{"id":151051,"date":"2020-12-03T13:07:55","date_gmt":"2020-12-03T18:07:55","guid":{"rendered":"https:\/\/chiefexecutive.net\/?p=151051"},"modified":"2025-04-23T10:24:29","modified_gmt":"2025-04-23T14:24:29","slug":"executive-compensation-mistakes-prioritizing-fairness","status":"publish","type":"post","link":"https:\/\/chiefexecutive.net\/executive-compensation-mistakes-prioritizing-fairness\/","title":{"rendered":"Executive Compensation Mistakes: Prioritizing \u201cFairness\u201d"},"content":{"rendered":"

Certain functions in your business are more important than others. And much like these functions, some people on your executive team are more important than others. Their compensation should, therefore, reflect the value of their work and how their work can fuel growth for your business.<\/p>\n

That may sound like common sense but based on Chief Executive\u2019s annual CEO and Senior Executive Compensation research, far too many companies prioritize \u201cfairness\u201d and average out executive compensation across their entire team. The data, indeed, shows that while CEOs and presidents lead the C-Suite as far as compensation goes, remuneration remains fairly similar across most senior executive titles.<\/p>\n

Yet, in pursuit of \u201cfairness,\u201d many companies lose the ability to pay and retain the key superstars that they need to fuel growth.<\/p>\n

Instead, our research has found that the best strategy is a mix of talent levels and compensation across the team, one that pays more for what\u2019s more valuable. A superstar top-quartile executive (paid a superstar top quartile executive salary) is not going to be warranted or affordable for most companies. Smart companies will differentiate having a great vs. a good person in certain functions\u2014and will pay them accordingly.<\/p>\n

No fixed rule applies across the board\u2014every company needs their own formula. For instance, if you run a mature private equity-backed manufacturing company that\u2019s growing at a decent rate with strong cash flow, your CFO may be one of your most important executives. The CFO has to deal with bank covenants, make sure they don\u2019t trigger any of the loan covenants and work on cost control initiatives. The significance of that role should warrant a \u201csuperstar\u201d CFO and commensurate top quartile compensation.<\/p>\n

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Compare the mature manufacturing company to an early-stage biotech company, where the head of research and development may be one of the most critical positions to have a superstar vs a good or a very good performer. Your VP of sales and marketing in this early stage or pre-revenue company? Maybe not as important.<\/p>\n

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There\u2019s no perfect science for this talent-compensation formula, but it will take some focus. You\u2019ll need to consider:<\/p>\n