Executive Compensation: Data-Driven Negotiation
Across industries and roles, candidates are in high demand. An employee’s market means job seekers have a healthy measure of control over the job search process and are not afraid to negotiate their compensation based on the skills they bring to the table. This is especially true in the extremely competitive C-level job market.
Recruiters are increasingly turning to data-driven recruiting strategies for insight as they seek to maximize hiring outcomes. But how does a business know if their executive-level comp strategy hits the sweet spot and they are truly paying for the value of the hire? A data-driven approach answers that question, but first, let’s take a look at some executive compensation basics.
Executive comp structure
Senior-level compensation packages are quite different from the standard salary and benefits offered to candidates for mid- or entry-level roles. Yes, salary is part of the package, but there are nearly always other incentives offered based on business growth, profitability, and performance.
Executive comp continues to be a touchy subject, as companies have come under fire for paying out executive packages far exceeding that of the “typical worker,” so smart recruiters and businesses should take a cautious and thoughtful approach.
Executive compensation usually consists of:
- Base salary. Typically decided by an executive committee, salary — which varies greatly across industries — is established by measuring a candidate’s specific qualifications and market value.
- Short-Term Incentives (STIs). Based on achieving short-term goals, these incentives might include growing the business, increasing profitability, or developing and launching new products. The executive is paid out for reaching or exceeding their established goals.
- Long-Term Incentives (LTIs). The most significant part of executive compensation, LTIs are generally stock-based and paid out at the end of a performance period. LTIs can come in the form of cash or equity.
- Employee benefits. Not unique to executive comp but often negotiated, benefits include things such as health insurance, life insurance, paid vacation and holidays, workers’ compensation, Social Security, and Medicare.
- Rarely available to other company employees, executive perquisites (or “perks”) might include parking privileges, access to the company private plane or hired driver, or even company-provided security at home or work.
- Severance packages. Executives expect severance details to be shared prior to accepting a position. A robust severance package is often useful in enticing candidates who are on the fence about leaving their current position.
Designing a comp package
When designing an executive compensation package, consider four main factors: fixed versus variable; short- versus long-term; cash versus equity; and individual versus group.
- Fixed vs. variable is the process of identifying the right combination of base salary, STIs, and LTIs.
- Short- vs. long-term involves not only identifying incentive targets, but determining when they are paid out (e.g., awarded in the performance year or deferred to a future period).
- Cash vs. equity is typically specific to LTIs, as these constitute the most significant portion of executive compensation. A business must decide their comfort level with cash and/or business equity payouts.
- Individual vs. group means determining if executive performance measures should be based on individual performance, the performance of the entire company or division, or a combination of the two.
A data-driven approach
Data-driven recruiting is immensely powerful in acquiring top-notch talent, especially in the ultracompetitive executive recruiting market.
Capturing and analyzing data helps recruiters identify trends, such as which candidates are entering the pipeline and when. It allows them to source higher-quality candidates by capturing more meaningful information such as candidates’ skills, experience, certifications, and more. The data also helps support and manage candidate expectations and leads to more meaningful conversations, engaging job seekers from day one.
Many of today’s candidates, regardless of position or title, look at an organization’s diversity, equity, and inclusion (DEI) strategy. Executive recruiters should include this information in their data methodology, helping clients improve DEI in the hiring process and make informed decisions about potential new hires
Most importantly, data is useful in establishing a solid and thoughtful executive compensation strategy. A successful executive recruiting agency understands the value of analysis and provides clients with actionable data around trends in salary, STIs, LTIs, benefits, and perks, ensuring their hiring decisions are rooted in an intelligent and equitable approach that’s fair to both the candidate and their business alike.