April 5, 2013 Executive Compensation Executive & Director Pay Design Articles

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Executive & Director Pay Design

How Prominent is Your Company’s Pay?

Of all the questions around pay, and specifically incentive pay, there is one that should come first: How prominent is pay at your company?

Yet for many companies, this question is never explicitly asked. As a result, most companies are not getting the most out of their pay programs. We argue that the prominence question is critical — the “launch point” when considering significant program change or major design decisions.

What do we mean by prominence of pay? Pay prominence addresses how pay is used within the organization: (1) a front-end driver of performance — higher prominence; or (2) an after-the-fact affirmation of performance — lower prominence. Where pay is highly prominent, the overall pay program and incentives, in particular, are used to message and reinforce where employees should focus today, tomorrow, and going forward. Where pay has low prominence, programs are more oriented to confirming a job well done, while the task of defining day-to-day actions is addressed outside of the pay programs.

It is useful to note here that pay prominence does not speak directly to the competitiveness of pay opportunities — high- or low-prominence programs can pay similarly in a given period and over time. Pay prominence is less about “how much do we pay,” and much more about “for what do we pay.”

View the full article as it was originally published.

Greg Arnold

Barry Sullivan

This article was originally published in NACD/Directorship.

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