Page 193 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

Chapter 5. Salary 179

11. Structural compensation (i.e., range and midpoint), when available, is a helpful aid in pricing jobs
inasmuch as actual compensation is a product of the maturity of the job incumbent. One would
expect, for example, a person with more job experience to be paid more.
12. The best way to rank jobs relative to market data and assure comparability is to “lock in” on job
comparability for the lowest and highest levels and then to work toward the middle.
13. A practical test of overstructuring in an organization is to determine when the differences in
compensation midpoints no longer adequately reflect a normal promotional increase.
14. To ensure compensation adequate to attract and retain qualified persons, the primary equity
must be with the marketplace.Therefore, when there are two jobs considered to be equal by
internal standards but unequal by external standards (compensation surveys), the latter should
prevail unless there are unusual circumstances.

Table 5-7. Market-pricing principles

SALARY SURVEYS
Whether market pricing is used to evaluate jobs, or the more traditional method of internal
equity followed by selectively pricing the structure is employed, information on what other
companies are paying executives in comparable jobs is needed.
While a plethora of executive compensation surveys exist today, this was not always true:
even before 1950, they were nonexistent. Early efforts were directed to reviewing the data sub-
mitted to the Securities and Exchange Commission (SEC) on the highest-paid executives;
today such data is available through a number of studies conducted by associations, consulting
firms, and other companies. Although, as we’ve seen in Chapter 4, the SEC has expanded the
disclosure requirements on the highest-paid five executives, so that with a little effort you can
determine exactly how much they are paid and in what form.
Indeed, if there is a problem today, it is that there are too many surveys done by individ-
ual companies, each drawing on its own sample of a defined population. Considering the
costly inefficiencies of generating and producing results, the amount of duplication of efforts
is appalling. Here is where impartial third parties such as consulting firms can provide an
effective cost-benefit product.

Defining the Community

Before undertaking a survey or examining existing studies, it is important first to define the
survey community appropriate to this company. Typically, companies will look to companies
in the same or similar industries that are approximately the same size. The larger the
company, the greater is the problem in this respect, since there are only a limited number of
companies of comparable size.
An industry analysis is especially appropriate for jobs that are industry-sensitive, in partic-
ular, sales and marketing, and to some extent, production and research. However, functions
such as finance, legal, and human resources are less industry-sensitive, and it is appropriate to
look across industry lines to determine the competitive level of pay for executives in these
functions. Whether intra- or inter-industry, the companies selected must be looking
for comparable-level people. For example, perhaps there are only five companies within a par-
ticular industry that consistently hire only those individuals in the 90th percentile of
qualified candidates.