You have just experienced the loss of your visionary CFO to a direct competitor.

Company culture wasn’t the reason. They had enough challenges too. The reason was negotiating the competitor’s remuneration package to make your package appear like a starter salary.

Now, your board is in a state of panic, shareholders are raising questions, and you are trying to find someone who can fill a very big leadership vacancy.

This is the cold, hard truth if you decide to ignore executive reward benchmarking.

When traders’ pay is made based on one’s hunches or data from the past, then you are putting your head in a risky game of executive roulette.

The highest level decisions carry very high stakes, and guesswork is not an option. You want the leadership to behave in a way that increases the value of shares to shareholders in the long term, and a strategy for compensation based on data will be the need of the hour.

We will also discuss how to balance and determine the appropriateness of the executive remuneration plans in order to be able to lure and retain talent that matters to the company.

What is Executive Reward Benchmarking?

Simply put, executive reward benchmarking entails closely examining and comparing your top executives’ pay and benefits packages against what the current market offers.

It primarily serves to guarantee that your company’s highest-ranking officials receive fair, competitive, and performance-related remuneration.

However, it’s not only about figuring out base salaries.

A well-rounded executive pay package takes into consideration the whole range of total rewards. It is a strategic juggling of fixed salary, short-term incentives, and long-term wealth accumulation.

If done right, it brings in visionary leaders. If done badly, it may lead to attracting irritations from proxy advisory companies and activist investors.

Why Your Pay Policy Could Be Losing Your Best Executives

We tend to think that money is the only thing that executives care about. However, today’s leadership really sees pay as a representation of how much the board appreciates their contribution to the company’s strategy.

The Hidden Consequence of Paying Less

Top talents will figure out if your compensation benchmarking data is not updated to the latest market trends even by a small margin. Senior executives have extensive networks. Once they discover that their stock awards and bonus levels are not up to par with those of other companies, their focus on work diminishes. In fact, they may have been mentally out for several months before submitting their resignation.

Why Overpaying Is Risky Too (And How Activist Investors Can Take Advantage)

On the other hand, excessive remuneration of mediocre executives can cause the same level of damage.

If your CEO’s salary goes up significantly at the same time as shareholder value is declining, you might as well be inviting activist shareholders.

Accurate benchmarking can supply the Remuneration Committee with the evidence necessary to stand by their pay choices when faced with proxy voting.

Expert Tip : Be careful about benchmarking only the average. An executive at the top quartile would be expecting a pay package equivalent to the top quartile. Your target pay level (e.g., 50th vs. 75th percentile) should always be in line with your company’s growth and market positioning goals.