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The Seven Deadly Sins of Executive Compensation

Stickman - 7 deadly sins of exec comp
Dan Walter, Performensation

Most of the problems with executive compensation tend to originate within a few categories. I have attempted to summarize these and look forward to the compensation community adding their take on this topic. Look at your past mistakes and issues. Did they start with one of these seven categorical errors?

  1. Assumption:
    Assuming is one of the biggest risks to successful executive compensation. You can’t assume that your compensation strategy and the business strategy are in alignment. You need to have conversations with the right people. You can’t assume that your executives or shareholders will understand or value anything without instruction. Take the time to get your communications right.
  2. Selection:
    There are countless decisions to be made in executive compensation. To list just a few, peer groups, compensation instruments, plan features, pay levels, performance metrics and goals. Making proper selections requires an intimate understanding of your compensation philosophy, strategy and goals.
  3. Sloth:
    “But, we’ve never done it that way” is too common of a refrain. “That will be much harder than how we do it now” is not a good reason to stay the course. Executive compensation professionals are swamped and it is unlikely that everything will get the attention it needs. Stepping over a high priority item is inexcusable and is a frequent cause for long-term problems (rather than long-term incentives).
  4. Following:
    Executives are leaders. Executive compensation is about motivating and retaining these individuals. The best of them seldom state that being a follower is a key component of their business strategy or goals. Why should their pay simply “follow” trends and survey data. Of course, we must know the market to understand where we stand, but we shouldn’t let it define us, or our pay packages.
  5. Greed:
    While this is seldom a direct issue for compensation professionals, it is something we must deal with from others. Determine how to counter greed with effective research and proactive planning. Don’t let the avarice of others put them or your company in a position to fail.
  6. Envy:
    The money is always greener on the other side of the corporate firewall. When you have strong leaders, you also have people who only compare themselves to the best. In the world of executive compensation, the score of the game is kept in dollars (or pounds, euros etc.). Your compensation philosophy must be strong enough to guide your decisions, even when there is a strong temptation to stray.
  7. Pride:
    Sometimes we make mistakes. Don’t stand on your past decisions, simply because they were yours. Don’t be afraid to point out the mistakes of leaders simply because they are leading. Our own pride and the fear of prideful leaders often come between us and better solutions. Be confident in your preparation, expertise, skills and decisions and be willing to quickly change the minute your confident solution is proven wrong.

It is difficult to navigate these issues when many of them, in small doses, are also considered to be among our most critical drivers of best practices and success. We walk a thin line between overindulgence and counterproductive restrictions. How do you handle these issues?

Dan Walter is the President and CEO of Performensation an independent compensation consultant focused on the needs of small and mid-sized public and private companies. Dan’s unique perspective and expertise includes equity compensation, executive compensation, performance-based pay and talent management issues. Dan is a co-author of “The Decision Makers Guide to Equity Compensation”, “If I’d Only Know That”, “GEOnomics 2011” and “Equity Alternatives.” Dan is on the board of the National Center for Employee Ownership, a partner in the ShareComp virtual conferences and the founder of Equity Compensation Experts, a free networking group. Dan is frequently requested as a dynamic and humorous speaker covering compensation and motivation topics. Connect with him on LinkedIn or follow him on Twitter at @Performensation and @SayOnPay

 

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