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Finding the right balance in executive remuneration

12 Oct 2015 by  Doug Webber

Executive pay is a difficult balancing act for companies to get right. It's important for organisations to provide an attractive offering that engages with executives and is in line with both the size of an enterprise and the industry it operates in.

Likewise, many executives don't have the time to analyse their own compensation package and understand how their performance is affecting their compensation. Executives are often incredibly time poor, but need to be able to understand a multi-faceted package of rewards and incentives on top of their base salary.

For both sides of this equation and for society in general, executive remuneration has become a central talking point. The recently released G20/OECD Principles of Corporate Governance1, for example, provides new recommendations for the way executives should be remunerated, further highlighting how topical this issue has become.

find the right balance in executive remuneration

The organisational perspective: Putting remuneration into context

When a board of directors and senior HR leaders begin the process of formulating an executive remuneration package it's important that this is aligned with the broader organisational goals and strategy. In recent years, for example, executive compensation has become more aligned with maximising shareholder value, which has in turn seen remuneration packages evolve to include share options and similar incentives.

Regardless of what it includes, the package has to be one that appeals to potential executives. To attract, retain and engage quality executives requires expert advice, along with information to benchmark the offering against similar roles.

 

Executive remuneration packages must align with broader organisational goals and strategy

 

Finally, boards need to be sure they are implementing a broad remuneration framework that can be used to measure executive performance and deliver rewards based on meeting concrete objectives. This should also extend to disclosure and governance efforts that accompany an executive remuneration policy.

Equipping executives with the knowledge they need

Executives have some of the strongest earning profiles of any individuals within an organisation. However, the nature of the position places considerable pressure on these individuals who are already required to manage a range of role-specific responsibilities.

Despite this, executives need to be aware of the strength of their existing earnings profile and the methods open to them to best capitalise on these opportunities. This requires taking the time to understand every aspect of their remuneration and determining where there are elements that can be optimised.

Among the most common examples here are stock incentives. While these are a popular addition to executive remuneration packages, they also place a greater pressure on executives to understand and take an active approach to maximising the value of their remuneration package.

 

It is mutually beneficial for executives to know how to capitalise on their package

 

In the long run though, understanding their pay structure can not only help executives grow their wealth, but can also lead to a boost in their personal engagement with their role and organisation.

For both parties, understanding the implications of an executive remuneration policy demands specialised advice. Companies and boards need to be sure they are receiving the right feedback and support when implementing an effective executive compensation package, and it is mutually beneficial for executives to know how to capitalise on their package.

At Aon Hewitt, we offer a range of services that can help organisations to formulate a remuneration package, while also providing the advice executives need to understand and maximise their own salary package. Get in touch to find out more.

1G20/OECD Principles of Corporate Governance, released 5 September 2015

Doug Webber

Doug Webber is a Principal at Aon Hewitt. His career covers over 20 years in wealth management and financial advisory roles during which he has consulted to a large number of employees in Australian corporations experiencing change.

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