Executive Pay Levels

by : Paul R. Dorf, Ph.D., APD

Q: How Often Should Executives' Pay Levels be Compared to the Marketplace?

A: The compensation elements of an executive's total compensation package consist of base salary, short-term and long-term incentives. Base salaries for executives are typically adjusted annually based on prevailing trends for merit increases for the industry and employee group. Short- and long-term incentives, in a performance-driven environment, are predicated on the financial performance of the company and the individual's contribution to his/her position and to the success of the company.

Evaluations of executive pay levels within the marketplace need not be done annually, but should be carried out at least every two to three years. Over this period trends word emerge that world facilitate the evaluation of changes in the marketplace that should be applied to a particular executive. A dramatic fluctuation in any given year may be recovered in the other years within the period. Behavioral issues such as security and motivation, along with retention concerns, may be compromised if annual fluctuations within the marketplace affect the executive's pay package without regard to the performance of the company and/or the individual's contributions.