Page 181 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

Chapter 5

Salary

W e have all heard the expression “He’s worth his weight in gold.” You may also
have heard the expression “She’s worth her salt.” Some lexicographers trace
this back to ancient times when salt—a natural preservative—was at least as
valuable as gold. Salary, another valuable asset, may also trace its roots to
salt, deriving from the Latin sal.
Today, salary is the cornerstone of the compensation program. It is the base upon which
the other elements of compensation are built. This justifies its other name—base pay. Some
refer to base salary, which would suggest that there are other parts of salary. However, with
the possible exceptions of lump-sum merit increases and geographical differentials (both will
be discussed later), the term is redundant. Salary is the base.

INTRODUCTION

Typically, the amount of salary an executive is paid is a function of the value of the individ-
ual’s responsibilities to the organization and how well the individual is discharging these
responsibilities. The value of an individual’s responsibilities is typically determined by job
analysis, job evaluation, salary surveys, and the resulting salary structure adjustments.
Individual pay actions result from promotion and how well the executive performs the
assigned risks.
The probable importance of the salary element is dependent on whether the company is
a nonprofit or for-profit, publicly held or privately held. This is illustrated in Table 5-1. For
privately held companies, the lack of market-based, long-term incentives places greater
emphasis on salary. While salary is less important for publicly traded companies in the thresh-
old and growth stages, it grows in importance in the maturity and decline stages, except per-
haps in turnaround situations, when stock options may be significant. The not-for-profits,

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