Q&A Session – Expert Ideas for Executive Compensation

The following is a transcript of the question and answer session that followed PayScale’s webinar, How to Develop Your Executive Pay Strategy. The topics covered in these questions include adjusting to a down economy, finding salary data for a unique industry and total cash compensation. Answers are provided by author Sharon Koss, SPHR, CCP, president of Koss Management Consulting

Q: Why don’t executive pay plans reflect the ups and downs of company results more than traditional compensation plans since they have been so specific to the individual and situation? What role do the contract guarantees play?

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A: Well, I think the good contracts do reflect the ups and downs and I think where we want to make sure that we have the base pay, which is a smaller portion than certainly for other employees, is fairly guaranteed. Although, as I’ve said before, executives are the one group that you could actually do a pay cut for because they do share the wealth so much at other times. I do not believe that employee pay cuts for anyone below the executive staff are a good idea. Also, you may have a lot of long term and short term incentive plans that do not pay out, so for some of these executives that could mean that you’re working on about half your salary when times aren’t good.

Q: What if the economy, like today, really declines? How can and should executive pay be adjusted before choosing an employee salary freeze?

A: I think you have to decide where you spend your money within the organization and I think there is a point where you may need to cut facilities or lay people off before you cut salaries or have one year in a row without doing pay increases. So this is something that I’m going to be recommending and hopefully will be doing an HR white paper on soon. I believe for those companies who did not do an increase in 2009, you must do one in 2010.

Q: I want to do a salary survey for a unique industry. Do you have any suggestions?

A: Like the one I gave you for this prescription drug card company, maybe look at whether your industry is a combination of industries. If you’re still stuck then you can get on my website and send me an email: Sharon@kosshrexpert.com and I would be more than happy to try to help you.

Q: What does TCC stand for?

A: Total cash compensation. That does not mean stock options or money that goes into the deferred retirement plan. It is something that has the good old label of “cash,” which is easy to compare to other executive salaries. What are harder to compare are benefits because those aren’t “apples to apples”.

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