Executive Compensation

On a relative scale, no single topic has earned more attention than that of the pay packages offered to executives. Pay packages are being scrutinized in publicly held and private companies as well as the not-for-profit sector. The focus of shareholders, Federal and state government entities and the media has been on compensation plans that provide significant gains to executives in spite of sub-standard performance. The same is true for not-for-profit organizations where relatively large pay packages have been offered to executives from organizations that have not-for-profit or tax-deferred status.

As a result, there is tremendous responsibility vested on those that research, review and approve pay packages for executives. Pay packages that are today considered necessary to attract, retain and motivate the highest caliber employee seem extraordinary relative to the broad-based employee population. These pay packages are typically justified in the context of the current market. However, they need to be developed independently and made contingent upon the achievement of strategic corporate objectives; e.g., (pay for performance). The design of executive pay packages should be dependent on the following:

• Individual executive performance
• Overall corporate or organization performance
• Linkage between executive performance and corporate strategy
• Communication of goals, tactics and successes at all levels.

We believe that there is no "magic" to executive compensation. Our approach to the design of pay packages for executives is guided by each company’s unique needs, whether profit or not-for-profit, whether impacted by industry sector, whether dependent upon community, governmental or family relationships. Each organization is unique and deserves the full time and attention of an outside observer to sort through the details related to successful management. Our goal is to help devise the most appropriate compensation solutions for your organization.

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Salary Administration

For the majority of people in the workforce, base salary is the most important element of their total compensation package. Employees regularly measure their own success by their salary level, how it gets adjusted periodically and how well they can maintain their standard of living. However, their title, their grade within the organization and their job duties and responsibilities within their respective department are also perceived to be important. Effective salary administration accounts for all of these factors among others and when successfully applied provides an effective tool for attracting and retaining talented people to an organization.

Salary administration is an umbrella concept that covers a variety of human resource tools and tactics. These fall into several categories including:

• Developing a compensation philosophy
• Evaluating positions for internal equity
• Establishing external competitiveness
• Developing an internal salary structure
• Making periodic adjustments to base salary
• Managing performance appraisal design
• Estimating salary adjustment budgets
• Developing salary administration policies and procedures.

Effective salary management is the bread and butter of any sound compensation program. It requires expertise in human resources management and it provides a critical link between business strategy, organization design, job evaluation, market analysis, salary structure development and application of sound policies and procedures to the development of unique compensation solutions.

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Incentive Compensation Planning

When effectively applied, incentive planning provides a strong link between organization goals and strategies and compensation. It can be an effective tool for motivating employees to increase both individual and organizational performance and recent market trends reveal that incentive planning can be effective in a not-for-profit environment as well as a for-profit environment.

The process for establishing an incentive compensation plan is as follows:

• Develop organization business strategy
• Link business strategy to overall goals and objectives
• Identify prospective plan participants
• Establish individual goals and objectives
• Evaluate market practices and determine target awards
• Assign performance objectives to award levels
• Communicate plan elements to staff.

Over the past decade, incentive planning and the concept of variable pay have gained widespread attention. Employers recognize that this a method of motivating employees to perform at higher levels. Employees recognize that they can affect the value of their own total cash compensation package by accomplishing the performance objectives set forth in a formal incentive plan.

Incentive compensation planning is a formal method of rewarding staff for achieving specific levels of performance "above and beyond" their normal duties and responsibilities. Each incentive plan is unique to the organization, whether profit driven or success driven in a not-for-profit environment. Each incentive plan is individually tailored to the staff and provides an excellent compensation solution for organizational performance.

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Sales Force Compensation

A critical part of almost every organization is the role played by the sales force. Whether they sell, market, develop business or otherwise generate revenue for an organization, the sales force is the front line with customers and critical to the overall success of the business.

The process of developing a sales force compensation plan includes the following:

• Review organizational goals
• Establish strategies for success
• Determine sales objectives
• Detail the Actions/Tactics required
• Assess results on a regular basis
• Calculate rewards to recognize results

Concurrent with the design steps above, we provide assistance in determining the appropriate target compensation level for each member of the sales force. This is accomplished with market analysis and identification of competitive pay practices among other organizations.

