Exec Rewards: Use Total Comp or Miss by a Mile

To understand the importance of a total remuneration perspective, look at this table that reflects information about your CEO’s compensation, says Fichthorn, vice president in the Philadelphia office of Hay Group.

CEO Compensation Comparison—Total Direct Compensation

	Marketplace Median	President, XYZ Corp.	% of Median
Base Salary	$642,600	$949,000	148%
Total Target Cash	$1,099,100	$1,328,600	121%
LTI Present Value	$931,800	$259,250	28%
Total Direct Comp	$2,030,900	$1,587,850	78%

If this analysis stopped here at a total direct comp level, you’d get the impression that the CEO of XYZ Corp. is underpaid when compared to his or her peers. But that would be an inappropriate conclusion, Fichthorn says. Look at the table below, which adds information about the value of benefits to the chart:

CEO Compensation Comparison—Total Compensation and Benefits

Compensation Component	Marketplace Median	President, XYZ Corp.	% of Median
Base Salary	$642,600	$949,000	148%
Total Target Cash	$1,099,100	$1,328,600	121%
LTI Present Value	$931,800	$259,250	28%
Total Direct Comp	$2,030,900	$1,587,850	78%
Benefit Total Value	$207,829	$653,136	314%
Total Remuneration	$2,238,729	$2,240,986	100%

Now we see the true picture, says Fichthorn, which is that the CEO of XYZ Corp. is paid right at the median of his or her peers.

What Are the Latest Trends in Executive Benefits?

The executive benefits landscape has changed over the past several years for a number of reasons, says Fichthorn:

• Struggling national and global economies
• Declining share prices
• Expanded proxy disclosures
• Intense public focus on executive benefits and compensation, both in the media and through Say on Pay

How can organizations best attract and retain executives in this environment? Organizations, both not for profit and for profit, must focus on the level and composition of executive benefit programs.

Organizations must also balance market-competitive considerations with shareholder and/or public interests.

Survey Pins Down Exec Pay Practices

A recent Hay Survey sought to obtain current data on the prevalence of practices regarding executive retirement and perquisites for employers of all sizes and across a broad group of industries, Fichthorn says.

There were 317 respondents from 8 industry classifications with revenues ranging from less than $50M to more than $20B.

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Executive Retirement Plans

In aggregate, nearly half of the participating organizations provide some type of nonqualified retirement plan, either defined benefit or defined contribution.

The market is evenly split between defined benefit and defined contribution programs; however, new programs are typically defined contribution, Fichthorn says.

Why Organizations Use Nonqualified Retirement Plans

Organizations most often use nonqualified retirement programs to make up for IRS limits, says Fichthorn. The table below indicates percentages of respondents to the Hay Survey that indicated the various reasons for using nonqualified retirement plans, broken out by job level.

Other findings related to nonqualified retirement plans include the following:

Funding Retirement Plans

• 52% of respondents informally fund their nonqualified retirement programs.
• Rabbi trust is the most prevalent in the general market.

Vesting Retirement Plans

• 16% have immediate vesting.
• 40% have service-based cliff vesting.
• 20% have age-based cliff vesting.
• 17% have graded vesting.

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Most Common Perquisites for Executives

Perquisites continue to be part of executive compensation packages; however, the level and mix demonstrate the impact of regulation and public scrutiny, Fichthorn says.

Executive Perquisite	Offered	President & CEO	Execu- tive and Senior VPs	VPs	Division Heads	Based on Com-pen-sation
Cellular Phones	79%	94%	87%	83%	67%	9%
Exec Severance Pay Practice	51%	87%	80%	58%	29%	8%
Employ- ment Contracts	48%	19%	55%	23%	13%	8%
Exec Physical Exams	43%	96%	85%	55%	20%	4%
Golden Parachutes	42%	92%	83%	31%	13%	7%
Exec Parking	39%	95%	83%	56%	27%	1%
Exec Group Life Insurance	37%	88%	80%	57%	22%	10%
Exec LTD	37%	84%	80%	60%	26%	22%
Car Allowance	36%	78%	71%	56%	34%	4%
Average Car Allowance Amount	—	$11,988	$10,921	$10,376	$11,187	$7,667
Personal Financial Coun-seling/Tax Prep	31%	95%	82%	40%	19%	6%
Company Cars	30%	93%	57%	38%	24%	4%

Only 18% of organizations gross up any perquisites provided, with car allowance the most commonly grossed up benefit, Fichthorn says.

In tomorrow’s Advisor, the public’s breaking point on exec comp, plus an introduction to the only guide written especially for smaller or even one-person HR departments.