More than ever, women are achieving outstanding levels of professional success. Whether CEOs, board members, entrepreneurs, or high performers, women are a game-changing force in the global economy. But women want and need to be paid appropriately for their contributionsno matter what rung of the ladder they're on. There has never been a stronger focus on women's pay than now, from politicians to activists to corporate America. Rise to the Top is written from the inside perspective of a leading female executive-compensation advisor who understands how pay is determined and rewards and benefits are granted in corporate America.
Rise to the Top:
Whatever your level of accomplishment or position, Rise to the Top will help you earn what you deserve!
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About the Author
Stacey Hawley founded Credo, a compensation and talent management firm, in 2011. Stacey is a recognized speaker, writer, and expert in compensation and talent management. Her passion for women's compensation bloomed while spending 14 years at premier global human resources consulting firm in its world-renowned executive compensation practice, advising Fortune 500, private, public, pre-IPO, and nonprofit firms. Stacey's expertise has been cited in publications and resources such as Money magazine, MSN Careers, CareerBuilder, the Chicago Tribune, and LinkedIn. She is a frequent contributor to Forbes, BusinessInsider.com, LearnVest, Working Mother, and The Glass Hammer.
Read an Excerpt
What Is Compensation?
When I entered the compensation consulting world in 1996, I understood very little about executive compensation. I was a newborn; a baby in the consulting world. Based on a single three-credit course I took at Cornell, I believed "compensation" meant base salary structures determined by a points system. In the course, we researched step systems, in which increases are based on tenure rather than performance (for example, everyone gets a 3 percent increase every year no matter what), and studied the assignment of points to jobs. These points determined base salary levels within an organization: the more points a job earned, the higher its pay level. Our professor discussed pay increases based on tenure (for example, in a union environment), and focused entirely on internally based structures.
It was all so ... systematic.
Post-graduation, I accepted a role as a compensation analyst for Towers Perrin (now Towers Watson). In today's language, Towers Watson is one of the Big 3 HR consulting firms, along with Aon/Hewitt and Mercer. At the time I joined Towers Perrin (TP), bigger was better because of TP's extensive experience (both technical and consulting). Clients wanted to know what other clients you advised that were just like them, and a larger client base meant access: access to knowledge, access to information, access to data, and access to exciting, challenging, and complex projects. When I first received the job offer, I discussed Towers with my compensation professor. She relayed the firm's reputation: "Towers is where you go to get trained. It is not where you make a career."
I made a career.
Of course, I had no idea who Towers really was relative to its peers or industry. I didn't comprehend what being a compensation consultant meant either. (The following chapter explains compensation consulting in depth, which can help you to better understand how your company has arrived at its current compensation philosophy.) I was just overjoyed to have a job offer at a firm I believed was reputable in a role that would provide me a sound basis for starting a career.
My first real life lesson: Compensation is fascinating.
My second real life lesson: Compensation is very personal.
My third real life lesson: My Cornell course barely scratched the surface.
Compensation — especially executive compensation — encompasses an entire rewards package, including base salary, annual incentives, long-term incentives (such as stock options and/or restricted stock), deferred compensation, supplemental benefits, supplemental retirement plans, severance, and other perks. In my opinion, the level of these awards should be market-and performance-driven rather than internally determined. Once I started working for Towers, I realized the Cornell course taught a system based on internal job valuation, whereas Towers promoted an external, or market-driven approach.
When I first joined Towers, the line of business, or practice, focused simply on compensation. I became skilled at developing competitive market rates for all types of jobs, at all levels within an organization. I designed salary structures as well as incentive plans. A few years later, the specialized executive compensation practice became a separate group within the broader performance management line of business. The lines of business changed regularly; the firm constantly rethought how to deliver services. But at the end of the day, compensation was compensation. How we analyzed data, designed programs, or partnered with clients never changed.
What Is Executive Compensation?
Executive compensation is not a dirty phrase — although it certainly feels like it. It does not mean excessive pay, egregious salaries, or wealth accumulation without performance or accountability. Executive compensation should not conjure images of $14,000 shower curtains, free personal jets, or playing three rounds of golf while stock options are exercised and securelybanked in offshore accounts. Nor should images of Enron and paper shredding or Lehman Brothers' cataclysmic collapse cloud your mind. Yet, because media coverage constantly connects executive compensation to malfeasance or negligence, these images are inevitable. History recounts the following story: A company with a significant financial impact on the economy tanks. Shareholders and media target leadership (perhaps rightly so). However, in addition to targeting leadership's alleged malfeasance and inability to execute key strategic decisions, people emphasize the greed that motivated their behavior. Of course, other reasons exist, such as economic recessions, government regulation, or market competition, but regardless, the newspaper headlines tout greed.
And greed is bad.
Therefore pay must be curbed.
