Bonus Question: Will it Improve the Bottom Line?
(April 12, 2004)

The question never goes away: How do corporate leaders align the interests of the company and its employees?

In some firms, the balanced scorecard method - featuring a complex grid of corporate objectives and performance measures - is preferred as a tool for profit-sharing allocations. During the go-go '90s, employee stock options were the rage - only to create a different type of rage when the value of many options evaporated from 2000 to 2002. A growing number of smaller organizations have done well with open-book management - an approach that focuses on educating employees about how they each personally contribute to the success of the business.

Now comes Juniper Networks Inc., where the compensation committee has decreed that there would be no bonus in 2004 for executives unless they entered into new businesses "by means of acquisition," according to the April 6 edition of The Wall Street Journal.

So, it wasn't much of a surprise that Juniper on Feb. 9 said it would acquire its Sunnyvale, Calif. neighbor, Netscreen Technologies Inc., for $3.6 billion in stock. Talk about nearly immediate gratification. The deal is expected to close sometime in April.

For corporate communicators, such a carrot for executives poses some significant challenges. Internally, middle managers may wonder about what incentives have been hatched to reward their efforts at actually making the acquisition work. For example, there is invariably some culture clash between the buyer and the acquired company. Just as invariably, there are turf wars characterized by aberrant behavior as colleagues read (and misread) the writing on the wall about future employment possibilities.

Externally, there will be a host of questions from analysts, stockholders, community members, local politicians, the families of affected employees, and the media.

The major question, of course, is whether the incentive makes sense for the company and its strategic direction.

Addressing that point, the director of investor relations for Juniper was quoted by the Journal as saying, "We didn't do the deal just to do the deal and hit the goal." And she scored points for clarifying that the chief executive officer, in particular, owns more than 17 million Juniper shares - the value of which would be at significant risk if the company willy-nilly was rushing into a purchase. As a contrast in value, the CEO's bonus last year was $275,000, which matched his salary.

So, maybe Juniper's compensation committee is onto something - as a means to spur the company's growth. But, given the number of corporate acquisitions that turn to mush, here's one vote for corporate boards to consider the acquisition bonus only if it's tied to meaningful ways of improving the company's bottom line (over a much longer period than one year.)