Return on invested capital (ROIC), compensation and organization design

Return on invested capital (ROIC), compensation and organization design

The path to value creation, is through return on invested capital (ROIC).  Indeed, the best way to create real value in a business is by making smart investment decisions.

Aetna is one of a number of organizations (including the likes of Starbucks, Gap and Walmart) who’ve made this move — and distinct in being a financial services firm rather than a retail enterprise.  The company announced in January the increase to increase Aetna’s minimum wage to $16 per hour.  The move will impact 5,700 employees and result in an average pay increase of 11%.

Many are referencing the efficiency wage theory — the notion that simply paying workers a higher wage should lead to increased productivity — as the rationale for these wage-boosting decisions.  Perhaps this can be banked on, but I would submit that the astute among this vanguard (and I suspect they are all astute) have actively considered and are pursuing steps to maximize the positive return of these enormous investments.  One of these is likely work and organization design.

As those with responsibility for managing our organization’s compensation spend and doing so to maximize the return on that investment, many of us should be looking at an opportunity to embrace it.  I’d wager that the examples of Aetna, Starbucks and Gap are being discussed in many of your boardrooms.  If moves like this are being contemplated, you have an opportunity to provide leadership and expertise.


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