Page 28 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

14 The Complete Guide to Executive Compensation

Not included in this analysis is the public sector, which in many cases has less emphasis
on the pay elements than even the not-for-profits because of the scrutiny of the voter.
Typically, salaries are low and short- and long-term incentives are nonexistent. Employee
benefits are pretty good but probably not more than moderate in importance because of the
shortness of service. How many make a career as mayor or governor, much less president?
Perquisites are definitely high—both extrinsic and intrinsic forms.

Market Lifecycle Impact
The Stages
There are four stages in the market lifecycle: threshold, growth, maturity, and decline. They
are shown in Figure 1-5 in relation to sales or income. It should be recognized that the peri-
od of time of each is not a constant. Some products never get out of the threshold stage,
abandoned because of failure to attract customers. Others will go through all four phases in
several months; others will take decades. The ideal situation is to be in the growth stage the
longest for it is the most profitable stage.

Turnaround
Sales
$
Stabilize
or Sell

Demise

Threshold Growth Maturity Decline
Figure 1-5. Four-stage market cycle

Net income (i.e., profit) has a similar but slightly different profile than revenue
(i.e., sales). As shown in Figure 1-6, most of the threshold stage may operate a net loss in
profits. When a company enters profitability in the growth stage, profit begins to increase,
but perhaps not as rapidly as revenue because of increased expense to invest in the
product (and provide an appropriate pay and benefits package for the employees).
However, net income continues to increase at an increasing rate in the mature stage even
as revenue is flattening because investments are being pared back and costs are being
curtailed. This will continue into the decline stage until the fall in sales cannot be offset
by cost containment.
The market cycle for a company is simply a consolidation of its products and where they
are in their respective market cycles. By the same logic, a company or industry can be
described by stage of lifecycle. Recognize that a product could be in the growth phase while
the market for such products is in decline. Shown in Table 1-9 are the 16 possible combina-
tions of a product’s lifecycle vs. the lifecycle of the market for the product. Indicated for each
combination are possible actions.