A leader is an agent of change, and progress is about change. In the words of Robert F Kennedy, 'Progress is a nice word; but change is its motivator.'
Leadership is about raising the aspirations of followers and enthusing people with a desire to reach for the stars. For instance, Mahatma Gandhi created a vision for independence in India and raised the aspirations of our people.
Leadership is about making people say, 'I will walk on water for you.' It is about creating a worthy dream and helping people achieve it.
Robert Kennedy, summed up leadership best when he said, 'Others see things as they are and wonder why; I see them as they are not and say why not?'
Adversity
A leader has to raise the confidence of followers. He should make them understand that tough times are part of life and that they will come out better at the end of it. He has to sustain their hope, and their energy levels to handle the difficult days.
There is no better example of this than Winston Churchill. His courageous leadership as prime minister for Great Britain successfully led the British people from the brink of defeat during World War II. He raised his people's hopes with the words, 'These are not dark days; these are great days -- the greatest days our country has ever lived.'
Never is strong leadership more needed than in a crisis. In the words of Seneca, the Greek philosopher, 'Fire is the test of gold; adversity, of strong men.'
Values
The leader has to create hope. He has to create a plausible story about a better future for the organisation: everyone should be able to see the rainbow and catch a part of it.
This requires creating trust in people. And to create trust, the leader has to subscribe to a value system: a protocol for behavior that enhances the confidence, commitment and enthusiasm of the people.
Compliance to a value system creates the environment for people to have high aspirations, self esteem, belief in fundamental values, confidence in the future and the enthusiasm necessary to take up apparently difficult tasks. Leaders have to walk the talk and demonstrate their commitment to a value system.
As Mahatma Gandhi said, 'We must become the change we want to see in the world.' Leaders have to prove their belief in sacrifice and hard work. Such behavior will enthuse the employees to make bigger sacrifices. It will help win the team's confidence, help leaders become credible, and help create trust in their ideas.
Enhancing trust
Trust and confidence can only exist where there is a premium on transparency. The leader has to create an environment where each person feels secure enough to be able to disclose his or her mistakes, and resolves to improve.
Investors respect such organisations. Investors understand that the business will have good times and bad times. What they want you to do is to level with them at all times. They want you to disclose bad news on a proactive basis. At Infosys [Get Quote], our philosophy has always been, 'When in doubt, disclose.'
Governance
Good corporate governance is about maximising shareholder value on a sustainable basis while ensuring fairness to all stakeholders: customers, vendor-partners, investors, employees, government and society.
A successful organisation tides over many downturns. The best index of success is its longevity. This is predicated on adhering to the finest levels of corporate governance.
At Infosys, we have consistently adopted transparency and disclosure standards even before law mandated it. In 1995, Infosys suffered losses in the secondary market. Under Indian GAAP (generally accepted accounting principles), we were not required to make this information public. Nevertheless, we published this information in our annual report.
Fearless environment
Transparency about the organisation's operations should be accompanied by an open environment inside the organisation. You have to create an environment where any employee can disagree with you without fear of reprisal.
In such a case, everyone makes suggestions for the common good. In the end everyone will be better off.
On the other hand, at Enron, the CFO was running an empire where people were afraid to speak. In some other cases, the whistle blowers have been harassed and thrown out of the company.
Managerial remuneration
We have gone towards excessive salaries and options for senior management staff. At one company, the CEO's employment contract not only set out the model of the Mercedes the company would buy him, but also promised a monthly first-class air ticket for his mother, along with a cash bonus of $10 million and other benefits.
Not surprisingly, this company has already filed for bankruptcy.
Managerial remuneration should be based on three principles:
Thus, the compensation should have a fixed component and a variable component. The variable component should be linked to achieving long-term objectives of the firm. Senior management should swim or sink with the fortunes of the company.
Senior management compensation should be reviewed by the compensation committee of the board, which should consist only of independent directors. Further, this should be approved by the shareholders.
I've been asked, 'How can I ask for limits on senior management compensation when I have made millions myself?' A fair question with a straightforward answer: two systems are at play here. One is that of the promoter, the risk taker and the capital markets; and the other is that of professional management and compensation structures.
