As business continues to evolve, so does executive compensation. A 2014 survey by benefits research firm Aon Hewitt showed that changes in approach anddesign in the past five years have stabilized into a new normal for CEO pay.
Jack Moran, a partner at Aon Hewitt who leads the executive compensation practice in the southeast region, outlined the following highlights from the study.
Pay for performance:Companies are much more focused on compensating executives based on the work they’ve done, rather than a set figure. Companies tend to be more proactive in their search to align pay with organizational goals by cutting compensation when something goes wrong.
Shareholder advisory firms: To be more proactive, shareholder advisory firms are more influential in deciding on how much the CEO is compensated. Although their presence in the conversation could be seen as a push for a one-size-fits-all approach, advisory firms’ input is still important to the conversation, Moran said.
To be sure, talent management professionals still have a voice — even if they have to fight for it. Talent management is responsible for making sure the decision-makers understand what is needed from a succession planning standpoint, Moran said, as well as making sure pay plans align with company culture, development and goals.
Balanced program design:The past five to six years also saw a significant change in how CEOs receive compensation. Traditionally, executive pay was dominated by stock options.Now, there’s a far more balanced approach in terms of stocks,restricted shares and performance plans.
When the stock market plummeted in 2008, it wiped a lot of value from executive pay because so much was based on holdings. The new method looks to safeguard against another crash.
“The big key point is balance, and that’s what we’ve gotten to,” Moran said. “Companies are not straying from that approach. That’s a great place for the U.S. markets to have landed.”