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Introduction
It is hard to disagree that most leaders and owners of businesses love their jobs and put much effort into the development of their firms. For many, business is first and foremost a way to fulfill their dreams, assemble a talented team, make the world a better place, and also satisfy their ambitions. Nevertheless, even the most devoted and sincerely interested leaders need to get paid for their efforts, and, among other things like high competitiveness or a group of loyal employees, salaries are a reward for company owners. Wages and compensations that senior management and firms’ leaders receive are known as executive pay. The purpose of this paper is to discuss the current status of executive compensation, explain the strategies for determining pay at the executive level, and provide some policies that an HR manager might implement and promote.
The Current Status of Executive Pay
Executive compensation seasons are not always similar, and both external and internal circumstances may influence how executive teams are paid. For example, one of the recent impactful events is the COVID-19 pandemic (Mishel & Kandra, 2021). Its economic and financial consequences make the executive pay season more challenging for most firms. In other words, “following the onset of the COVID-19 pandemic, several companies adjusted their executive pay packages to ease the burden of the pandemic on employees” (Batish, 2022, para. 2). These measures were rather essential to maintain the abilities of organizations to operate in such a difficult situation. As explained by Batish (2022), “many CEOs saw salary cuts, adjustments to bonus payouts, changes in long-term incentive plans (LTIPs) and more” (para. 2). Fortunately, most firms managed to restore those adjustments, but the current median CEO compensation is still lower than before.
At the same time, other reports show different findings related to the current state of executive pay. According to Mishel and Kandra (2021), the increase in CEO compensation during the pandemic was rather dramatic and remarkable. For instance, “while millions were out of work, CEOs’ realized compensation jumped 18.9% in just one year” (Mishel & Kandra, 2021, p. 2). Therefore, considering the difference between various reports and findings, it is difficult to define the current state of executive pay. Nevertheless, it is evident that it is now higher than during the previous years.
Strategies for Determining Pay at the Executive Level
It is of fundamental importance to determine executive payments in a correct way, using the most effective methods. While any executive compensation is highly criticized and debated by stockholders, the staff, and the CEOs themselves, the latter need to be paid properly because they are those figures who are most committed to the prosperity of their organization. According to Campagno (n.d.), “executives have a more complex compensation package than other employees” and “typically receive a higher level of pay and benefits” (para. 7). Their compensation packages usually include base salaries, bonuses, stock ownership, retirement packages, long-term incentive plans, and some other elements of payment. To determine the specific compensation, many companies do not consider the actual performance or effectiveness of a CEO; instead, the focus is on their general role in the company.
To be more precise, there are some elements to consider when determining executive payment. The first strategy is to orient to the competitors and the compensation they provide to the CEOs (Campagno, n.d.). Competitive executive payment allows firms to attract and retain the best senior-level managers. The second strategy is to offer equity-linked compensation, and for this, firms need to regularly assess their equity to make sure that the CEOs’ general compensation picture is clear (Campagno, n.d.). Third, companies may choose between fixed and variable executive payments; while the former is easier to orient to, the latter depends on performance and motivates better.
Policies to Promote as an HR Manager
It may be surprising, but HR specialists have several responsibilities related to executive compensation and thus can promote some effective policies. The first policy to implement is the strong connection between incentive compensation and the achievement of the firm’s strategic corporate objectives. The second policy is related to transparency: HR professionals need to promote the disclosure of compensation because publicly traded organizations need to provide the comparison of CEO payment and median worker compensation. Finally, another strategy to implement is the evaluation of competitors’ executive packages. Precisely these methods may allow HR professionals to play a key role in determining CEOs’ compensation.
Conclusion
To draw a conclusion, one may say that it is impossible to overestimate the importance of executive compensation. Since the leaders and managers of firms play a rather valuable role in decision-making, development of strategies, and implementation of plans, they need to be satisfied and motivated. This is the purpose of compensation packages, and this is why it is vital to select the best strategies to determine CEO pays correctly. While the current state of executive compensation is rather positive, it is required to anticipate possible changes in the future due to the events in today’s world and the downturn of COVID-19.
References
Batish, A. Proxy season 2022: Early trends in executive compensation. Harvard Law School Forum on Corporate. Web.
Campagno, B. (n.d.). Executive compensation. Eddy. Web.
Mishel, L., & Kandra, J. (2021). CEO pay has skyrocketed 1,322% since 1978 [PDF document]. Web.
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