Why Executive Compensation is Your Most Important Investment

Why Executive Compensation is Your Most Important Investment

Running a successful business, regardless of its size or industry, requires building and motivating a talented team. With that said, all  "business assets" are not created equal when it comes to  influencing  the bottom line.

No one piece is more valuable to any team or business than skillful, impactful leaders. Leadership is the secret sauce that bridges the gap between talent and achievement. Leaders  encourage and support employees,  so they can  maximize their own potential and contribute to the overall success of the business.

Accordingly, executive compensation should be a primary human resources concern for any  business  that hopes to grow and succeed in the marketplace. Without a thoughtful, comprehensive approach to executive compensation,  businesses risk  losing talented leaders (and other senior executives) who can ultimately make the difference.

Why Executive Compensation is More than a Salary

C-suite officers and other senior management executives bear a disproportionate burden of responsibility and accountability  related to the  business’ success, and therefore, must be compensated in a way that directly rewards them for achieving goals and driving initiatives that grow the business. Without an effective executive compensation strategy, which ties business  success directly to individual financial gain, the potential reward does not  offset the responsibility.

Salary represents the value of someone’s talent in the marketplace and the value the business places  on the duties and responsibilities they perform for  the business.  Executive leadership  is not just about skills and tasks,  it is about vision, motivation, and management.  An executive’s  true value and likelihood of success  cannot  be fully measured  upon commencement  of employment, and  that is why no  attractive and competitive compensation package is built entirely on salary.

Consider the quid pro quo presented to executives  when they join the business: “You grow  the business and make it economically successful, and  your own economic gain will be aligned  with  the business’ growth and success.”

This fundamental agreement between businesses and  leaders  cannot be honored in a completely salary-dependent scenario. Achievable, transparently structured bonuses and equity compensation must be in place  for each executive’s compensation to grow with their success and impact on the business.

Executive Compensation in the Talent Marketplace

All-star executives know what  they are worth, and they also know that many companies are willing to make them  an enticing offer up front (usually in terms of salary  that compares to larger  companies or equity with aggressive growth projections in early-stage scenarios)  to lock them down. Hiring and retaining talent in  a competitive market is challenging, but by developing a compensation  strategy that aligns  the overall  goals and growth objectives of the business  with each executive’s personal financial gain  can  result in attracting and motivating great leaders.

Designing  competitive compensation packages looks different for every  business, but here are some  aspects that are important to focus on:

  1. Balance – Base salary,  bonus opportunities, and equity are all important aspects of an executive compensation package, but the key for both the  business and the executive is that the three are balanced in a way that maximizes the return for both parties and leads to mutual  success. As you prepare  a compensation package  for  any executive, think about what the “mix” of compensation looks like  to them and the  business now, a year from now, and potentially three or five years  down the road.
  2. Perks – Each  business has something unique  to offer executives, whether  it is a company car, chef-prepared lunches, access to a great workout facility, or tickets to  popular events. When hiring executives,  unique perks help businesses  stand out from  other employment opportunities with equivalent financial compensation.
  3. Fairness/Consistency –  Salary, bonus opportunities, and equity  participation must  be structured in a way  that is both horizontally and vertically logical,  so businesses can  value new and existing  employment relationships equally. If not,  the compensation  strategy and philosophy could easily ruffle feathers and lead to dissatisfaction among the C-suite, senior management team, and members of the rank-and-file.

Without a competitive executive compensation  strategy and philosophy that motivates leaders to think big, manage effectively, and  achieve the established business goals, businesses can never truly maximize their  potential. Regardless of the talent level of any individual , the quality of the product or service, or the strength of the brand, no  business can continue to grow or remain profitable without executives who feel valued, motivated, and  positioned for success.

Are you interested in learning actionable strategies to build high-impact executive compensation packages that retain top talent and drive business performance?

I will be a panelist on the upcoming webinar Everything You Need To Know About Executive Compensation.

RSVP for the webinar today.