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Executive Compensation & Benefits
During a Volatile Time
In today's unpredictable environment, adaptability and flexibility are key for the future
by: Brent M. Longnecker & Julie Bulow
The ever-changing workforce and the increased demand for skilled executives, coupled with the economic concerns of higher oil, inflation and the credit crisis, require innovative solutions to problems plaguing organizations today and in 2009. Paramount among these is the rising costs of human resources and how – for each corporation – to work toward a more effective and efficientattack on attracting, retaining and motivating the type of top executive talent needed in today's complex business environment.
It's no surprise to employers and most everyone else that the costs for executive compensation and benefit (C&B) programs are rising and efforts must be made to stem the rise.
The goal of employers in the area of human resource programs is twofold: Better control of both fixed-salary costs and the more volatile benefits expenses, while meeting organizational objectives and executives’ needs. To achieve their goals, many corporations have developed a number of positive and productive approaches that should prove helpful to others in search of ways to better invest in key executives while controlling expenses.
These approaches have been successful because: 1) The employer has an overall C&B philosophy that supports its strategic business plans; and 2) The objectives of each individual program is compatible with each other from base salary, to benefits, to incentives, to perquisites to work-environment, etc.
The programs are administered with consideration of competitive practices, which vary by industry, geographic location, company market cycle or are created by the forces of supply and demand for specific skills or experience.
Executive Compensation & Benefits Philosophy
A corporation has to have an overall C&B philosophy that supports its strategic business plan. A C&B philosophy acknowledges the employer's ability to pay executives at certain levels and states the organization's commitment to pay for performance or its commitment to other means of periodically adjusting salaries.
A C&B philosophy also recognizes the corporation’s current needs to attract and/or retain executives and to reward them when the company is successful. The philosophy supports the need to foster and reward changes in operating procedures or productivity levels when necessary.
When determining executive compensation levels, benefit plan design and how aggressive your company wants to be when it comes to recruiting talent, the C&B philosophy has to consider the marketplace(s) in which you compete. It also addresses the mix of compensation/salary in proportion to incentive pay alternative/non-cash compensation, and benefit dollars. Paying for attained knowledge, or equivalent skills, in lieu of or in combination with pay for performance, brings pay in line with an executive’s contributions.
Total compensation
The elements of total compensation program should interact and support each other. The need to keep fixed-compensation costs affordable has led many companies formerly offering premium pay to begin managing salaries at market midpoint or lower. Starting salaries that are designed by job or job family to recognize specific market conditions enable employers to avoid pervasive salary compression and control overall salary costs.
Opportunities for executives to earn additional compensation have shifted from base salary increases to performance and incentive programs that are designed to "pay for" or fund themselves. Therefore, fixed compensation dollars are changing to variable (performance-driven) dollars.
Alternative/non-cash compensation programs – involving vacations, use of the corporate jet and other incentives – are being used to reward performance instead of just being a perk of the job.....
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Brent M. Longnecker
Longnecker & Associates
longneckerb@longnecker.com
Brent Longnecker, chairman of Longnecker & Associates, has more than 25 years of experience in the analysis, design and implementation of innovative performance, productivity-enhancement and cost-savings programs. He was selected by Consulting Magazine as one of the Top 25 consultants in the United States, the first executive compensation consultant to receive this honor. Longnecker’s consulting engagements with numerous CEOs, Boards of Directors, investment bankers, attorneys and certified public accountants for all manor industries have embraced a wide range of operational, organizational, strategic and ethical business issues.
Julie Bulow
Longnecker & Associates
bulowj@longnecker.com
Julie Bulow, managing director of Longnecker & Associates, has more than 10 years of human resource management experience, serving as vice president of human resources for publicly traded and private companies in the energy and commercial real estate industries. Bulow successfully led the HR function of these companies through turnarounds, growth and acquisitions. She has focused her attention and efforts on recruiting, organizational development, and most specifically, developing compensation and benefit programs.
Longnecker & Associates is a Houston-based consulting firm that specializes in corporate governance, executive compensation and Board of Director compensation. Longnecker & Associates’ personal experience with public and private companies provides their consultants with the unique capability to counsel clients with expert knowledge. Additionally, Longnecker & Associates consultants have the ability to draw upon a wide range of experiences ranging from high-growth, bankruptcy, shareholder and employee litigation, IRS audits, spin-offs, mergers, and acquisitions. For more information, visit www.longnecker.com.
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