Compensation Strategy for Iconic Brands

Posted by Chris Kelley on Dec 14, 2017 4:55:55 PM

WHAT DIFFERENTIATES PAY PROGRAMS OF THE MARKET LEADERS

It takes a lot for a company to develop a high-profile brand. Usually, it’s years in the making and requires products with innovative features, high quality, top-notch customer service and operational excellence. These companies tend to also have high-performance leadership teams….after all, it’s hard to stay on top if you’re caught up in the swirl of bad management practices. But what is it about their compensation programs that makes them stand out from the rest?

Each year, we analyze the total compensation packages of companies that Forbes, Brandz and others recognize as top brands.  We compare the pay levels and plan designs that these companies submit to our Total Compensation Measurement® (TCM) survey to the submissions we receive from a control group of companies having similar size and industry composition. This comparative analysis is referred to as our Iconic Brands Report and it is available as part of the TCM suite.

What continues to be clear from our analysis is that iconic branded companies tend to use their compensation programs differently from the rest.  These companies strategically use compensation to reinforce their brand position in the marketplace. Here are some of the highlights from the 2017 Iconic Brands Report.

Iconic companies set targeted total compensation above the median of the market

Consistently over the past three years, we have seen a noticeable difference in the practice of providing an ‘above market’ opportunity to employees who can deliver performance that meets or exceeds expectations.

Above Market Compensation Philosophy for Iconic Brand Companies

The take-away from this observation is that iconic brand companies seem to be more willing to commit greater expense, but given their stature in the market, they may see this as a worthwhile investment to make sure they have the right talent in place to continue their dominance in the market.

Iconic companies tend to use a more aggressive compensation strategy as it relates to the use of variable pay

The average percent of salaried exempt population that is eligible for short-term incentives continues to be higher for the iconic brand companies, though the gap is starting to close. That’s not surprising given the other pieces we’ve written about variable compensation / short-term incentive pay:

What Percent of Employees are Eligible for Short Term Incentives

When done well, incentive plans can be an effective way to drive higher performance and engage more of the workforce. The fact that iconic brand companies still have a higher percentage of their workforce eligible for short-term incentives suggests that they may have figured out how to design compensation plans that help achieve and sustain iconic brand status.

Total compensation correlation to market capitalization

When doing market pricing analysis, we will most commonly use sales/revenue as the independent variable for any regression analysis. For the Iconic Brands Report though, we also compare total compensation to market capitalization (Market Cap).  There were two interesting observations.

  • The correlation when using market cap is stronger (meaning it is a better predictor of pay) as compared to when we used sales/revenue,
  • The strength of the correlation for the iconic brands groups is also consistently higher than the other companies.

This suggests that value of the brand is reflected in the stock price and can have material impact on the realizable pay being delivered to executives through equity-based compensation plans.

The full report covers much more ground in comparing the pay strategy of iconic brand companies to the comparator group. Each company will have their own story for how they have been able to build the power behind their brand, but based on the evidence we see from the Iconic Brands Report, it seems that they are also using a compensation strategy that is different than the masses to help maintain their market leadership position. Contact us to learn more about how you can access the results of this year’s Iconic Brands Report.

 

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Topics: Executive Compensation

Chris Kelley

Posted by Chris Kelley