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Effective Executive Compensation

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Effective Executive Compensation

Creating a Total Rewards Strategy for Executives

AMACOM,

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Structuring CEO rewards to get great performance: A powerful, flexible toolkit for designing and aligning executive pay.

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Editorial Rating

7

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Recommendation

Compensation can align the interests of a company’s CEO with those of its shareholders. Michael Dennis Graham, Thomas A. Roth and Dawn Dugan show you how in their insightful book on effective executive pay, a package they call the “Total Reward Strategy.” They explain how to use compensation to get great executive performance, instead of just handing out hefty paychecks and hoping for the best. They demonstrate how each piece of a pay package can focus top executives on the tasks that matter most. Consultants Graham and Roth tapped their considerable experience and expertise to produce a book that is not just a marketing piece. Because it combines readable writing (given the contribution of freelancer Dawn Dugan) with rigorous analysis, getAbstract recommends their book to all interested business readers as well as CEOs, directors, consultants and other professionals directly involved in executive compensation issues.

Summary

Making Executive Pay Effective

Even if you think your company’s executive compensation package is good, you can likely make it better. Setting executive pay is a balancing act. Paying too much or too little compensation is equally problematic. Everyone likes to get paid as much as possible. Your job is to use pay to properly compensate and motivate the right behavior, which means work that benefits your company. Executive compensation is a significant short-term expense, but the way companies motivate their leaders can have long-term consequences.

Avoid three “cardinal sins” in structuring executive pay packages. First, do not award below-average or average performance. Only excellent results should trigger executive incentive payments. Rewarding average performance will lead to average results. Second, do not copy the executive pay plans of other companies. Thoughtful, customized compensation is more effective. Third, do not send a mixed message by providing a poorly arranged pay package. Strive for compensation that provides clear, consistent guidance.

Give your CEO an annual performance review. This sets the right tone for his or her position, demonstrates...

About the Authors

Michael Dennis Graham and Thomas A. Roth are consultants with more than 30 years experience each. They have designed more than 300 “Total Rewards Strategies.” Dawn Dugan is a freelance writer.

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