from launching similar-sounding products and flooding the market to dilute his own brand.
His success — or failure — is yet-to-be determined. But his efforts will prove fruitless if he’s not already looking ahead to the next product. This is the dirty little secret to any hot toy craze and the core dilemma every business leaders faces: How do you remain relevant as consumers’ wants, needs and desires ebb and flow — sometimes as swiftly as the wind changes direction.
Get beyond being a fad
Success in business relies upon building a sustainable operation that will outlast any cyclical “must have” product explosion.
There needs to be the creation of an idea continuum — an innovation factory, if you will. Innovative leaders must review, measure and adapt a company’s products, services and solutions to the changing whims of the marketplace. You need to talk to customers, vendors and prospects. And you need to regularly take the pulse of the market.
If you haven’t taken at least some of the gains from today’s success and invested it into research and development for tomorrow, you’re already losing ground. Today is today, and just like the disclaimers for financial investing warn — past performance does not indicate future results.
In the end, the only thing that matters is this: Is your next big thing built to last? Or, like every other craze that’s every hit the market, will your opportunities to remain relevant long into the future fade away after the competition creeps in and dilutes your market? ●
Dustin S. Klein is publisher and vice president of operations for Smart Business. Reach him at firstname.lastname@example.org or (440) 250-7026.
Rich Wilson had to find the right mix so the culture at CertaPro Painters could go beyond a flat finishWritten by Mark G Scott
When Rich Wilson joined CertaPro Painters in 2003, the company was taking in about $50 million a year in sales. That doesn’t seem like a bad number, but the residential painting franchise company had become stuck at that level, and there wasn’t much reason to believe it was going to change anytime soon.
As he started to talk to people to learn more about how the 50 employee, 340 franchisee operation worked, Wilson discovered there was an intense focus on how things were done at the company. The problem was that it rarely got beyond that foundational level of dialogue.
“They were great at creating pictures and eloquent language around how to get a lead or produce a job or hire a painter,” says Wilson, the company’s president and CEO. “But they had no relevance to what the franchisees needed to inspire them to grow. They were more concerned about writing policies and procedures about how to do mundane things in the field. They weren’t connected to the goals and aspirations of the franchisees.”
When Wilson joined the company, he was brought in with a very clear mandate.
“I wasn’t brought in to maintain,” Wilson says. “I was brought in to grow the business. In the first meeting I had, I asked them to rate the group dynamic on a scale of one to 10. We were at a 4.6, which was really bad.”
The culture had to change and Wilson used two words to define how he wanted it to happen: Results matter.
“We should know how our franchisees are doing versus their goals versus the marketplace versus competition,” Wilson says. “We need to find ways to inspire them to grow and then have programs that will actually help them facilitate that growth. So it was a sea change and a culture shift.”
Wilson wanted both employees and franchisees to think big.
“We needed people who had the competency, commitment and skills to be able to execute our vision of growth,” Wilson says. “They bought a franchise or came to work for us because they wanted to grow a business. If they just came in to replace an income or just be complacent and good with the status quo, I didn’t want them on the team.”
Sort out your players
Wilson may have drawn a line in the sand with employees at CertaPro, but he says he didn’t join the company with the intention of firing people.
“There were people who repelled the message that results matter and there were people who embraced it,” Wilson says. “Ultimately, with the people who embraced it we worked together to build a program that would drive the company forward.”
Wilson wanted to hear what was on everyone’s mind. He wanted to give those with concerns a chance to express them rather than just show them the door.
“I can look at a report and go, ‘OK, here are my conclusions,’” Wilson says. “But what really matters is the people who have to carry out the execution of all that. I need to understand where they are coming from. I may not agree with it, but I do need to listen and understand.”
About 40 percent of the staff did not buy in and left CertaPro within the first four to six months of Wilson’s arrival.
That’s a lot of turnover, and Wilson made sure to let others know every time someone decided to leave the organization. It wasn’t about criticizing people who were leaving; it was more about Wilson wanting employees to see transparency at every turn.
“In the absence of information, people think the worst of everything,” Wilson says. “So if I just had a conversation where someone was exiting the company, I’m going to be on the phone to at least my direct reports, and then I’m going to tell them to get on the phone with their direct reports immediately. Quick communication helps the culture.”
What also helps is letting those people who won’t buy into your plan leave, even if you think you can eventually get them to come around.