Once the media pronounces a supposed lack of checks and balances within a firm, government legislators insist changes must be made to prevent such corruption from reoccurring. In addition to industry legislation, Congress passes compensation legislation such as IRC Code 162(m), regarding the deductibility of compensation exceeding $1 million, and Sarbanes-Oxley, which included penalties for retrieving compensation payments awarded due to malfeasance.
The intent is to curb pay. In time, however, compensation levels inevitably increase. Fortunately, the designs of compensation philosophies — and particularly bonus plans — evolve to more properly ensure that key financial objectives are achieved before payouts are delivered, or that clawback provisions, in which the company takes back its money, are securely in place.
Executive compensation — all compensation, in fact — can and should be about transparency, accountability, and performance. If companies do not want their programs or actions splashed on the front page of the Wall Street Journal, then they shouldn't implement them.
Throughout my tenure as a consultant, I was reassured and refreshed to find individuals motivated to build a company, launch groundbreaking products, expand a business, merge with another company, or divest a product line or service. For most people, greed is good: the greed to grow and expand. The greed to develop new ideas and products. The greed to venture into new markets, new industries, or new partnerships. And the greed to generate wealth for others.
We had one client who hired us to determine how to reallocate a high portion of the CEO's pay to the employees! The CEO wanted to redistribute the wealth. The tricky part was delivering the compensation without triggering tax burdens to the CEO.
Because I began my career in New York City in the mid-1990s for companies like Prudential, Sony, and Time Warner, I envisioned executives as at least middle-aged, wearing suits and ties, and acting formal in their approach and decision-making.
My fourth real life lesson: That was not the case.
Who Are the Executives?
Executives come in all shapes and sizes. Some companies delineate several levels of executives, and others only define one or two levels of executives, with a few individuals manning each executive role. Factors such as industry and company growth stage impact who companies include in their executive pools.
I learned that not every big fish is an executive; not every big role is an executive role. Thankfully, broadbased compensation — pay programs provided to employees below the executive level — proved easier to define. Companies typically employ a few compensation reward vehicles for the majority of their employees. At the executive level, more vehicles come into play. But before defining the executive compensation program, companies must identify, or define, their executives. What is an executive? What makes an executive? Is it based on scope of responsibility, P&L responsibility, or impact or influence on company strategy?
One client, an Internet-based media subsidiary, struggled to define its identity and relevance within the broader media company. The CEO of the dot.com subsidiary was addressing the challenges of being an executive of a small subsidiary to a much larger formal conglomerate. The cultures were complete opposites. However, as a subsidiary of a privately owned, conservative conglomerate, they weren't considered executives on the company's leadership team.
In the simplest terms, executives develop and execute a company's short- and long-term strategies. If a person can materially impact performance or results, or have P&L responsibility, and has a position with significant responsibility and/or complexity, he or she is an executive. As a result, these roles are single-incumbent positions (in other words, there is only one person in that role with that title — there's one CFO, one controller, and one HR manager, as opposed to three accounts payable clerks). The people in these roles may lead departments and/or critical strategies. They may or may not directly supervise other employees. They may or may not be the most significantly compensated employees within the firm. And, as I learned throughout the course of my career, executives don't only wear three-piece suits. Furthermore, significant compensation levels or wealth accumulation does not make a person an executive. Just lucky.
I have partnered with start-up firms whose executives worked in a warehouse separated by cubicles and meeting rooms — not offices. As the company grew, the number of cubes increased, but the executives still enjoyed cubicles, wore jeans, and brought their pets to work. At another firm that went public prior to our engagement, the company maintained its startup culture with a concierge, basketball court, and cafeteria. This company was led by seasoned executives from mature organizations, brought in to propel the company forward. They stood out, until they finally exchanged their ties and blazers for button-down shirts and khakis.
Whereas some industries are male-dominated (for example, financial services and entertainment), others boast a significant female presence in the executive ranks (for example, in advertising, marketing, fashion, and healthcare). One client I worked with, a fashion house, had the same high-performing, high-stress, and high-pressure environment of any NYC investment firm. The executives there — predominantly women — preferred female consultants. When I participated in meetings at this fashion house, I felt in awe of these women — their stature, intelligence, and accomplishments.
At the opposite end of the spectrum, I once partnered with a not-for-profit organization housed in a less-than-desirable area of a city. We scheduled all meetings during daylight hours and dressed down. Way down. These executives, dressed in jeans and sneakers, pursued a noble mission helping disadvantaged youth in their area.
Not-for-profits maintain competitive compensation, similar to for-profits. However, their "executive" compensation programs must comply with the Intermediate Sanctions Section 4958 stipulation that all compensation and benefits provided to disqualified persons in a nonprofit must be reasonable. In a not-for-profit, a "disqualified person" is considered an executive. These individuals must have strategic impact over the finances or decision-making of the organization, but can also be a child of someone with this influence. More importantly, their pay must be "reasonable" (not competitive, but reasonable). In order to fulfill these IRS requirements and maintain their not-for-profit status, not-for-profit organizations engage in extremely rigorous annual reviews to ensure transparency and accountability.
