Page 541 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

Chapter 9

Design and Communication

Considerations

D esign considerations begin with a review of the market stage of the company
and its industry. Market stage tilts the playing field of pay plan design in a
certain direction. Next, in light of the relative importance of incentive pay in
attracting, retaining, and rewarding performance, designers must determine the
extent to which it will be a part of their pay package.
The total executive compensation package should embody the company’s vision, mission,
objectives, goals, and strategies. More specifically, the pay-delivery system should be aligned
with goals and objectives. The framework or skeleton for this system consists of those compen-
sation objectives appropriate to the organization. In designing a pay plan, the characteristics of
each pay element will determine its importance relative to the other elements, to the market-
place, and to company goals and objectives. Let’s begin with a short review of the five elements
of compensation.

COMPENSATION CONSIDERATIONS
Salary

The salary element will be most important in not-for-profits because of statutory limits on
incentives. For-profits with publicly traded stock tend to use the salary element primarily to
determine eligibility for the other pay elements.
As illustrated in Table 9-1, the importance of salary in for-profit companies is largely a
function of stage in the market cycle. Shortage of cash in the threshold stage places a low
emphasis on salary, but salary increases in importance as the other compensation elements
lose importance. The moderate rating for the not-for-profits is largely a function of limited
financial resources, although some of the larger companies might pay more.

527
Copyright © 2007 by Bruce R. Ellig. Click here for terms of use.