November 14, 2019
It seems like executive compensation is always in the news, especially during national election cycles. The issue is controversial: Why are top corporate executives paid so much? Indeed, how much executive compensation is too much? How much is too little? Most important, how much executive compensation is market correct for your industry? The answers to these questions – and perhaps a rationale that helps quiet the controversy – can be found by benchmarking your company’s executive compensation.
The Executive Compensation Debate
While executive compensation really encompasses all C-Suite or executive-level corporate staff members, the debate over excessive executive compensation swirls most strongly at the CEO level. In November of 2019 for example, JP Morgan Chase CEO Jamie Dimon was questioned by CBS reporter Lesley Stahl over his $31 million annual salary. Replying that he had “nothing to do with” the payment decision, he acknowledged that pay inequality is a significant problem. The numbers help paint the picture underlying the controversy. According to Stahl, “compensation for executives, CEOs, grew 940% … in the last 40 years. [The] average worker … middle class, grew 12%.”
Both Senators Elizabeth Warren and Bernie Sanders have put forth “wealth tax” proposals aimed at raising taxes on super-earners like Dimon. Others, however, say the problem is less about executive compensation and more about stagnating compensation for low-income and middle-class workers. So, the debate rages on. Big-picture answers are elusive at the national scale, but at the individual corporate level, fair executive compensation begins with asking the right questions.
Questions to Consider when Setting Executive Compensation
To determine if your executive compensation (total rewards including pay, incentives and benefits) is fair and appropriate within your market landscape, take a hard look inward. To do that, start by answering these questions about your company’s executive-level compensation program:
- Do you have an updated market-focused executive compensation philosophy?
- Do you know how your current executive compensation stacks up against market benchmarks?
- Do you know how your current executive pay mix (of base pay and incentives) compares to others in your industry?
- Do you have clear succession and development plans – whether internally or externally focused – for your executive positions?
- Are you confident your executive staff members are unlikely to leave due to perceptions of inadequate compensation or development opportunities?
The answers to these questions become clearer with periodic executive compensation benchmarking.
Benchmarking Executive Compensation
How does executive benchmarking work? On the surface it sounds easy. You’ll need to gather industry data, analyze it, and apply what you learned to make more intelligent executive compensation decisions. Simple, right? Actually, it’s a complex and time-consuming process that’s easy to get wrong – especially if you don’t have the tools and broad-based industry perspective it takes to see the bigger picture.
Here are some of the processes a detailed executive benchmarking process should normally include:
- Analysis of your compensation philosophy, market, and job profiles
- Development of matches from a market-focused database that best align with your market and internal positions
- Procurement of Base Pay and Total Cash market data
- Analysis of incumbent compensation data
- Development of reports and recommendations for changes to the executive compensation plan
- Refinement of job descriptions and compensation programs
The Bottom Line:
Competitive employee compensation is critical within any industry and across all pay bands. Indeed, however, competitive compensation may be even more critical at the top end. This is because the caliber of your executive team can make or break your company’s ongoing success. So, it’s vital to ensure your organization’s leaders are compensated in line with market standards.
But what are those standards? Again, how much executive compensation is too much? How much is too little? How much executive compensation is market correct for your industry?
An executive compensation benchmarking study can help answer these questions. And if your HR team doesn’t have the resources, expertise or time to perform executive benchmarking, we can help. At Total Reward Solutions, we specialize in compensation, performance management, and reward/recognition consulting services – the kinds of services that help your organization attract key talent, motivate employees, and retain top performers – from entry level employees to executives. To learn more, contact us today at 317.589.8529.
Cassandra Faurote
About Total Reward Solutions:
Total Reward Solutions is your trusted partner for compensation services. Led by Cassandra Faurote, professionally certified Compensation and Human Resources expert and author of the book Compensation Sense 101, Total Reward Solutions offers a broad range of compensation and total rewards consulting services to help your organization attract top talent, motivate employees and retain top performers. We can partner with you on a project basis, on retainer, or as your total outsourced solutions provider for compensation services.
Call us today at 317.589.8529 to discuss how we can help your organization develop and implement competitive and effective compensation and total reward programs.