The Seven Deadly Sins of Executive Compensation

Dan Walter, Performensation

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
  4. Following:
    Executives are leaders. Executive compensation is about motivating and
    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.

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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