Would you work for less than market value in a senior role on a long term basis? For most executives, the answer is a definite ‘no’. Trends in executive remuneration should always remain on your radar, particularly when considering a new position or changing organisations.
A significant increase in focus on executive remuneration has occurred in recent years. Courtesy of the Global Financial Crisis, greater attention to executive salaries can be attributed to a call from shareholders for increased transparency and commensurate reward for performance. Gone are the days of unchecked disproportionate remuneration packages, bonus and incentives, with CEOs from major companies foregoing significant bonus payments in recent times.
Recently, Slade Partners had the pleasure of hosting a boardroom lunch with guest presenter, Executive Remuneration and Benefits expert Nicholas Jackson. He discussed the importance of remuneration in the context of:
- the ‘two strikes’ policy and its potential to spill the Board for ASX listed companies
- its impact in ensuring the attraction and retention of appropriate talent
- how it shapes behaviour through STIs (short term incentives)
- how it drives long term focus through LTIs (long term incentives)
- its role as an expression of values within an organisation
Nicholas also discussed the emerging trend of STI deferral – or medium term incentives – characterised by higher STIs and lower STIs, with the value of additional STIs or excess of target deferred into equity instruments, with the instruments retention tested and gradually released. The advantages of this strategy include ‘smoothing’ the reward during volatile times, facilitating retention, controlling short term decision making by subjecting rewards to long term impacts and providing a possibility for future ‘clawback’ amendments.
During the subsequent discussion forum with key HR leaders and senior managers across various organisations, it became apparent that there was no simple ‘one size fits all’ solution for Remuneration and Benefits, even for companies within the same industry. Generally the value of STIs and LTIs in engendering behavioural change and high performance was only realised where individuals believed they could actually impact outcomes to obtain the incentives, as opposed to an overall company performance bonus, to which they felt they had little power to influence, for example.
So what should the key considerations be in regards to any Executive Remuneration and Benefits scheme?
- It should fulfil the primary requirement of acting as an attractant to engage the best candidate for the role; analysing competitor and best practice companies can provide guidance in this area
- It should facilitate the retention of the best and brightest leaders; individuals should feel motivated and engaged, whilst also believing that incentives could be realised with extra effort
- It should not reward individuals for ‘just doing their job’ but encourage better performance, behaviours and outcomes
- Whilst rewarding positive performance would be the primary focus, close scrutiny of the scheme is advisable to ensure no inadvertent negative behaviours are rewarded
- Regular reviews should be conducted to ensure continued relevance and that organisational goals are being achieved as a result of the remuneration and benefits strategy in place
What are your key considerations when formulating Executive Remuneration and Benefits?
