By Andy Klose - Associate Partner
This article explores the complexities and challenges associated with benchmarking and aligning C-Suite compensation with market practices, addressing issues of data variability, company size influence, and discrepancies between public and private entities. It proposes a multi-step solution leveraging standardized data, market comparisons, and pay ratio definitions to create fair, balanced, and market-aligned C-Suite compensation structures.
Navigating the Complexity of C-Suite Compensation
The landscape of C-Suite compensation transcends a simplistic evaluation of roles and responsibilities. It’s a labyrinthine domain shaped by diverse metrics. Major factors, among others, are:
- legal structure
- revenue
- profitability
- operational scale
While no universal blueprint exists, patterns among similar-sized firms offer invaluable insights into shaping tailored compensation practices aligned with strategic goals and organizational cultures.
Challenges in Compensation Evaluation
Compiling compensation data for C-Suite roles or executive leadership positions, specifically within the consulting industry, poses challenges due to the scarcity of publicly available information. The complexity of this task is magnified by the varying compensation across different roles and companies.
Company size emerges as a critical factor, however, the correlations between different size criteria, such as:
- revenue
- employee count
- EBITDA
- Total Cash Compensation
exhibit significant variability. For instance, a corporation employing approximately 40,000 employees and generating a revenue of approximately $10 billion pays a total of $12 million to its CEO. Meanwhile, another corporation with around 120,000 employees and around $4 billion in revenue compensates its CEO with $4 million.
Addressing Variances and Inadequacies
- Benchmarking exercises using a broad comparison range often yield flawed results due to the diverse sizes and operations of compared entities. The exercise should be as specific and targeted to relevant competitors as possible.
- Variance among C-Suite positions and discrepancies between public and private entities further complicate fair evaluations. Make sure you are benchmarking either public or private, and only include entities from the other group with full awareness of the possible influence on results.
- Limiting datasets to similar-sized companies and standardizing compensation data based on the most correlated size criterion emerge as crucial solutions. Even where similar firms are under comparison, failure to adequately match the C-Suite levels being benchmarked, or account for differences in compensation structure will result in misleading conclusions.
Solutions for Fair C-Suite Compensation Packages
A multi-step approach is advocated, involving:
- defining pay ratios between C-Suite roles
- standardizing data for market comparison
- factoring in complexities associated with different company types
This approach aims to develop fair pay ranges, considering market ratios between roles and aligning compensation with organizational and industry-specific benchmarks.
In summary, developing compensation packages for C-Suite executives involves overcoming multifaceted challenges influenced by company size, data variability, and discrepancies between public and private entities. By utilizing a multi-step approach involving standardized data, market comparisons, and role-based pay ratios, organizations can craft fair, balanced, and market-aligned compensation structures that reflect the intricacies of their operations and strategic goals.
We are at your disposal for further questions and suggestions regarding how to optimally design your company’s C-Suite compensation package (and/or model).
Andy Klose is an Associate Partner at Vencon Research International and heads the company’s consulting unit.
Vencon Research International is a leading provider of compensation benchmarking and research as well as of compensation and performance-related consulting services for professional service firms, especially for audit and tax, management consulting, and IT services firms. Vencon Research International provides services to a full range of clients in more than 75 countries worldwide and is proud to name more than 85% of the world’s major consulting and/or professional services firm its clients.