TM - March 2008 - (Page 37)

There is a correct way to determine what the right target competitive positioning is, and nobody is better suited to inform that process than HR or talent management practitioners. The right competitive positioning should be a function of the executive value proposition discussed early along with the readiness and availability for talent in those roles. HR should provide information for the compensation committee on: • The executive value proposition. • The state of talent currently in the executive roles. • The bench strength to fill those roles internally. • The availability of talent to fill those roles externally. • Existing plans for talent development, along with several alternatives. Within the value proposition, the larger the intrinsic (e.g. non-pay) benefits pieces are, and the greater the ability to recruit for the executive team roles, the less a company should need to target above-market pay positioning. However, if the job isn’t meeting other intrinsic executive needs, and/or if the availability of comparable executive talent is scarce, it can be reasonable for a company to consider above-market pay levels. Pay mix. This refers to the proportion of the compensation package in the form of guaranteed vs. performance/at-risk pay. The guaranteed components — base pay and time-vested restricted stock — often are used for retention purposes. The at-risk components — short-term and performance-oriented long-term incentives such as stock options and performance equity or cash plans — can be used to incent the achievement of specific results. The different elements offer companies the opportunity to tailor the structure of a pay program to the needs of its business and its executives. Shareholders and the media are paying more attention to this mix, and any pay package not weighted heavily toward the at-risk components will be questioned. Packages heavy on base pay and time-vested restricted stock will be under certain scrutiny. HR must be aware of how talent competitors structure their pay mixes and provide the committee with this information, along with a rationale for different mixes based on the company’s strategic needs and executive population. Performance measurement. What is the company measuring — and at what levels — for organization-wide results and individual performance? The performance measures and levels chosen never have been under more scrutiny as the SEC cracks down on public company disclosures in this area. HR should provide the committee with baseline information on: • Key areas of company-wide or divisional performance measurement for the company. • The company’s historical performance on each measure. • Alternatives for individual performance measurement that are not company-wide, such as personal and/or staff development. Doing this well requires that HR have a detailed understanding of the strategic plan and shareholder concerns. The success of any short- or long-term incentive plan design lies in the measurement. While it’s the compensation committee’s job to manage this process, without the right support, committees may operate without the information they need. These days, many committees have compensation consultants, but most need critical internal perspective and resources that consultants can’t provide. The changing landscape for executive pay has created a unique opportunity for the HR practitioner to be this internal resource. Irv Becker is the national practice leader of Hay Group’s Executive Compensation Practice. David Wise is a consultant with the Hay Group. They can be reached at editor@TalentMgt.com. http://www.spectrumhr.com http://www.spectrumhr.com

Table of Contents Feed for the Digital Edition of TM - March 2008

TM - March 2008 Editor's Letter Contents Human Performance - The Paradoxically Gifted Leading Edge - Reverse Engineering: Shifting Focus to HR's Cause Learning Connection - Sharing Talent On the Hunt for Talent Unlock Employee Motivation Through Personality Testing HR Crucial to Executive Compensation Process Downtown Management: Surfing May Not Be Slacking Think Tanks Aid Government in Talent Management Creating Consistency: Enterprise-Wide Succession Plans Battle Retention Deficits With On-Boarding Sunbelt Rentals: A Mid-Level View of HR From the Trenches Butterball: No Chicken When It Comes to Talent Management Advertisers' Index Editorial Resources Full Potential - Choosing Change

TM - March 2008

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