Executive Compensation: Interpreting Numbers

by Salary.com Staff - Original publish date: January 18, 2012

Before negotiating an executive salary with a current or new employer, take some time to reflect on where your pay falls given the market data, the opportunities you face, and your current compensation.

How little is too little?
If you are making too little, assess yourself and your performance as honestly as possible. If you discover that your data is accurate, but you're underpaid - and that there are good reasons why you are underpaid - determine how to remedy it and create a plan with your current employer, or figure out what to do differently in your next post.

Perhaps it's that someone else is overpaid, not that you're underpaid. Sometimes you'll find peers who are "legacies" - that is, they are paid based on a structure, system, or position from the past and the employer has made a business decision that it is best to "grandfather" the pay for that person rather than reduce his or her pay or terminate his or her employment. Don't expect your employer to overpay you too.

If you're underpaid, negotiate by the book. Either at your next performance review, or at a special meeting, ask your company when the last time was that your position was reviewed (market-priced). Ask what market range they placed on your job, what sources they used, and the date of the data. Be sure it represented the practices for an organization in your industry, of your company size, in your geographic area. Make sure the information is current.

Compare the components of your pay to the comparable market information. Identify the discrepancies and ask what factors account for them. It could be that your company's pay philosophy is to pay at the low end of the range for base pay, but the high end for total compensation. If there is no rationale and there are no performance issues, ask for a market adjustment. If the company is not able to give you the adjustment, consider putting yourself on the market. If the company offers you a partial adjustment, ask when you'll be eligible for the rest.

Can you be paid too well?
If you're making considerably more than the market pay for a job, you may be due, or overdue, for a promotion. Or you may be at the top of the pay bracket for your current job, but not perceived to be ready for a promotion. That spells trouble.

In some situations, being highly paid makes you a potential target if there is a layoff, because companies sometimes get rid of the more expensive people when they can if those people are not the stars.

Look for ways to move up the corporate ladder. As you become more highly paid for a job, it gets more and more difficult for your employer to increase your pay. Your future increases will be larger if you move to a job that has a higher pay package - that is, build a roadmap for promotion.

If you're on the top rung, chances are you never expect to eat macaroni and cheese again. You probably pay little attention to your base pay, and much more to variable compensation. Make sure you balance short- and long-term incentives and consult a tax professional to help create the right mix. Then, expect your pay to vary according to company performance. If your company falls on hard times, attention will turn to your compensation. If everyone else's bonus drops, yours should drop by an even greater amount. To keep one top executive, a company might have to lay off hundreds of low- to mid-level employees. Under those conditions, you're under intense internal and external pressure to show you're worth it.