Executive Compensation system design and data sources

by on June 30, 2009 · 0 Comment POSTED IN: HR Info Center

Data validity and acquisition methodology impacts your executive compensation system design.

Survey data in executive compensation system design
We look at depending on the data that’s available, general industry surveys that are published by many reputable organizations, some surveys that are industry-specific which may be done by survey houses, may also be done by trade associations. At times we’ll do custom surveys, which sometimes are done in-house and, when I say in-house, the company itself puts together a group of companies either from a local geographic area or from some kind of industry group that they deal with and they trade information.

A custom survey done by a third party like a consulting firm or some other firm or even a survey could customize whom they go after for your compensation system design data. Probably the most expensive way to collect data is the last item – doing a custom third party survey. It gives you the most control over the data and the most control over who you select. But again, it takes a lot of time to do that kind of work.

In terms of using survey data for a compensation system, the challenge that we end up is that there are often differences in quality and differences in participation of these as they affect the data. And to give you an example, a recent assignment that we had we were looking at the CFO position for a fairly large organization. And if we looked at three of the surveys- that three of the major surveys that published in out there, we find a difference of about a third between the highest and the lowest. If I were to look at the highest 50%, if I look at the lowest, I think it was- the difference was 300,000 at the high end of the salary and 200,000 at the low end.

Data choices in compensation system design
But the question is which of those do you pick? And therefore, what we’re doing more and more is we’re showing all of the data to whoever is looking at it to get other inputs as we go forward rather than just taking them and averaging them or picking one survey as we go through. But we’re trying to understand what’s in the data a little bit more.

You want to understand is differences in methodology, what effective dates did they use for the data because you may need to age it forward, and bring it up to today, and how did they value things like compensation system metrics like long-term incentives if that was provided. You’ll find there’s different methodologies being used in all of these surveys and that’s critical to the answer that you’re going to get.

Proxy disclosures and their use in compensation system design.
The limitation there is generally only public companies provide that kind of information required by the SEC. We may need to annualize that data because what we often find is – things like long-term (awards) are – will appear and it may not be clear as to what period it covered. It could have covered the three-year period or even more. So, it’s necessary to go and understand what the data is and be properly annualizing it to make sure that we’re getting good numbers as we go forward.

Edited remarks from the Rapid Learning Institute webinar-Executive Compensation: What Worked and What’s Fair by Steve Hall

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