“If I think, ‘OK, I just need to keep this person for another day, another quarter, another month, whatever — that’s the wrong move,’” Wilson says. “I’m doing the wrong thing for the company and for that person. Who wants to have a job that really in your gut, you know you’re on the way out?”
This process, while difficult at times, gave Wilson an opportunity to move forward and build a plan with the people who were excited about the company’s growth strategy.
“I could come up with the best MBA plan in the world from Harvard Business School and say this is what we need to do and this is what we’re going to do,” Wilson says. “That’s not going to work anywhere near as well as the plan that the people who have to execute it actually participate in creating.”
Lead with a steady hand
Wilson had an objective in his mind from day one of what CertaPro could achieve in terms of profitability and when that goal could be achieved.
“I had an idea, a hypothesis of what the vision should be,” Wilson says. “But that was shaped and is still being shaped today through experience. The vision is an aspirational one, but you have to be willing to adapt to the environment and other opportunities and present them.”
In other words, the great idea you come up with today may not look as good to you six months down the road.
The thing that needs to remain steady for the sake of yourself and your employees is your strategic direction. So when Wilson wanted to focus on results at every level of the organization and engagement about how to drive those results, the strategic approach had to remain consistent.
“It’s a big deal when you change your strategy,” Wilson says. “We’ve altered it twice since I’ve been here in 10 years. When you start to respond with a knee-jerk reaction, you come across as muddled and no one knows where you’re going. It’s impossible for everyone to row in the same direction.”
One thing Wilson tries to do that has been helpful is being concise when talking about what CertaPro does.
“I give speeches all the time,” Wilson says. “The key is being able to passionately and genuinely describe your company in five to seven minutes. Being very clear on what the values of the company are, what the mission and vision are and what the objectives are. People use those words interchangeably, but I can tell you all four of them and I’m pretty certain 85 percent of the company can do the same. My goal would be to have 100 percent.”
Consistency will also prove helpful to you when you have to make a decision others don’t agree with, but you feel is in the best interests of the organization.
“I believe very strongly in collaboration and I don’t believe in top-down management,” Wilson says. “I want feedback, and I want most people to agree with where we are going.
“However, it is the CEO’s job to make a decision. If 30 percent or even 60 percent of people don’t agree with that decision, but you believe strongly it’s where you need to go, stand firm. Your job is to be the compass. If you’re not sure and you hesitate, obviously you’re not.
“You lead through influence, not power. If it’s in the best interest of the franchisee, and they are inspired to go in the direction you want them to go, they will go there. It’s the same thing with an employee. You could be lazy and say, ‘You’re going there because I pay your paycheck.’ But it’s so much better to inspire them to go where you want them to go.”
Don’t rest on your laurels
Wilson’s collaborative culture paid immediate dividends. The company grew by an average of 23.5 percent from 2003 to 2007.
“We were crushing it,” Wilson says. “But if we were arrogant enough to think that what allowed us to crush it from 2003 to 2007 was going to get us through 2008 and 2009, we would have failed dramatically. I always caution people to be very careful to not become arrogant and think you’re the best because of what you did yesterday.”
The team did adapt and the growth at CertaPro has taken off once more. Sales totaled $227 million in 2012. There are plans to have 50 new franchise locations opened across North America by the end of this year and Wilson wants to hit $500 million in sales by 2016 and $1 billion by the end of the decade.
“When people from outside the company come in and experience our company today, whether they are prospective employees, prospective franchisees or even customers, what they’ll comment on is our culture,” Wilson says. “It’s a culture of performance, of collaboration and of very hard work. But it’s also a fair amount of fun.” •
- Think before you act.
- Limit your surprises.
- Keep trying to get better.
The Wilson File
Name: Rich Wilson
Title: President and CEO
Company: CertaPro Painters
Born: Frankfort, Germany
Education: History degree, Dickinson College, Carlisle, Pa.
What led you to choose history? I was going to be a premed major, and I didn’t do very well in organic chemistry. I do love reading and I’m still an avid reader, so that’s why I fell back on history.
What was your first job? My first paid job was landscaping and farm work. I cut lawns and baled hay for $2.15 an hour.
Who has had the biggest influence on your life? Probably my mom. She died when I was 20 after a horrible divorce. She had brain cancer, but she really held it together for my two siblings and I. In terms of tenacity and temerity, she found a way to live until my college graduation.
