What Business Thinks™ About Executive Compensation

Survey participants were also asked about their use of supplemental benefits or perquisites in compensation packages. “You don’t see a lot of club memberships, supplemental retirement plans, or financial counseling services offered at local private companies,” Williams says. “Those types of things are a bit more prevalent in similar size companies in the public market. For those private companies in our survey that did provide a benefit, the most common were auto reimbursements and supplemental life insurance.”

Why the discrepancy between public and private sectors when it comes to perks? Private company CEOs and board members “read articles about abuses of these benefits in public companies,” he says. “They want to be able to look their employees in the eye and say, ‘We’re all in this together.’”

Other than the CEO, the three most highly paid executives at surveyed companies were (in no particular order) the top sales executive, the chief financial officer, and chief operating officer. Compensation for these positions is essentially the same at companies in the Twin Cities metro area and companies outstate, which suggests that the labor market for top talent is geographically diverse. “If you want someone qualified with experience, you have to cast a pretty wide net,” Williams says.

To avoid such a search, he says companies should also think of incentive compensation plans as a tool for executive retention. He cites the example of an established business that was in the midst of a five-year turnaround and worried about keeping key people during the process. It implemented a long-term cash compensation plan that had significant upside only if performance goals were met.

“The company protected itself by implementing a vesting period that required executives to forfeit compensation if they terminated their employment prior to being fully vested,” Williams says, “and those key players stayed.

One of the most important conclusions private companies can draw from the What Business Thinks survey is that “who the company competes with for talent is a larger group than who it competes with for customers,” he says. “As more companies realize that, you’ll see a greater shift toward including long-term incentives and larger annual incentives in order to remain competitive both with larger private businesses and with public companies.”

> Weigh in on executive compensation issues: What do top peformers deserve? Should there be limits? How can boards better safeguard their companies against pay for non performance? Join the discussion.

Survey Metrics This What Business Thinks survey was conducted on line with confidential logins, in summer 2007.

> It included 23 responding companies: 15 located in the Twin Cities metro area, and 8 from other Minnesota communities, including Owatonna, Mankato, St. Cloud, and Fergus Falls. > 11 of the companies have fewer than 99 employees; 7 have 100 to 499 employees; 5 have more than 500 employees. > Industries represented include manufacturing (7 companies), professional services (4), financial services (3), construction (2), distribution (2), nonprofits (2), and other categories (3). > Data on 20 different executive and management positions were merged to build an overview. Executive positions were: 1 chief executive officer, 2 chief operating officer, 3 chief financial officer, 4 chief information officer, 5 top division executive, 6 top legal executive, 7 top manufacturing executive, 8 top sales executive, 9 top marketing executive, 10 top human resources executive, and 11 top engineering executive. Management positions were: 12 controller, 13 accountant, 14 financial analyst, > 15 human resources manager, 16 compensation analyst, 17 benefits analyst, 18 recruiter, 19 mechanical engineer, and 20 attorney.