Whether public or private, for-profit or not-for-profit, the executive pool must first be defined. Only after determining which positions qualify as "executives" within a company or organization can the compensation programs be identified and reviewed.
The main difference, from a compensation perspective, between executives and the broader employee population is the types of programs offered — not just the level of compensation. In other words, executive compensation comprises the awards (both compensation and benefits) allocated to executives within an individual firm or organization. The purpose of executive compensation is threefold:
1. Attract and retain the right talent.
2. Motivate behaviors and decision-making in a manner that achieves a company's short- and long-term business strategies.
3. Reward outcomes appropriately, based on performance, and ensure alignment of programs with stakeholder/shareholder interests.
So what does a "good" compensation program look like? What do you think of when you think of "compensation"? Base? Bonus? What about retirement? Do you think your program is competitive? How do you know?
The Compensation Philosophy
A comprehensive compensation program is governed by a well-articulated (Board or management approved) compensation philosophy. Companies then employ mechanisms and tools such as base salary and long-term incentives to achieve their desired compensation philosophy.
During a meeting with a female HR executive, she explained their philosophy: Provide everything at the 75th percentile. And she meanteverything — pay, health and welfare benefits, retirement, and perquisites. She must have sensed my hesitation because she continued to explain, "No one wants to work for this company. We can't even have our logo showing on our stuff." She told me the story of someone who was given a travel coffee mug with the logo. This person, although grateful, was seen tossing it in the garbage because he did not want to publicize the fact that he worked for that company.
The compensation philosophy becomes the guiding principle — the roadmap — for how pay is delivered. A compensation philosophy includes elements such as industry, market targets, peers, company size, and business objectives. A well-designed compensation philosophy will articulate who the company compares itself to (its peers) when gathering competitive market data. The competitive market data is then used to analyze its pay program.
A compensation philosophy serves the following corporate objectives:
1. Identify the organization's pay programs and total reward vehicles to be utilized.
2. Identify how the pay programs and strategies will support the company's business strategy, competitive outlook, operating objectives, and human capital needs.
3. Attract, retain, and motivate employees.
4. Define the competitive market position the company will target with regard to base pay, variable compensation (annual and long-term incentives), and benefits (health and welfare, and retirement).
A company determines (and measures) how it rewards its employees using this compensation philosophy. Should base salary be targeted at market median (50th percentile), or below market? Should annual incentives provide total cash compensation (base plus bonus) levels at or above the 75th percentile? Or should base salary target below the market 50th percentile, with annual incentives comprising a larger portion of total cash compensation in order to achieve a 75th percentile total cash (base plus bonus) positioning? Will long-term incentives be utilized? How? How does that support the philosophy? And what about benefits? Will robust benefits be used to compensate for less competitive cash compensation? These are all questions companies consider when developing their compensation philosophy.
A company with limited cash flow may opt to use equity as its main reward mechanism. Private companies with no external market for liquidating equity may reward employees with cash compensation, "phantom" long-term incentives (such as units or shares), and benefits. The current growth stage of the company and its financial solvency will greatly impact its compensation philosophy.
Public companies document their compensation philosophies, as required by the SEC, in public proxy filings. Martha Stewart Omnimedia's 2013 proxy detailed the following philosophy:
Our compensation philosophy is guided by our belief that achievement of our business goals depends on attracting and retaining executives with an appropriate combination of creative skill and managerial expertise. Our compensation program is designed to attract such executives and align their total compensation with the short- and long-term performance of the Company. The Company's compensation program is composed of base salary, annual bonus, and equity compensation.
We provide our senior executives with base salaries commensurate with their backgrounds, skill sets, and responsibilities;
We provide the opportunity to earn annual bonuses that are intended to reward our executives based on the performance of our Company and that of the executive; and
We make equity awards that vest over time in order to induce executives to remain in our employ and to align their interests with those of our other stockholders.
We have moved towards equity compensation packages based primarily on stock options and RSUs because we believe these longer-term awards better align our executives' interests with those of other stockholders.(Continues…)
Excerpted from "Rise To The Top"
Copyright © 2015 Stacey Hawley.
Excerpted by permission of Red Wheel/Weiser, LLC.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.
Table of Contents
Chapter 1 What Is Compensation? 19
Chapter 2 The Role of the Consultant 45
Chapter 3 Identify All the Players 65
Chapter 4 Female Powerhouses: The 4 Types 87
Chapter 5 Discover Your Powerhouse Personality 119
Chapter 8 Leverage Your Powerhouse Personality 129
Chapter 7 Special Situations: How to Handle a Blitz 167
Chapter 8 Ignore the Gender Gap 179
Chapter 9 Rise to the Top 201
About the Author 217