(Excerpt from The Ride of a Lifetime by Robert Iger)
These are all executives who have been trained for years to grow their own businesses and are compensated based on their profitability. Suddenly I was saying to them, essentially, “I want you to pay less attention to the business at which you’ve been very successful, and start paying more attention to this other thing. And by the way, you have to work on this new thing along with these other very competitive people from other teams, whose interests don’t necessarily line up with yours. And one more thing, it won’t make money for a while.”
In order to get them all on board, I not only had to reinforce why these changes were necessary, but I also had to create an entirely new incentive structure to reward them for their work. I couldn’t penalize them for the purposeful erosion and disruption of their businesses, and yet there were no early bottom-line metrics to assess “success” in the new business. We were asking them to work more, considerably more, and, if we were using traditional compensation methods, earn less. That would not work.
I went to our board’s compensation committee and explained the dilemma. When you innovate, everything needs to change, not just the way you make or deliver a product. Many of the practices and structures within the company need to adapt, too, including, in this case, how the board rewards our executives. I proposed a radical idea—essentially, that I would determine compensation, based on how much they contributed to this new strategy, even though, without easily measured financial results, this was going to be far more subjective than our typical compensation practices. I proposed stock grants that would vest or mature based on my own assessment of whether executives were stepping up to make this new initiative successful. The committee was skeptical at first; we’d never done anything like that. “I know why companies fail to innovate,” I said to them at one point. “It’s tradition. Tradition generates so much friction, every step of the way.” I talked about the investment community, which so often punishes established companies for reducing profits under any circumstances, which often leads businesses to play it safe and keep doing what they’ve been doing, rather than spend capital in order to generate long-term growth or adapt to change. “There’s even you,” I said, “a board that doesn’t know how to grant stock because there’s only one way we’ve ever done it.” At every stage, we were swimming upstream. “It’s your choice,” I said. “Do you want to fall prey to the ‘innovator’s dilemma’ or do you want to fight it?”