Compensation for Business Leaders

Salary Surveys

Survey Data

To perform market pricing, one needs reliable survey data, and sampling surveys have traditionally filled this role. This data can be obtained from both general national executive and managerial salary surveys or industry-specific surveys.

Examples of firms that offer compensation data products:

• ERI Economic Research Institute
• Korn Ferry
• Aon
• Culpepper
• Segal
• Willis Towers Watson
• Mercer

Specialized Survey Data and its Advantages

Many professional and industry associations conduct and distribute managerial salary surveys. The advantage of these industry surveys is that they provide information on jobs commonly found in organizations within a specific industry or profession. For instance, banking surveys provide information on jobs such as loan officer and branch manager. Also, these surveys may provide information on salaries for the overall sample. Plus, they use major breakdowns, such as geographical regions and organization size.

Disadvantage of Survey Data

A problem with some data is the sample size. If the sample is subdivided, the number of positions included can become quite small. This makes the data of limited use. Sample size and the reported rate of error (if it is reported) are key to judging the potential validity of the data reported.

"Census" Data

Example

ERI has leveraged publicly disclosed Executive data to make it available as a 100% census-like compensation research database rather than a salary survey (where surveys have a sample of a population). Two examples are:

• ERI’s Executive Compensation Assessor
• ERI’s Nonprofit Comparables Assessor

ERI's Executive Compensation Assessor® (XA) compares reasonable pay ranges for over 1,900 executive positions in 1,100 industries and more than 9,500 locations worldwide. It utilizes a vast database with proxy disclosed compensation data for over 40,000 executives and board members at more than 5,500 U.S. companies, 2,000 Canadian companies and over 1,200 UK and EU companies. The XA has tools for total compensation planning.

The Nonprofit Comparables Assessor (CA) focuses on “comparables” and “reasonable compensation” for nonprofits. The CA has data for 55 executive positions within 600 industry sectors.

Peer Groups

When relying on surveys, organizations need to make sure that their supporting data contains enterprises and jobs that are comparable. Courts have held that peer groups must be comparable. For example, in Eberl's Claim Service v. Commissioner, 249 F.3d 994 (10th Cir. 2001) the Tenth Circuit rejected a comparison between the companies listed in the Forbes survey, the largest companies in the country, and a taxpayer's relatively small nonpublic company. For executive market pricing, companies use "comparables" data with the exact payments of a peer organization. Surveys often list their participants, but they often do not specifically identify who pays what. In executive benchmarking, the comparable companies are listed with the data being transparent versus the standard survey where the data sources may not be revealed.

A peer group of 15-20 companies is typically considered to be an ideal number for executive compensation. A peer group is commonly selected based on similar industry, competition for talent, revenue, or market capitalization. Executive compensation can be inflated if companies in the peer group used for top management compensation decisions are too large.