1. “Executives are entrepreneurs and should be rewarded as such…”
Executives make a trade – their experience, knowledge, networks and time in return for money. As a group, they tend not to put their own money at risk – their risk is framed in terms of career choice and reputation. They can always walk away without the bank repossessing their house.
Entrepreneurs dance to the beat of a different drum – they see the risk as not taking the opportunity and want to feel in control of their own destiny.
For those who work in an entrepreneur owned business – a word of advice – entrepreneurs find it hard to understand the preoccupations of the executive – and often want to reward the individual in a high-risk, high reward package because that’s what would motivate them. It can be helpful for the HR director and non-exec directors to remind the entrepreneur/owner of the difference in world-view.
2. “Share-plans align executives and shareholders”
Mainly wrong – executives primarily see shares as a mechanism for paying them more money – often in an attractively tax-free wrapped vehicle. They tend to sell the shares as soon as they can. The long-term element of pay can be expensive – often employees will discount the value of long-term pay by as much as 50%, which makes it a costly investment for the business.
3. “You have to pay upper quartile pay to get upper quartile performance”
It depends – but there is lots of evidence that employees will take a job they really want, and feel is aligned to their values for a lower package. The arts, sport and the charitable sector rely on the ‘other’ elements of the employee deal to create a buzz and pay employees less than the going rate. How can you create an inspirational and compelling story around your business to make people want to work for you?
4. “Executives always want more money”
Weirdly they don’t. They value pay relativity more highly. PWC asked executives if they would rather take a job on more money: – £180,000, and be the lowest paid member of the team, or less money:- £165,000 and be paid the highest in the team. A majority voted for less money but being relatively higher paid than their peers.
5. “You should always pay ‘the going rate’”
Well again – no. Pay benchmarking is a really useful backdrop, and input into your decision-making, but in the final reckoning, the Remuneration Committee and CEO must make the decision about how much to pay someone. Maybe less, maybe more, but don’t be lazy and just go for the median, unless there’s a good, thought-out reason, of course.
