Boards of directors and leaders of privately held companies often face challenges when attempting to benchmark executive compensation. Unlike publicly traded companies, private organizations are not typically subject to compensation disclosures. Therefore, beyond published survey data, it is difficult to obtain specific company data for comparison purposes. Knowing how to leverage publicly available data and align it with a specific company is the hallmark of a skilled compensation consultant.
Factors to Consider when Benchmarking Executive Compensation
Executive compensation analyses are complex and must be conducted systematically. Basic considerations, as a starting point, would be a company’s size, industry, and location. Beyond those parameters, consideration then needs to be given to company performance, strategic plan, executive talent, organizational hierarchy, and financial health.
The aforementioned considerations are where the skill and business acumen of a consultant is key, and where alignment of market data is imperative.
Data Sources for Effective Benchmarking: Where to Find Reliable Information
Access to reliable data is crucial to set a strong foundation for executive compensation benchmarking. Combining a peer group proxy analysis with published survey data helps to identify the value of long-term incentives/stock awards that publicly traded companies offer their executives. While privately held companies may not offer this to their executives, it is important to be aware of what competitors may be offering talent for which you are both competing. compensation within the market.
Peer Group Proxy Analysis
Compensation data from publicly filed proxy statements is a primary data source for benchmarking. Using this data involves a peer group development process customized to reflect each client's unique attributes. This research typically considers relevant industry, financial performance, and a qualitative assessment to define a targeted peer group for the analysis.
Boards and executive leadership may question the applicability of proxy data as part of their compensation analysis, as publicly traded companies differ from privately held companies in many ways. Proxy data can be a good starting point and gives organizations the ability to:
- View actual compensation from peer companies.
- Evaluate performance of peer companies.
- Examine financial metrics that are tied to short- and long-term performance.
- View actual variable pay plans.
Executive Compensation Surveys
Published surveys focused on executive compensation are valuable tools that provide data that represent aggregated company data within a specific industry, revenue size, and location. Empirical published survey data provides broad participation of many companies and gives a true sense, broadly, of what compensation levels are within the identified parameters.
Designing a Fair & Competitive Compensation Program
Compensation consultants provide valuable knowledge in researching and compiling market data for executive compensation benchmarking. As subject matter experts, compensation consultants guide leadership and the board of directors through the entire process and help to navigate what, at times, may be difficult and sensitive terrain. A wide array of data is a valuable resource, but knowing how to align that data to a company’s particular situation is the key that consultants bring to compensation study engagements. Consultants should house a strong representation of data in the form of published surveys, publicly available data (condensed in a digestible format), and academic resources for reference., and academic resources for reference.
