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on their There is also more pay 66 318 PART 4

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on their There is also more pay 66 318 PART 4 . COMPENSATION AND TOTAL REWARDS s and professionals based conditions. And one must compete in the marketplace for executives who sometimes performance or on what they can do, rather than on static job demands like working bot of rock stars. So, job evaluation, although still important, usually plays have the bonus a secondary role to issues like bonuses, incentives, market rates, and benefits. base Compensating Executives and Managers Compensation for a company's top executives usually consists of four main ele LOV includes the person's fixed salary as well as, often, guaranteed ments. Base pay om whether or not the company makes a profit.” The CEO of Oracle earned justo bonuses such as “10% of pay at the end of the fourth fiscal quarter, regardless of usually cash or stock bonuses for achieving million.67 Short-term incentives are tives aim to encourage the executive to take actions that drive up the value of the short-term goals, such as year-to-year increases in sales revenue. Long-term incen- company's stock and include things like stock options; these generally give the bno executive the right to purchase stock at a specific price for a specific period. Finally, aliano executive benefits and perks include things such as supplemental executive retire. ment pension plans , supplemental life insurance , and health insurance without deductible or coinsurance. With so many complicated elements, employers also be alert to executive compensation tax and securities law implications. 96 million in one recent year, and thually cash Welstocikan bon Corporation $3% must evaluation can streamline dot What Determines Executive Pay? For top executive jobs (especially the CEO), job evaluation typically has little color gener relevance. The traditional wisdom is that company size and performance signifi- cantly affect top managers’ salaries. Yet studies from the early 2000s showed that size and performance explained only about 30% of CEO pay: “In reality, CEO Computer-aided job pay is set by the board taking into account a variety of factors such as the busi- ness strategy, corporate trends, and most importantly where they want to be in a the job evaluation process. short and long term.”68 Whatever it is that accounts for CEO pay, it's often not CEO pay is set by the company performance. In one survey, the best-performing CEOs receive the lowest board taking into account a average compensation, while those in low-performing companies were paid rela- variety of factors such as the business strategy, corporate tively well.69 In practice, CEOs may have considerable influence over the boards trends, and most important, of directors who theoretically set their pay. So, their pay sometimes doesn't reflect where they want to be in the strictly arm's-length negotiations. 70 short and long term. Shareholder activism and government oversight have tightened the restrictions on what companies pay top executives. For example, the banking giant HSBC shelved plans to raise its CEO's holders rejected the proposals. 7taya Source: Edhar Yuralaits/123RF. Managerial Job Evaluation Many employers use job evaluation for pricing managerial jobs (at least, below the top jobs). The basic approach is to classify all executive and man- agement positions into a series of grades, each with a salary range. As with nonmanagerial jobs, one alternative is to rank the executive and management posi- tions in relation to each other, grouping those of equal value. However, firms also use the job classification and point evaluation methods. They use compensable factors like position salary surveys, and the fine-tuning of salary scope, complexity, and difficulty. Job analysis, levels around wage curves also play roles. Board Oversight of Executive Pay There are various reasons for boards clamping down on executive pay. For one thing, the Sarbanes-Oxley Act makes executives personally liable, under certain conditions, for corporate financial oversight lapses. The Dodd-Frank Law of 2010 requires that American companies give shareholders a "say on pay.” Law firms are filing class-action suits demanding information from companies about their senior executive pay decisions.” In any event, lawyers specializing in executive pay suggest that boards of directors (board compensation committees usually make executive pay decisions in large firms)100 ask themselves these questions: • Has our compensation committee thoroughly identified its duties and processes? • ?s our compensation committee using the appropriate compensation advisors? • Are there particular executive compensation issues that our committee should address? 101 • Do our procedures demonstrate diligence and independence? (This demands careful deliberations and records.) • Is our committee appropriately communicating its decisions? How will shareholders react?