Executive compensation

Executive compensation, also known as executive pay, refers to remuneration packages specifically designed for business leaders, senior management and executive-level employees of a company. Executive compensation includes benefits such as salaries, perks, incentives, insurances etc.

“A COMPELLING PAY PACKAGE, WITH SHARP EMBEDDED INCENTIVES”

Executive compensation is a vital business tool. It is the way that a business access the key talent which transforms inert money into a vibrant business.

The two main questions are:

1.How much is the total pay package? And
2.What performance should inform the incentive plans?


Those questions are easy to ask but hard to answer.
The HOW MUCH question is an issue of QUANTUM. Normally this is determined by pay benchmarking against peer companies and similar jobs.

That means determining which peer companies are relevant; how similar the job match actually is; determining from pat data the figures from the peer companies; a statistical analysis of that data and decision on:

PAY POSITIONING and PAY MIX

Positioning against market is a judgement. Too low and the pay is unattractive; too high and the cost is more than can be easily justified.

Pay mix is the split between fixed pay and incentive pay, between current pay and deferred pay and also the mix in incentives between short and long term, and the use of cash and equity as pay vehicles

Aside from the commercial drivers there are other aspects of much importance. In particular CORPORATE GOVERNANCE norms. Institutional shareholders and their proxy voting agencies have an extensive set of DO and DONT rules for executive compensation. These rules have built up over decades are in general terms are intended to prevent excessive and unjustifiable pay to executives.

FAT CATS PAYMENTS FOR FAILURE

.. and other headline grabbing monikers.

Executive compensation policy sets the framework. In the UK policy for a listed company must be approved by a binding vote from shareholders at least every three years.

Annually, an advisory shareholder vote indicates shareholder views of pay practice.  A lost vote will trigger a binding advisory vote the following year. A poor vote outcome (less than 80%) will trigger instead an Investment Association flag, and the need for the company to respond as to why the vote was low, and their intended response.

INCENTIVE DESIGN

Both short- and long-term incentives are commonplace. Often the value on offer exceeds fixed pay; sometime by a multiple. So the design is important.

The obvious decision is what metric of metrics to select. But there are multiple decisions. The use of cash or equity, the targets, the pay-out curve, the eligibility, the rules on change in control and good bad leavers, among others.

REMUNERATION COMMITTEEES

Rewarding executives requires informed judgement. Remuneration committee members do not need expert knowledge, but they do need data to make informed decisions. First, on levels of remuneration, on the link between remuneration and performance, and on the structure and cost of all elements of the executive packages.

Remuneration committees need to have a thorough understanding of their company and the forces that shape directors’ remuneration.

REMUNERATION COMMITTEES SHOULD CONSIDER THE FOLLOWING FACTORS

  • Business model and the income statement, balance sheet and cash flow dynamics
  • Performance record and prospects
  • Sector and company size
  • Key performance measures of success and their interdependencies
  • Company cultures and values
  • Current arrangements and talent needs
  • Stakeholder interests
  • The market for top talent

Contact us

bec.bostock@corpgro.com

07989 337118

Robert Head

Lead Consultant

Robert works with organisations of all types as a reward consultant or interim reward professional providing reward solutions, interim management and consultancy.

Robert is experienced in working across multiple sectors (including public listed, private equity, commercial, financial, non-profit, and charity).

Robert has deep subject matter reward experience in corporate governance, executive reward, remuneration committees, reward strategy, reward policy, annual bonus, long-term incentives, transformation and change, corporate actions, mergers and acquisitions, and restructuring.

Robert is experienced in stakeholder management working closely with Chairs and executive directors including CEOs and CFOs, non-executive director members of remuneration committees, members of executive committees including business unit CEOs/Presidents, senior HR business partners and other line executives, senior management in other organisations, outside specialists and advisers, and investors.

Robert Head Corpgro

Jane Allen

Lead Consultant

Jane has over 30 years of Reward experience within listed multinational organisations and consultancy environments.

Her expertise covers Total Reward (strategy and programmes), benefits & wellness, pensions, executive compensation, Remuneration Committee support, annual and long-term incentives, VCPs (value creation plans), M&As and restructuring.

Jane has successfully established reward teams and best practices for all key reward processes, leading on complex local and international issues across UK and US listed, family owned, and PE backed ownership structures.

She has a keen interest in ESG and how this can be reflected within Executive Pay to align with the long-term sustainability of businesses. 

Jane is a Fellow of the Pensions Management Institute and a Chartered Insurer. She is an independent Trustee for The Economist Pension Plan.

Damian Carnelll

founder director

CORPGRO is a reward consultancy specialising in executive incentives particularly those connected with growth; and ESG.

Damian has extensive experience advising leading companies on all aspects of executive compensation and equity plans. He was previously with Willis Towers Watson, Aon, and Ernst and Young. 

Damian’s extensive experience in executive compensation and equity plans means he is fully familiar with Corporate Governance norms, institutional shareholder views and proxy voting both advisory and binding.

Damian Carnell Corpgro