Page 114 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

Chapter 4

The Stakeholders

H aving reviewed performance measurements and identified the five compensation
elements, we will next examine the stakeholders in executive compensation.
They are not only those directly concerned, but also those who affect, to vary-
ing degrees, the design of executive compensation—both the “how” and “how
much,” as shown in Figure 4-1.
The stakeholders are the executives themselves, other employees, the shareholders
(directly and through their representatives on the board of directors who approve the plan
and the compensation committee that administers the plan), the community, the customers
of the organization, and the suppliers to the organization. A subset of three other groups
of stakeholders—those whose “stake” is one level removed—includes shareholder watch-
dogs, the business press, and government regulators. Shareholder watchdogs analyze execu-
tive pay packages and often advise shareholders and companies on appropriate action. The
business press is similar in approach, but with the objective of increasing reader circulation.
You could say they are a subset of the community. A more involved subset of the
community are the rulemakers—those who pass laws and regulations affecting executive
compensation.
As will be described in Chapter 10 (“The Board of Directors”), it is important for the
board to prioritize the importance of each of the stakeholders, in addition to determining
what they want. Most believe the shareholders come first, except for a few executives who
seem to believe they come first. Logic dictates a different pecking order. Employees come
first; without them there is no organization, and how they respond to customers (who come
second) will determine company success. The community should follow in importance; it can
create or solve many problems for the company. Suppliers need to be treated properly
because they control quality and price of inputs to company products. If the four stake-
holders just described are treated well, the company will be successful and that success can be

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