Page 16 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

2 The Complete Guide to Executive Compensation

THE EXECUTIVE
Who Is an Executive?

We can define executive by one of six methods: salary, job grade, key position, job title, report-
ing relationship (organization level), or a combination of two or more of these methods.

Salary
Using salary to identify eligibility is fairly simple, once the appropriate salary level is identi-
fied; however, it has several drawbacks. First, it gives a false degree of finiteness to eligibility,
for example, $100,000 and up “yes” vs. $99,999 and below “no.” Second, considerable
pressure will be exerted to move people above the magic cutoff. Third, the cutoff must be
adjusted annually in relation to compensation adjustments; otherwise, the size of eligible
candidates will continually increase.
Job Grade
The use of job grade to determine who is an executive—like salary—also has a misleading
degree of precision. The rationale is simple: the value of a job to the organization was
already determined when each job was placed in a job grade. The approach is superior to
use of salary in that it relates to the job, not to the person’s earnings. However, it places a
similar pressure on the compensation program—pressure to upgrade positions into the
eligible group.

Key Position
Using the key position approach means examining each job for appropriateness (e.g., only
those positions with “bottom-line” responsibility). Or it may be restricted to include only
corporate officers or insiders as defined by the SEC. Administratively, this practice has two
drawbacks. First, it is possible that two jobs in the same job grade will be treated differently.
Second, it will be necessary to review the list of eligible candidates on almost an annual basis
for appropriate additions and deletions. This approach is generally more prevalent among
smaller organization than larger ones. When used, it normally results in staff jobs being
included.
Job Title
Eligible candidates could be determined by job title (e.g., vice presidents and above). The
problem with this method is that the lowest-level vice president may have less responsibility
than the highest-level director. It also raises the issue of organizational comparisons. For
example, are divisional vice presidents as important as corporate vice presidents? Or even, are
vice presidents in Division A as important as vice presidents in Division B? This might lead
to a multitiered job title list as shown in Table 1-1.

Organizational Unit Title

Corporate office Vice President and up
Group Executive Vice President and up
Division President

Table 1-1. Example eligible executive titles by organizational unit