Our ability to objectively assess what other organizations are doing and apply that to your organization will assist in identifying the right mix of fixed and variable pay as well as the most appropriate performance objectives to achieve organization objectives.

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Survey Consulting

Total Compensation Solutions specializes in the design and conduct of custom surveys for industry groups, trade associations and individual organizations. We complete numerous custom surveys each year in consultation with steering committees that specify the design, coverage and timing of these projects. We provide third-party objectivity and guidance throughout the process and we plan each step of the survey in consultation with prospective participants.

Our survey project planning model includes the following steps:

• Convene survey steering committee meeting
• Establish data elements to be surveyed
• Research prospective participants
• Facilitate survey job match meeting
• Design survey instrument
• Distribute data input documents
• Promote survey via phone, fax, mail and email
• Compile data and screen for accuracy
• Analyze data and perform statistical tests
• Develop survey report
• Present findings in report

Surveys have become the foundation of successful human resources consulting and typically drive a project by providing the external analysis needed for clients to make critical pay decisions.

Our surveys are typically commissioned by:

• An individual company or organization
• An informal group of companies
• An industry trade association and/or
• A professional member association.

Total Compensation Solutions also sponsors its own surveys to address specific human resources issues such as:

• Executive compensation
• Board of Directors Compensation,
• Not-for-profit sector compensation;
• Salary adjustment budgets,
• Nursing home industry compensation,
• Financial services/insurance industry compensation,
• Publishing industry compensation,
• Other human resources issues

We also prepare customized cuts of data from our client-sponsored surveys to meet more stringent client needs and trends.

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Board of Directors Compensation

The compensation paid to Directors is one of the most timely issues confronting companies today. Recent events in the business world, the attention of both Federal and state legislators and the requirement that Directors fulfill their fiduciary responsibilities to shareholders and other stakeholders of an organization has made this a very hot topic.

Our database includes information on a variety of Board characteristics including:

• Size of Board of Directors
• Retainers paid for regular Board service
• Fees paid for Committee work
• Term for Directors
• Alternative pay strategies for Board members
• Perquisites offered to Board members.

The variety of pay elements used for Directors, their qualifications for the job and other pay and benefits issues have become relevant to the discussion of Board of Director’s pay. In the current environment, we strongly encourage our clients to review Board compensation levels at a minimum every 3 years to ensure the appropriateness of current practice.

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Executive Deferred Compensation

Tax legislation, new government regulations and increasing shareholder awareness over the past twenty years have made retirement planning for executives a moderately difficult topic for consideration. Traditional retirement benefits have been eroded by government regulation and companies now seek to endow their senior executives with non-qualified benefits that replace some of the lost retirement benefits.

Whether through a defined contribution or a defined benefit retirement plan, employers now find it necessary to offer non-qualified plans as a means of attracting and retaining key employees. These non-qualified benefits create new benefit opportunities. They are an essential part of the total rewards system for senior executives and have become an integral part of the total compensation package.

There are three types of plans that fall into the broad category of Executive Deferred Compensation can take many forms both qualified and nonqualified:

Excess or Restoration plans that restore only those benefits limited by the government. Some of these limits imposed by the IRS for 2006 include:

• 401(k) or 403(b) elective deferral = $15,000
• 457(b) non-qualified deferred limit = $15,000
• Defined benefit plan maximum pension = $175,000
• Defined contribution plan maximum addition = $44,000
• Qualified plan annual compensation limit = $220,000

Voluntary deferred compensation plan that allow executives to defer portions of their overall compensation package including:

• Bonus or Incentive plan payments
• Long-term cash compensation payments and/or
• Other Cash compensation

Supplemental Executive Retirement Plans (SERP) that offer a competitive retirement package for mid-career executives that have relatively fewer years in the company’s retirement plan.

In a robust economy, deferred compensation allows executives to maintain their standard of living after retirement on a tax effective basis. Deferred compensation also allows executives to mitigate the negative effects of the economy after their retirement.

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