Designing your executive pay plan can be daunting—you need to consider a whole host of factors, such as the company's goals and the competitive environment. Let's take a look at some design considerations for effective executive pay plans.
Category Archives: Executive Compensation
How to determine and deliver compensation, deferred compensation, equity compensation, and perquisites to upper level managers and corporate officers.
"Nearly the end of the year and high time for a checkup on your executive compensation plans. Run through this list from BLR’s popular HR Audit Checklists to see how you’ve done during 2013 and what you might change for 2014."
"Yesterday’s Advisor offered consultant Steve Harris’s Executive Compensation 101—base, annual, long-term incentives. Today, his take on goal setting for incentives, plus the announcement of a timely webinar on integrating incentives with the organization’s mission."
Goal setting is the most important and challenging aspect of annual and long-term incentive design, says Harris, who is Managing Director at Frederic W. Cook & Co. Harris was joined by Ron Miller, Head of Global Rewards, Mobility, M&A, E.I. du Pont de Nemours and Company, in a presentation at the WorldatWork Total Rewards Conference and Exhibition in Philadelphia.
"Your executive rewards philosophy can be different from your staff rewards philosophy. It's going to define what your company's position is on executive pay."
Executive compensation levels can set the tone for the competitiveness of the organization. How a company defines its executive compensation philosophy will determine how much is offered to executives, which will in turn influence the strategic direction of the organization. For example, does your organization strive to hire only people who perform higher than all of their peers? If so, does your pay package line up with that expectation? This question is especially relevant for executive compensation.
"I think the in past it's been a pretty much plug-and-play: you go to your survey, you open the book, you find the title, you get your number, and you're good to go—but we all know that that's just not the case anymore."
Designing an executive pay plan requires a lot of facets to be considered, not the least of which is: how high should executive pay be? But the exact amount is far from the only consideration.
How should an organization decide to pay executives? Is there a formula to use? Unfortunately, it’s seldom that simple, and getting the executive pay strategy right can affect the competitiveness of the organization by affecting who will be willing to work for you.
"As ISS (Institutional Shareholder Services) exerts so much influence over shareholder perceptions and actions, it is important for compensation managers to be familiar with ISS’s hot buttons, says consultant Deborah Lifshey."
Because ISS reports and positions on executive pay are widely reviewed and considered by investors, comp managers need to be aware of the principal concerns ISS has, says Lifshey, managing director at the New York office of Pearl Meyer & Partners. She offered her executive pay tips at a recent webinar sponsored by BLR® and HR Hero®.
"Shareholders are none too shy about voicing their approval and disapproval, but comp pros can benefit from knowing the public’s “breaking point” for each pay element, says consultant Kurt Fichthorn."