Companies conduct competitive compensation assessments in order to maintain market competitive pay ranges. Due to the variation in the compensation elements, surveys and internal audience, executive compensation assessments are conducted separately from the other jobs. Many organizations utilize the services of compensation consultants to ensure the independence that an outside consultant can bring in working with executives concerning their own compensation.
Sources of data for an executive compensation assessment can consist of:
- Public company peer group data: data from public company documents (DEF 14A or 10-K) filed with the SEC provide executive philosophy, data by compensation component and the design of the short and long-term incentive programs for the top five named executive officers
- Nonprofit company peer group data: provided W-2 cash compensation, deferred compensation, other compensation and non-taxable benefits for officers and other highly compensated employees
- Published salary surveys by industry or general industry or compensation databases, with executive data broken down by size of company, such as revenue, assets or number of full-time employees. Some sources, such as Towers Watson or Mercer provide regression information to “predict” compensation for various company scope levels.
When there is more than one source of data for an executive role, it increases data reliability even though the data may be different. For example, a peer group and one or two survey sources is ideal. Unfortunately, many surveys that contain both executive and non-executive jobs do not report the long-term incentive data. Where there is long-term data, the data tends to be dominated by companies with larger scopes at $500M or above.
So, what’s a mid-size, for-profit, company supposed to do? As executive compensation consultants, we can either suggest a practice or we use a methodology to best replicate the value of long-term data granted to executives in order to arrive at target total direct compensation or prevalence data on executive benefits and perks.
How important is it to have a data source that surveyed just private companies and covers all elements of executive compensation? Although a private company may compete with public or larger companies for talent, solid private company data will provide important insights that can significantly impact a company’s design of its incentives and benefits/perks. Then the differences and similarities in the information can be weighed to help solidify the executive compensation philosophy and target total compensation.