Executive compensation
Davis, Michael L Edge, Jerry T · 2004
A comprehensive guide for compensation professionals, written by leading practitioners, on designing and managing strategic executive rewards programs in an era of heightened accountability and performance standards.
Drawing from nine of the leading compensation advisory firms in the country, Executive Compensation: The Professional’s Guide to Current Issues and Practices is the first publication to bring together top practitioners to provide the information and insights you need to navigate the new era of accountability. Seventeen chapters present key topics, from regulatory and governance changes to specialized topics like business unit incentives, with each thoughtfully analyzed by distinguished professionals. Whether you need to solve specific issues or seek a general reference covering the major components of an integrated executive compensation program, this book and its accompanying tools provide an 'advanced degree' in the practice of executive compensation, emphasizing the alignment of rewards with business strategy to drive long-term success.
The model it argues
This model, derived from the book's central thesis, illustrates how a well-designed executive compensation strategy, informed by the broader business and human capital strategies, leads to strategic alignment. This alignment, in turn, enhances executive attraction, retention, and focus, driving value-creating behaviors that improve firm performance and ultimately create shareholder value.
Key ideas
- Business Strategy Clarity
- The degree to which an organization possesses and effectively communicates a clear plan of action intended to accomplish a specific goal, defining how it will compete in its market (e.g., as a low-cost provider, through product differentiation).
- Human Capital Strategy
- The organization's overarching plan for managing its people to achieve its business objectives, including strategies for leadership development, talent acquisition, organizational design, and succession planning.
- Compensation Strategy Design
- The deliberate choices made regarding the objectives, structure, and administration of executive compensation programs. It defines the intended pay positioning, risk profile, performance measures, time horizons, and mix of pay elements to be used.
- Strategic Alignment of Compensation
- The extent to which the signals sent by the compensation system are consistent with and reinforce the organization's business strategy, human capital strategy, and shareholder value goals.
- Executive Attraction and Retention
- The organization's effectiveness in sourcing, securing, and retaining the executive talent necessary for strategic execution and sustained competitive advantage.
- Executive Motivation and Focus
- The psychological state wherein executives feel a drive to pursue organizational goals and direct their cognitive and behavioral resources toward activities and outcomes that are prioritized by the compensation system and aligned with the business strategy.
- Value-Creating Decisions and Behaviors
- The execution of managerial actions and strategic choices that enhance the long-term economic value of the enterprise, such as making profitable investments, improving operational efficiency, fostering innovation, and effectively managing capital.
- Firm Performance
- The organization's success in achieving its desired financial and operational outcomes, as defined by its strategic objectives.