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How can you ensure transparency in executive pay packages?

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Executive pay packages are often complex and controversial, especially when they seem to be disconnected from the performance and value of the company. As a shareholder, employee, or stakeholder, you may want to know how much and how executives are paid, and whether their compensation aligns with the interests of the organization and its stakeholders. In this article, you will learn how to ensure transparency in executive pay packages, and what to look for when assessing them.

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Chris Haslam

Co-Founder & Talent Advisor, MOVE | Your On-demand Talent Team
Anita Lettink

Future of Work Speaker | Payroll & HR Tech Advisor | Pay Transparency | Author | Linkedin Top Voice

1 Why transparency matters

Transparency in executive pay packages is important for several reasons. First, it helps to avoid excessive or unjustified pay that can harm the reputation and morale of the company, and erode the trust and confidence of the investors and the public. Second, it helps to ensure that the pay is linked to the performance and value creation of the company, and that the executives are incentivized to pursue the long-term goals and vision of the organization. Third, it helps to comply with the legal and regulatory requirements that mandate disclosure and reporting of executive compensation.

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Anita Lettink

Future of Work Speaker | Payroll & HR Tech Advisor | Pay Transparency | Author | Linkedin Top Voice
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Employees understand very well that executives are paid more because of their position and responsibilities. It's when the gap becomes too wide, that the questions start. Why should anyone make in a day what the majority of the company earns in a year? This becomes an issue when workforce pay increases are small, but the leaders never seem to feel the results of corporate underperformance in their pay. If you want to establish a culture of trust, as an executive, set the example. Allocate a larger portion of the budget to lower paid ranks. Instead of percentages, use absolute amounts. And when no one gets an increase, you don't accept one either. And that includes options and stocks!

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Chris Haslam

Co-Founder & Talent Advisor, MOVE | Your On-demand Talent Team
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Be careful about defining all execs with one brush here. In larger firms yes they're paid more but in a startup, they're often on little to no pay. I think this is why transparency is key early so that you build with the right habbits.

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2 How to achieve transparency

There are several ways to achieve transparency in executive pay packages, depending on the role and perspective of the person seeking it. For example, as a shareholder, you can exercise your voting rights and participate in the annual general meeting, where you can ask questions and voice your opinions on the executive pay proposals and policies. You can also access the proxy statements and other public documents that disclose the details and rationale of the executive pay packages. As an employee, you can communicate with your human resources department or your union representative, and request more information and clarity on how the executive pay is determined and justified. You can also use benchmarking tools and surveys to compare the executive pay with the industry standards and best practices.

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Chris Haslam

Co-Founder & Talent Advisor, MOVE | Your On-demand Talent Team
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Achieve pay transparency for company executives by defining your pay philosophy, creating a clear and transparent pay structure, getting buy-in from executives and employees, communicating effectively, and monitoring and reviewing the policy regularly.

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3 What to look for

When assessing executive pay packages, there are several factors and components that should be taken into account to evaluate their fairness and effectiveness. The pay mix should reflect the risk and responsibility of the executive role, and align the pay with the performance and value of the company. Performance measures should be relevant, measurable, and challenging, and should reflect the strategic objectives of the company. The pay ratio indicates the level of pay disparity and equity within the company, taking into account size, complexity, industry, and employee skills. Finally, there should be a governance and oversight process with an independent compensation committee, a clear compensation policy, and regular communication with stakeholders.

Executive pay packages not only involve numbers but also values and ethics. Transparency in executive pay packages can help enhance accountability and credibility of executives and companies alike, fostering a culture of trust and engagement. How do you feel about executive pay packages in your company or industry? Are they transparent, fair, and effective?

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Anita Lettink

Future of Work Speaker | Payroll & HR Tech Advisor | Pay Transparency | Author | Linkedin Top Voice
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A compensation philosophy details how the company looks at compensation and performance. It should also detail the scope: does this pertain to the whole workforce, or are executive exempt? And in the era of pay transparency, should you keep executive compensation a secret? New pay transparency directives do not make an exception for anyone. And while you don't have to disclose every individual's salary, the time to think about your pay structures is now: when you have to disclose it in a few years, what message will it communicate to your employees? Can you confidently explain the pay differences? Especially if you are in Europe, you have less than three years to fix it. Don't wait too long.

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4 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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How can you ensure transparency in executive pay packages?

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1 Why transparency matters

2 How to achieve transparency

3 What to look for

4 Here’s what else to consider

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How can you ensure transparency in executive pay packages?

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1 Why transparency matters

2 How to achieve transparency

3 What to look for

4 Here’s what else to consider

Salary Negotiations

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