Page 661 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

646 The Complete Guide to Executive Compensation

results in staying with an old, outdated, but familiar program rather than developing an
improved compensation plan.
The person charged with the responsibility of developing and maintaining the compen-
sation package, especially at the executive level, must not only be a good administrator but also
a creative, analytical person able to assess and respond to the needs of the corporation and its
individuals. Although a number of statistical techniques are available for use in establishing
and monitoring a program, the pay planner must be able to adapt conceptually to a profession
that is more art than science, responding to changes in accounting, tax, and SEC require-
ments. Compensation programs are only as good as the judgment of those involved in their
construction and maintenance. Consistency is pertinent only to the extent that deviations are
not in fact justifiable. The program must be flexible and responsive to the corporation’s need;
it should bring order to the system, but not inflexible discipline.
The importance of a systematic, logical, and orderly review process cannot be empha-
sized too strongly. Conversely, it is critical to keep the analysis phase in perspective. It is easy
to become inundated with data or, even worse, subject the data to measurement far more
sophisticated than required. This analysis paralysis can mesmerize. The planners become
ruled by the data rather than using it as the basis for making decisions on executive pay.
The responsibility of senior management is to assess competitive strengths and weak-
nesses, and then develop and execute the strategy that will best utilize available corpo-
rate assets. The board of directors and its compensation committee should ensure that the
compensation program rewards goals and objectives appropriately.
Good and Not-So-Good Pay Practices

The interest in executive compensation does not give signs of dissipating. Designers,
approvers and recipients of executive pay must not only be aware of the stakeholder issues
but also be responsive to them, fully explaining actions that appear to be counter to their
views. Influences on executive pay probably will be in response to bad practices, with good
practices serving as the at model for action. Executive compensation practices that may be
perceived as good or not-so-good (even bad) are highlighted in Table 11-4.

Reminders
It is important to remember that while the ideal of an effective compensation program is to
attract, retain, and motivate, at the very least, it should not repel, encourage turnover, or
demotivate. Not all plans will create positive results, but they should, at the minimum, avoid
negative responses. In earlier days, the executive owned the business, much as he or she does
now for threshold companies. However, executives of companies in growth, mature, and
declining market stages are essentially professional managers. Their individual stock holdings
are usually well under 1 percent of outstanding shares—far short of enabling direct control.
Their risks, like their rewards, are different.

THE FUTURE
One can only wonder what a book like this one will look like one hundred years from now.
In spite of the full and rich history of executive pay to date, it is unlikely to be of any real value
in attempting to predict what will happen over the full period of the twenty-first century.