What is your favorite book? “Atlas Shrugged,” by Ayn Rand. It’s about self-determination, rugged individualism and getting stuff done yourself and not counting on the government.
What person would you like to meet? It would probably be Gandhi. The courage he had to face down the British Empire was phenomenal. He inspired so many people like Martin Luther King Jr. I’d love to understand the thought process and the mettle that it took to embark on what he did. It was incredible.
How to reach: CertaPro Painters, (800) 689-7271 or www.certapro.com
Inspiration and innovation are traits that no successful business can do without. The ability to rise above the daily grind and see the big picture is the mark of a true leader. But no company can coast on the dreams of one or two individuals alone.
Cultivating a corporate environment where inspiration and innovation abound takes planning, communication and, yes, a willingness to fail every once in a while.
One of the key foundations for innovation is your company’s culture. Your brand is one of your most important assets in the marketplace, but it is also the driving force behind your employees’ sense of purpose; without a clear mission, and a work environment that reinforces your core values, it is easy for workers to become disengaged at best, disaffected at worst.
At Petplan, our team has taken great pains to make our brand experience inclusive of our employees. We pride ourselves on having the best-rated customer service in the industry, and so we also take care to make sure our employees feel heard and appreciated when they have concerns.
Immersing your workers in your brand experience makes them feel like a real part of the business, and when they’re invested as stakeholders, creativity, problem-solving and innovation happen naturally.
Keep the lines open
As challenging as busy schedules and competing priorities can be, it is absolutely essential to remain accessible to employees. The next big idea could come from anyone, but if you’re not around to hear it — or worse, if your team doesn’t feel they can come to you to share it — you are missing out. Encourage your workforce to ask questions and share ideas, and keep an open door to upper management. Listen, try new things and reward those who put themselves out there to make suggestions.
This is where it gets tricky, because letting people innovate means letting go; you have to be willing to risk failure (and avoid pointing fingers!).
In the early days of Petplan, we had an employee make a $14,000 blunder while trying something new. At the time, that sum nearly gave me a heart attack. But in the end, the direction we went was the right one — and had we not taken that risk we wouldn’t be where we are today. Learning from failure and course correcting as you go will help balance risk and reward as you innovate.
Finally, you have to continue to inspire your employees if you expect them to innovate. Teach them, train them, foster networking, give them opportunities to pursue continuing education, offer them the chance to do something outside of their typical job responsibilities, and sometimes, simply let them play.
The best businesses are built not just by the people who lead them, but by the individuals who clock in every day and give it their all. Create space for your employees to share their ideas and the next industry-changing innovation could be right around the corner!
Natasha Ashton is the co-CEO and co-founder of Petplan pet insurance and its quarterly glossy pet health magazine, fetch! — both headquartered in Newtown Square, Pa. She holds an MBA from the University of Pennsylvania Wharton School of Business. She can be reached at email@example.com. To learn more about Petplan, please visit www.gopetplan.com/about-us
Today’s debt markets are positively skewed in favor of the borrower more than at any time in recent history. This opportunity is due to central banks keeping interest rates at historic lows, capital flows coming out of Europe seeking safety and return, U.S. commercial banks and alternative lenders competing for loans, and an improving economic outlook in the United States. Companies should be actively considering how debt fits into their current capital structure and future plans for growth.
Alternatives getting traction
Coming out of the financial crisis in 2010 and into 2011, banks were slow to lend to any company other than the most creditworthy. This disposition opened the door for alternative lenders who were quicker to respond to an improving economic environment. Over the course of the last year, the trend shows commercial banks loosening their constraints on lending as they are now tasked with bringing in more clients and providing more credit availability.
Large corporate issuers are responding
The issuance of U.S. corporate debt exceeded $1.36 trillion in 2012, a 34 percent increase from 2011, and 21 percent higher than any year in the last 20 years.
Fixed-income products are in high demand by the largest national investors like China, pension funds and individual investors. In fact, one can argue that they invest at an effective loss. With current rates below inflation, investors are showing their preference for yield, accepting a notional loss with Treasury Department yields trading below the implied consumer price index.
Other debt instruments have experienced similar trends
The demand for yield-bearing instruments, combined with an improving economic environment, has caused lenders to ease credit to provide the supply to meet the market’s demands. Companies of all sizes now have improved access to debt financing with attractive pricing, availability and terms.