One cannot mix these two distinct systems, otherwise entrepreneurship will be stifled, and no new companies will come up, no progress can take place. At the same time, there has to be fairness in compensation: there cannot be huge differences between the top most and the bottom rung of the ladder within an organisation.
PSPD model
A well run organisation embraces and practices a sound Predictability-Sustainability-Profitability-Derisking (we call this the PSPD model at Infosys) model. Indeed, the long-term success of an organisation depends on having a model that scales up profitably.
Further, every organisation must have a good derisking approach that recognises, measures and mitigates risk along every dimension.
Integrity
Strong leadership in adverse times helps win the trust of the stakeholders, making it more likely that they will stand by you in your hour of need. As leaders who dream of growth and progress, integrity is your most wanted attribute.
Lead your teams to fight for the truth and never compromise on your values. I am confident that our corporate leaders, through honest and desirable behaviour, will reap long-term benefits for their stakeholders.
Two mottos
In conclusion, keep in mind two Sanskrit sentences: Sathyannasti Paro Dharma (there is no dharma greater than adherence to truth); and Satyameva jayate (truth alone triumphs). Let these be your motto for good corporate leadership.
The author is Chairman and Chief Mentor, Infosys Technologies.
We are often approached by clients wanting to link performance to bonuses - an apparently quite logical request. There is a desire to reward good employees and avoid paying too much to under performers.
However, this is an area where the results wanted are not often achieved. After examining reasons for wanting to pay bonuses, many clients have been able to introduce a well designed incentive plan that is linked to business objectives and rewards the right people together with a salary system and performance management system to ensure equitable pay and a methodology for managing individuals' performance.
Let's just clarify some terms. Incentives and bonuses are often used synonymously, which can be misleading as their purpose and impact can be quite different. An incentive is something agreed in advance - if a specific action or result is delivered then a specific reward or payment will be made. A bonus, on the other hand, is something discretionary given in addition to the normal salary after an event which and may not even be directly related to an individual's performance.
Jim Collins in his well researched book "Good to Great", where he reports on the factors that transformed good companies to great companies, found "the right people will do the right things and deliver the best results they're capable of, regardless of the incentive system". He goes on to say "Yes, compensation and incentives are important, but for very different reasons in good-to-great companies. The purpose of a compensation system should not be to get the right behaviors from the wrong people, but to get the right people on the bus in the first place, and to keep them there" - "Once you've structured something that makes basic sense, executive compensation falls away as a distinguishing variable in moving an organization from good to great."
If an incentive plan is being considered a number of factors must be taken into account. Sometimes incentives are not required or not appropriate.
Objectives
What are we trying to achieve?
Who are we trying to influence?
What behaviours are we trying to change or maintain?
How much?
How much should we pay and how often?
Measures
How do we measure performance for the incentive?
Eligibility
Who should be eligible for incentives?
General principles
Incentive plans can become complex and can end up causing friction, increasing costs and not achieving what they were designed for.
The following general principles should be considered when thinking of implementing incentives.
Participants must be able to understand the measures and what they have to do to earn an incentive.
Participants must be able to control the factors that influence the measures, e.g. can they control costs, if profit is to be a measure?
The measures must link to the corporate objectives. The best incentive plans are those that align with the corporate direction e.g. growth through sales or quality improvement.
The incentive paid must be meaningful to the employee. It should be a reasonable financial reward that relates to their salary. An incentive that is a percentage of salary is usually best as it can be the same relative importance for all eligible employees. Non-financial incentives such as trips may have a different appeal for individual employees.
It must be challenging but achievable. A number of periods where no, or little, incentive is paid will quickly be no incentive at all. An easy incentive target will quickly become expected each year and any downturn will create dissatisfaction.
It should encourage high performers to stay with the Company. It should be rewarding with the chance of it being even more rewarding in the future. Long-term incentive plans can be designed to achieve this more easily than short-term plans.
The incentive must be within budget constraints. The organization must be able to pay what was promised without undue hardship.
The business benefits
While this may all sound more complicated than just handing out a bonus at the end of the year it is important to get it right and then keep monitoring results and talking to people.
A well designed incentive program will attract the right people and keep them and can impact on delivering planned business results as well as reinforcing desired employee behaviours. An ill-conceived program may be seen as unfair, unprofessional or as rewarding the wrong people. It can drive people away and have no positive impact on business results.
