Executive Compensation: How Do You Know That Your Leaders Are Being Paid Correctly?

Executive Compensation: Why It Matters More Than Ever

Executive pay often makes headlines, sometimes for the wrong reasons. For small to midsize organizations, the right CEO compensation structure can mean the difference between steady progress and accelerated growth. When leadership drives culture and strategy, fair and strategic pay becomes critical.

What Does “Fair Pay” Really Mean?

Fair compensation isn’t just about numbers. It’s about alignment with long-term objectives, rewarding outcomes that matter, and reinforcing your company’s values. Ask yourself:

• Is our compensation aligned with business goals?
• Are we rewarding behaviors that drive sustainable success?
• Does our plan reflect transparency and fairness?

What Is Executive Compensation?

Executive compensation includes salary, bonuses, equity, perks, and agreements like exit provisions or change-in-control clauses. While benchmarking against industry standards is important, “correct” pay goes beyond competitiveness—it’s strategic, ethical, and performance-driven.

Key Challenges in Designing Executive Pay

Designing executive pay isn’t just about numbers; it’s about alignment. Here are some key challenges to watch for:

• Performance Alignment: Avoid over-indexing on short-term metrics. Bonuses tied to short-term metrics can backfire if they ignore long-term goals like culture or sustainability.
• Stakeholder Pressure: Balance shareholder expectations with employee fairness. Shareholders want results, employees want fairness, and public scrutiny is real, especially when pay gaps grow.
• Regulatory Compliance: Stay ahead of evolving disclosure rules and pay ratio laws. Consider the recent introduction of the OBBB as an example of a regulatory issue that could impact your executive compensation planning
• Fairness vs. Competitiveness: Attract talent without undermining internal equity.
• Economic Shifts: Build flexibility into your plan to adapt to market changes.

Components of a Strategic Executive Compensation Package

A strong plan sends a clear message about your company’s priorities. Here’s what to consider:

• Start with Purpose: Define your pay philosophy in one sentence.
• Tie Pay to Performance: Incentivize outcomes that matter most—financial and cultural.
• Align Interests: Use equity and long-term incentives to reinforce shared success.
• Attract and Retain: Offer a mix of rewards that reflect your stage and vision.
• Benchmark Thoughtfully: Compare with similar organizations, not just industry giants.
• Communicate Clearly: Ensure transparency and trust through clear documentation.

What “Correct” Executive Compensation Looks Like

Our HR consultants recommend these principles:

• Tailor the Mix: Customize packages based on role scope and impact.
• Use Equity as a Signal: Make equity meaningful and tied to long-term value.
• Keep Titles Grounded: Avoid inflating titles to close deals—it creates future challenges.

Fundamentals to remember:

• Clarity: Attract talent while reflecting company values.
• Performance Alignment: Link pay to measurable outcomes.
• Fairness and Transparency: Benchmark regularly and communicate openly.
• Culture Alignment: Make compensation part of your leadership philosophy.

Why Work with an HR Consultant?

Executive compensation is complex and high-stakes. A third-party perspective can validate your approach, uncover blind spots, and ensure your program reflects both market realities and organizational values.

Ready to design an executive compensation strategy that attracts, motivates, and retains top leadership? Connect with a OneDigital HR consultant today and build a plan that drives growth and reinforces your values. For additional guidance when building out your comp strategy, download our Compensation Planning Toolkit.