As an example, high-yield bonds (those with credit ratings of CCC- and below) have a historical average loss rate of 4.3 percent over the past 17 years. Today, the high-yield index is trading between 5 and 6 percent, only 0.7 to 1.7 percent above its traditional loss rates.
That net spread does not primarily reflect a lower risk profile for these companies, nor is it tied to the underlying strength of the economy, as much as it represents the demand in the marketplace and an undersupply of interest bearing products.
This lack of supply has driven down pricing, improved terms and provided greater availability, well below the risk-adjusted pricing and implied spread over the past 17 years.
What does it all mean?
Today’s combination of historically low interest rates, favorable lending terms and high borrowing availability may not continue beyond the next year or so. The Federal Reserve has committed to keep rates low through 2014, but not much beyond that.
Many economists are beginning to voice concern about the long-term implications of keeping rates low. For businesses that have good reason to deploy debt to grow their companies, reduce their personal risk by executing a dividend recapitalization or sell their business, this is a good time to take the steps necessary to secure a successful outcome. Lenders are making it easier than ever to borrow money as long as it is done wisely — now is the time.
Joel Magerman is the managing partner and CEO of Bryant Park Capital. During the course of his career, he has been involved in closing more than 75 transactions as both a principal and an investment banker. For more information, visit www.bryantparkcapital.com.
Owners of privately held midsize companies are increasingly using performance-based bonuses as a key way of compensating executives.
“Companies will pay for performance, but they want to see value,” says Tyler A. Ridgeway, director of Human Capital Resources at Kreischer Miller.
“Whether it’s a CEO, CFO, COO, vice president of sales or vice president of marketing, it’s about how they can create value for owners in an organization. If it’s a CFO, for instance, it’s not just about crunching numbers; it’s about being a strategic business partner,” Ridgeway says.
Smart Business spoke with Ridgeway about performance-based bonuses and other trends in executive compensation.
Why has there been a trend toward performance-based pay?
A lot of companies have been through tough times, but they’ve also learned to better operate their businesses. Many have available cash right now and are wondering whether to incentivize the current team, pursue an acquisition, launch a new product or upgrade their talent.
For some who’ve decided to incentivize the current team, one option has been to reward their top performers by creating phantom stock or stock appreciation rights plans. These plans can motivate key executives to stay, and also reward them as the company grows.
If they’re hiring an executive, the interview process is now much longer than it was five years ago because they can’t afford to make a mistake. When they upgrade talent or bring in a new CEO, companies want the entire management team involved in the decision. As a result, the chosen executive candidate can build trust and rapport with management before they even start. This allows him or her to hit the ground running.
Companies want to make new executives happy from a compensation perspective, but they don’t want to give away everything. So, they’re designing packages that provide long-term rewards. They’ll negotiate a base salary everyone is happy with, and then determine how to link the bonus to company performance.
How do phantom stock and stock appreciation bonuses work?
Companies are increasingly using these plans that put a percentage of an increase in revenues over a specified period of time into an executive’s retirement plan.
With these plans, the executive doesn’t own equity in the company but shares part of the increase in value. These vehicles reward executives for growth and profits with a focus on specific goals and objectives that need to be accomplished.
Are companies trending away from any particular types of compensation?
Mid-market companies — $20 million to $500 million — realize there is a talent war and know they need to pay for top talent. However, they want to share risk. One way to do this is by offering more in bonus compensation than salary. Executives might be asked to accept less cash upfront in return for the potential upside in bonus compensation and earn-outs.
Some owners might be reluctant to negotiate upfront agreements relating to severance because they may have been burned in the past, such as having to pay severance to a sales professional who was not driving revenue. While many companies do not proactively offer severance, depending upon leverage, executives can have success in gaining some change of control protection.
Most companies are trying to avoid employment contracts as well. Instead, the offer letter now summarizes expectations and includes some measures of protection.
All of this comes back to companies expecting value creation from their new hires. When an executive joins a company, it’s difficult to know upfront exactly where or how he or she will add value. But if the executive helps generate leads that double revenue, for instance, companies are willing to revisit compensation because they want to reward that behavior.
Companies have become more transparent — owners are more willing to allow key team members to know the company’s cash position, and understand why bonuses are down if it’s not a great year. Their philosophy is that everyone is in this together, and, if the business grows, everyone will win. ●
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