How to Link Compensation to Intellectual Capital (IC)

Intellectual capital is often created and increased by relatively few critical roles within a company.

This article originally appeared on WorldatWork, December 20, 2016

by Tom McGuire and Andrew Lobo, Talent Growth Advisors

Most of the time, the majority of companies focus their compensation philosophy on fairness as a typical practice. The process, familiar to most, goes something like this: The company hires a compensation consultant to help identify job categories and benchmark pay for those jobs against companies similar to the client company. The company then determines a target percentile and starts adjusting its existing compensation to match the target. There are, of course, many complexities involved including the split between base salary, short-term incentives, long-term incentives, etc. But overall, the process is similar and focused on achieving fairness. This process has worked for a long time. However, recent research suggests a fundamental shift in approach is necessary.

Today, more than $4 trillion of the market capitalization of the Dow Jones Industrial Average is now driven by intellectual capital, according to the Intellectual Capital Index. This represents 86% of the market cap €" a huge amount. It is the market value manifestation of the larger transition from an industrial economy to a knowledge economy.

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