Effective Executive Compensation: Creating a Total Rewards Strategy for Executives

544 Pages·2008·1.64 MB·English

by  Michael Dennis Graham, Thomas A. Roth, Dawn Dugan

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Effective
Executive
Compensation
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Effective
Executive
Compensation
CREATING A TOTAL
REWARDS STRATEGY
FOR EXECUTIVES
Michael Dennis Graham
Thomas A. Roth
Dawn Dugan
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Library of Congress Cataloging-in-Publication Data
Graham, Michael Dennis
Effective executive compensation : creating a total rewards strategy for
executives / Michael Dennis Graham, Thomas A Roth, and Dawn Dugan.
p. cm.
Includes bibliographical references and index.
ISBN-13: 978-0-8144-1012-7
ISBN-10: 0-8144-1012-X
1. Executives—Salaries, etc.—United States. 2. Employee fringe benefits—
United States. 3. Incentive awards—United States. 4. Compensation
management—United States. I. Roth, Thomas A., II. Dugan, Dawn, III. Title.
HD4965.5.U6G73 2008
658.4'072--dc22
2007038372
© 2008 Michael Dennis Graham.
All rights reserved.
Printed in the United States of America.
This publication may not be reproduced,
stored in a retrieval system,
or transmitted in whole or in part,
in any form or by any means, electronic,
mechanic, photocopying, recording, or otherwise,
without the prior written permission of AMACOM,
a division of American Management Association,
1601 Broadway, New York, NY, 10019
Printing Number
10 9 8 7 6 5 4 3 2 1
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To Elizabeth, Ellie, Scarlett, TBD, Rivendell, family, friends, clients, and associates.
All of my “learnings” are still from you and I am, and will be, forever thankful.
MDG
To my wife Margaret, my love and my best friend, to my colleagues at Grahall,
and to our clients.
TAR
To my husband Barry and to my sons Jack and Nate. You are my greatest rewards.
DD
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Contents
PREFACE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
CHAPTER1
Business Environmental Impacts . . . . . . . . . . . . . . . . . . . . .9
CHAPTER 2
Key Stakeholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
CHAPTER 3
Vision, Mission, and Values . . . . . . . . . . . . . . . . . . . . . . . .65
CHAPTER 4
Business Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .83
CHAPTER 5
Organizational Capabilities and People Strategy . . . . . .109
CHAPTER 6
Total Reward Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . .151
CHAPTER 7
Total Reward Architecture . . . . . . . . . . . . . . . . . . . . . . . . .189
CHAPTER 8
Executive Total Reward Strategy Components . . . . . . . .221
CHAPTER 9
Base Salary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .241
CHAPTER 10
Short-Term Incentives . . . . . . . . . . . . . . . . . . . . . . . . . . . .263
CHAPTER 11
Mid-Term Incentives . . . . . . . . . . . . . . . . . . . . . . . . . . . . .285
vii
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viii CONTENTS
CHAPTER 12
Long-Term Incentives . . . . . . . . . . . . . . . . . . . . . . . . . . . .309
CHAPTER 13
Wealth Accumulation Incentives . . . . . . . . . . . . . . . . . . .335
CHAPTER 14
Executive Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .355
CHAPTER 15
Executive Perquisites . . . . . . . . . . . . . . . . . . . . . . . . . . . . .373
CHAPTER 16
Development Rewards . . . . . . . . . . . . . . . . . . . . . . . . . . .397
CHAPTER 17
Director’s Pay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .413
CHAPTER 18
Final Thoughts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .429
CHAPTER 19
Case Study 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .445
CHAPTER 20
Case Study 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .465
CHAPTER 21
Books We Love and That Should Be on Your
Bookshelf . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .493
INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .507
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Preface
The State of Executive Pay or Better Known as
the Don Quixote Way
You can’t escape the controversy that surrounds executive pay.
These days, it’s impossible to pick up a newspaper, fan through
a business magazine, or catch a TV news program without be-
ing subjected to excessive hand-wringing over how much the
top executives at America’s largest corporations are being paid.
Much of what you read or see is hyperbole, exceptions to the
norm being presented as the norm, guilt by inference, and
maybe even a small amount of envy. And some of it is real-
ity. We say this not as mere onlookers, but as people who have
been practicing the art and science of executive compensation
for more than 50 years combined.
For most of those years, we’ve remained publicly silent on the
issue. But not any more. It’s time to break the “code of silence.”
We hope that by doing so, they won’t revoke our memberships
in the Compensation Consultants Guild, better know by the
Warren Buffet nickname of “Ratchet, Ratchet, and Bingo.”
So why the change of heart? Well, it certainly isn’t attributa-
ble to the compensation we’ll receive for writing this book
(which could be wiped out by your average dinner and a
movie). Nor to any expectation of fame that will follow pub-
lication. We do not expect to suddenly be invited to impor-
tant cocktail parties where our every thought, pronouncement,
and expression will be hung on by important guests. Executive
compensation consultants are usually relegated to the corner
where the proctologists are gathered.
More likely, we’re writing this book because we are fed up with
telling clients and consultants one at a time how the process
ix