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Fair Pay, Fair Play

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Fair Pay, Fair Play

Aligning Executive Performance and Pay

Jossey-Bass,

15 min read
10 take-aways
Audio & text

What's inside?

Despite popular opinion, not all CEOs are unjustly overpaid. Now there’s a way to find out which ones are.

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Editorial Rating

8

Qualities

  • Innovative
  • Applicable

Recommendation

Given increased public and government scrutiny of executive pay, corporate boards of directors are under more pressure than ever to implement reasonable, competitive compensation packages for their senior managers. Robin A. Ferracone now provides firms with the analytical tools they need to compare their practices with those of other firms and to understand how to set “fair pay.” Using her 30 years of experience as an executive compensation consultant, Ferracone offers a relatively simple concept – “pay for performance” – while outlining the actual complexity underlying the idea. She explains the detailed mathematics of deriving critical statistics, including total shareholder return and performance-adjusted compensation. Her case studies and examples of corporate largesse offer readers welcome relief from intense statistical analysis, even though they help sell her “Alignment Report” as the prescription for compensation committee woes. Still, getAbstract applauds her thorough research and recommends her findings to board members, senior executives and human resources professionals eager to pay – and play – fairly.

Summary

The Pot of Gold

The 2008 recession made executive compensation a “hot-button” topic, as media-stoked public ire about excessive payouts and bonuses prodded the US government to appoint a “pay czar” to monitor the compensation practices of federally bailed-out companies. But the compensation of all CEOs and other “named executive officers” also ranks high among the concerns of large institutional investors. Along with executives, board members and board compensation committees, these investors wrestle with two notions:

  1. “Fair pay” – The level of reward corporate leaders deserve.
  2. “Fair play” – The “overall pay philosophy, analytic methodologies and decision-making processes” companies use to administer fair pay.

Balancing these two concerns leads to “pay for performance” – that is, paying executives based on how well they deliver good returns to shareholders. This approach relies on the belief that a CEO’s results should determine his or her competitive executive pay.

Despite popular opinion to the contrary, growth in the “absolute level of executive compensation” – adjusted for performance, corporate size...

About the Author

Robin A. Ferracone founded and chairs Farient Advisors LLC, consultants in executive compensation. She has advised corporations on executive pay issues for more than 30 years.

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