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It’s unlikely that benchmarking executive salaries in your organisation will follow the same process as the rest of your employee population. The responsibilities and scope of exec roles can vary massively. For this reason, it’s important to consider the extra factors that could contribute to your exec benchmarking process.
As well as the functional and technical expertise needed for each executive role, you should take the following things into account:
Peer Groups
In many organisations, a single data source is used to benchmark the entire employee population. For some, this works. However, we should consider whether executives should be treated differently.
For most of your employees, you will be recruiting from multiple sectors as there isn’t the need for more specialised experience.
However, imagine you’re part of the financial services sector.
When you’re looking at your executive level roles (your chief financial officer or chief legal officer, etc.), there’s a good chance they will need experience and specialist knowledge of FCA regulations in the financial services sector.
This narrows your recruitment pool to a specific industry. So, when you define your peer group for your execs, it could be slightly different to the rest of the organisation.
Size & Scope
Size may be of little importance when you’re looking at the wider organisation.
For example, imagine you’re recruiting a project manager or a finance analyst. In this case, whether you work in an organisation with 100 employees or 100,000 employees, there’s not going to be a big difference in the responsibilities and expectations of the role.
But if you are the CEO of an organisation with 100 employees, it’s completely different to being CEO of Microsoft with over 200,000. So when it comes to exec roles, we can’t just look at the role. We have to adjust and take into account organisational size, scope and responsibilities.
Location
You might look at geography when you’re benchmarking the rest of the organisation, but when you benchmark your exec roles, it becomes less important.
As you get to more senior levels, you often find that talent is more mobile. When you’re getting paid much a higher salary, people are often more willing to make adjustments and will be less tied to looking for jobs in a specific location.
When you compare market data for London and the rest of the UK, there might be differences for roles at lower levels. But once you get to executive levels, you don’t tend to see much variation.
It might be that in London you have larger organisations or companies that are paying in the upper quartile, but if you look at a similar sample, there’s less regional difference.
This means that when it comes to benchmarking executive roles, it’s more about the job than the location.
Salary Ranges
We often create salary ranges for the organisation by job level. However, we don’t recommend doing this for exec levels because their salaries can vary considerably.
For example, your CFO might be on a very high salary compared to a marketing director. But they could both report directly to the CEO. They might also have a similar job scope and level of responsibility within the entire organisation.
You would find it very difficult to have a salary range that covers both of those roles—the likelihood is that it would be so broad that it would be meaningless.
Instead, at an executive level, it’s better to benchmark each job individually rather than have a very broad range.
Best Practice
When we are benchmarking the rest of the organisation, calibration sessions with senior leaders, the CEO and even their direct reports will make up part of the process.
But when it comes to executive pay, these decisions impact them directly. So there’s likely to be bias. With this in mind, it’s important to have an independent process where you either have a remuneration committee or an external/trustee board that reviews the executive salaries.
We would expect the CEO to sit on the remuneration committee or a board, but to avoid unfair decision-making, they shouldn’t be part of this conversation.
Need Support?
Executives shoulder massive responsibilities, and their positions demand a different benchmarking approach.
We must consider the different expectations and factors contributing to the recruitment of exec roles. By prioritising independence and best practices, we can inspire confidence among our senior employees while ensuring we remain competitive in the market.
The path to exceptional leadership starts with fair and competitive pay. Is your organisation’s approach to benchmarking executive salaries positioned for excellence? If not, get in touch with our team for support.