This article, written by Jim Matthewman, Richard Lamptey and James Rust, questions the validity of current CXO remuneration data. It spotlights a new global approach from The Pay Index which offers a triangulated source to provide better reliability, accessibility and customer-specific reporting.
The pressure of global geopolitics and digital competition has forced radical changes in business models and ferocious turnaround in CXO appointments, as Boards look to cope with stagnation and potential business closures. Furthermore, major corporates are also being more proactive to build more diverse Boards. This too is prompting more board moves. According to The Pay Index analyses, the global median total comp for a CEO has risen to $5.1m. But the median pay levels for CEOs and other CXOs show wide variations by country and region.
Their data suggests that if we look at a broad range of comparable businesses, a US CEO will earn 6.0 times as much in Total Compensation (excluding Retirement provision) as a UK CEO and 31.0 times as much as a ME CEO! Broadly these extensive differences are mainly the result of the significantly greater use of Company stock grants to reward top executives in the US and UK than in the Middle East.
As the pursuit of growth has led to more international operations, the hunt is on for suitable Board Members, CEOs, CFOs and other members of the C-suite. But with digitalisation and so much transformational change, more and more Boards and Remuneration Committees are looking for new sources of compensation data.
The usual data sources are provided by global renumeration advisors that have relied upon an old model of collecting a data set from a group of companies and then selling it back to the companies. This data by its very nature is restrictive in its viewpoint, regurgitating what is often direct competitor information. We believe that a significant improvement to the model would be a constantly updated pool of data from a wider variety of sources than is usually collected. While these are primarily sense checks to help gauge overall “market rates” they also reduce potential anti-competition issues.
Organisations need greater accuracy and immediacy to ensure critical talents are retained or to find new talents to fill urgent vacancies. Our talentspringboard evidence is that 25% of larger or medium-sized organisations are struggling to keep their key talent. whilst head-hunters and The Pay Index data is showing a higher global mobility for key talent – see our sections below.
Why do we struggle with our existing data sources?
If we go to head-hunters, the data for a key role such as chief technology officer can vary by up to 65%. Why is this? Is it location, company size, or a given sector and of course the cost of buying out stock and options can vary enormously? There are numerous variables, and the challenge is not just the wish list of skills and background a client may want from a new hire, but also the soft skills, and whether he / she will be a good cultural fit.
If we rely on our existing Remuneration Advisors, the reports they provide from data in their annual/periodic surveys of executive pay can be unsatisfactory because:
a) the returns for executives (other than those whose pay is legally required to be disclosed - i.e CEOs, CFOs and other top five officers) from participating companies are not necessarily either comprehensive or totally accurate as participants are wary of disclosing competitive information
b) the values of Deferred Compensation data reported, which covers deferred cash bonus and stock payments through Share options and long term incentive plans, are “Expected Values” calculated using models with a variety of assumptions
c) the samples may be limited to a few regions and lack sufficient data points in the specific target location
d) the data is often “aged” to bring it to the current date because much of the data is historical being provided as of a specific date which may be between 12 and 24 months earlier. The assumptions underlying the ageing of data can have a significant effect on its relevance.
e) the resulting client reports can take a significant time to prepare, come at significant cost and are limited in their versatility.
This can make the decision making slow and cumbersome when the need and the availability of candidates is very time sensitive.
So where are the gaps?
Executive compensation data tends to be more widely available in the USA, the UK, parts of Europe and countries like South Africa and Australia where stock markets, accounting practices and Regulatory agencies demand a high degree of transparency and the large consulting firms have well established methodologies and strong reference points.
But this is not the case in the faster growing developing markets – Eastern Europe, the Gulf States, India, parts of Africa (e.g.), Latin America and Asia. For these markets there is a lack of transparency and much of market rotates around candidate negotiation and personal contacts.
However, new research from the Korn Ferry Institute in its reports – “The Global Talent Crunch” highlights both the regions and sectors likely to suffer major talent and skill shortages in the next ten years. This is highlighted in their global map shown below:
Source: Korn Ferry Institute “The Global Talent Crunch”
Note that Latin America, Indonesia, Japan, Middle East and other Pacific Asian countries will become critical areas – this is where we have cited that Exec Rem data is weak but has become hot for individual talent movements. Hence the rise in interest their interest in The Pay Index concept.
Why is The Pay Index unique?
It is new! The Pay Index is a HRTech company established in 2018 to benchmark senior executive salaries from around the world and it is independent.
In six months, it has covered 170 countries and over 1,250 cities. The data is refreshed every 24 hours and has amassed 35,000 data profiles. It combines crowd-sourced, individual profiles, company inputs and public records.
It provides real-time, fully interactive reporting allowing users to tailor their search criteria by location, seniority, function, industry sector and gender amongst other measures.
How can these new analytics improve our Global Exec Rem insights for decision-making by Remuneration Committees, CEOs and CHROs ?
1. Have we got the right metrics for measuring size, location and job requirements? Is there a single best metric for comparing organizational size as the key baseline? if so, is it financial turnover; Net Profits; number of employees; geographic presence and scope of operations; stock market value? Or should we use two or three?
2. How can we focus on a key role in a specific location – not just region or country but city level which becomes more important as near future economies centre around China, India and the USA? For example, this screenshot from The Pay Index shows the data from 21 CFOs based in Shenzen across a variety of sectors.
3. If we are contemplating moving a key executive from London to Singapore or Jakarta how can we get up-to-date Cost-of-Living data on housing or education allowances?
The Pay Index enables a company to quickly work out how much that person would need based on the cost of living, and the exchange rate. It can then be used by the company as part of the relocation process, sharing information graphically with the key executive.
We set out to question whether the existing sources of Exec Rem data remains credible in the New Economic Order given the pace of change, notably with digitalisation and changing focus of global markets.
It is obvious that the immediacy of the internet for job search, data validity and specificity is now seriously challenges existing practice. The Pay Index proposes a new model which addresses this from an individual perspective and for corporate integrity.
Yes, this is a New Era! You can learn more about The Pay Index at https://www.thepayindex.com/. Registration is free for individual users and is confidential and secure . The Pay Index is quickly becoming the best source of Executive Remuneration Data for the new decade.
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Look out for our Next Article: Are we profiling the right talent?
With all this disruption and transformation should we be looking for a new breed of leaders? At Talentspringboard we have developed a new set of Leadership Behaviours built around a different set of values – notably Trust, Customer-centricity, Social and Ethical Authenticity and Accountability – aligned to our fast-moving digital world. In our next article we shall review the impact of Global Mobility within the Future of Work and how effective leaders create highly engaged followers.