Executive compensation varies between industries, companies, job titles and descriptions, and geographical regions.
"Executive Compensation: The National Executive & Senior Management Compensation Survey for Year 2001," available from the National Association of Manufacturers (NAM), points out national and regional data by base pay, incentive pay and total cash compensation for more than 30 selected executive and senior management positions, based on information analyzed from 4,500 companies in 36 states.
Certain recent trends remain prevalent. In today's economic environment, executives are going to be held accountable for meeting goals.
"These business models for executive compensation mean that top talent will be paid handsomely," said Bob Cunningham, the NAM vice president of human resources. "For those who cannot meet expectations or the expectations are unrealistic, this will be to their detriment."
David Walker, the NAM's vice president of marketing and business development, points out that companies have even gone as far as to reward workers on the floor level.
"Those in line operation jobs are not just hourly wage earners anymore," said Walker. "They are also subject to significant bonus structures based on meeting goals, quality and revenue innovation."
A return to tradition
Human resource executives can easily trace changing trends in executive compensation to the fast and furious, but short lived, go-go years of the dot-com sector.
"In the past five years, particularly in the dot-com sector, we saw some very unconventional approaches to compensation," said Cunningham.
Mostly that meant additional perks, not outright salaries,
for employees.
"In that field, executives were being rewarded with options," said Cunningham. "But then competition became so keen that companies found they had to offer cars, country club memberships, sabbaticals, pet-sitting services, all kinds of exotic perks to distinguish their organization from their competitors. Consequently, this put pressure on traditional employers to be more creative with their programs."
With the struggles of the dot-coms and now the reeling in of the high-tech industry, pressure to offer unprecedented perks has dissipated.
Performance takes center stage
The most significant trend over the past decade has been one in which organizations linked performance to remuneration.
"The old model used to be that base pay was the predominant way in which people were rewarded," noted Cunningham. "Only a small percentage of their total compensation came
in the form of bonuses, stock awards or options. But today, we see more organizations
asking their top talent to assume more risk in their compensation."
In public corporations, stockholders who demand greater performance and hold executives more accountable for meeting goals are particularly driving this trend.
"Stockholders want to see more pay at-risk," said Cunningham. "So you hear experts talk about percentage of pay that is 'incentive-ized' or at-risk."
In these cases, compensation for meeting goals can be as high as 40 percent of an executive's total annual compensation. A chief executive officer working for a manufacturing firm, for example, may earn an average $286,400 base salary, but may be compensated an average incentive of $144,000 - an additional 50.3 percent of the base salary - for meeting goals or completing projects, according to the Executive Compensation survey.
Rewards for staying
Another executive compensation trend is in retention. Today, more and more organizations are using supplemental executive retirement programs (SERPs) as a way to retain key executives.
Since pension laws currently have a $200,000 cap on the amount of compensation that can be considered for calculating a pension benefit, companies are using SERPs as means to get around this new law.
"Those organizations that are hiring people above $200,000 tend to put SERPs in place since it is a way to get around this cap," said Cunningham.
Up-front money attracts talent
Another popular trend in this tight employment environment
is the assignment of immediate hiring bonuses.
"Here a new employee is either offered a percentage of his or her salary up front when they agree to join the organization,
or gets a fixed dollar amount," said Cunningham.
Depending on the size of the corporation and industry, assigned bonuses can be significant.
"I know of cases where executives were offered upwards of $100,000 just to say 'yes' to a job," he said.
In smaller organizations, such assigned bonus can be significantly lower. Cunningham recited a case where an employee received $2,000.
"The assigned bonus is intended to be a gesture that the company is committed to an
employee as a individual and
serious about their employment," he pointed out. "It is a prize
up-front."
The same concept is being used for retention. Companies may give lump sums of money or a percentage of pay to an executive who guarantees he or she will stay with the organization for a specified period of time. This practice is common among technology companies.
"This is particularly the case if a person has a unique skill that a firm wants to keep or that person is valued by other companies," said Cunningham. "For example, if someone agrees to stay through 2003, he or she might get $10,000."
Another trend in executive compensation is the project bonus, whereby an employee receives extra money for successfully completing a project. A good example is in site selection where an executive has successfully completed identifying a new location for an expansion or greenfield operation and moved that plant from one part of the country to another or, to a location overseas.
"At the conclusion of that
project there is a payout as a 'carrot' for that specific project," said Cunningham.
Means the article is accessible only to our magazine subscribers.
