brand equity, candidate sourcing, compensation, employee brand, employer brand, executive compensation, executive pay, hr, human resources, pay, peer benchmarking, Recruiting, sourcing, talent acquisition, total shareholder return, TSR
Executive Vice President of HRU Technical Resources (and blogger) Tim Sackett recently wrote an imaginative post on what it would be like if superstar professional talents were recruited by companies in the same way that top college programs recruit superstar athletes.
It’s a really good post (I encourage you to read the whole thing at the link above), but essentially Sackett points out that there is very little differentiation between companies competing in the same industries as it concerns wages, benefits and work. Companies don’t differentiate themselves from one another throughout the recruitment process even though talent at the top levels will generate millions of dollars in revenue for their respective companies in the same way top athletes do for their schools.
Sooo… I like this idea in theory.
In practice the reason that something like this isn’t happening already is because the market for the sort of executive that can make a huge impact on the bottom line of a mid+ cap company (the size at which recruitment efforts would theoretically approach D1 levels of lavishness) is very small. A truly gifted executive at a mid+ cap company can often make millions upon millions of dollars for his or her employer based on individual performance alone, but on the other hand his/her skill set is often so highly specialized that the number of employers to which he/she could “jump ship” is fairly limited.
For example: A business unit president at a big cap food & beverages manufacturing firm has highly specialized knowledge about his or her industry shared by only a small, elite group of executives. But as there are also only a small number of companies that operate in that space, even though the executive may have a highly coveted skill-set the market for it is not particularly large (only a few companies exist that are large enough to 1. This varies by executive role – a CFO (typically) has higher skill transfer-ability than an Operations SVP, for instance.pay him or her more money if he/she decides to test the market). 1
Consequently, the modern day market for compensating executives is one in which a small number of companies market price their top talent against one another in a “peer-bench-marking” process. This has the practical effect of gradually “ratcheting up” pay for executives since every 2. The logic being if an executive is below average then he or she should not be retained, and if the executive is average or better he or she should be paid accordingly.company pays at median or higher for their executive talent. 2
In essence, an ever rising market floor exist for executive pay with the top of the market essentially capped by Total Shareholder Return (TSR). Without going into too many details here, when the stock market goes up the upper limit of executive pay tends to go with it, and when times are 3. For those that want to know more I would recommend reading “Executive Pay At a Turning Point” by Ira T. Kay, Managing Partner at Pay Governance LLC. I’ll also talk at greater length on executive pay in a later post.tough (and the market declines) then executive pay shifts accordingly. 3
There are some very powerful institutional factors in play here that will prevent the peer group system from going away anytime soon (for the comp nerds reading this blog I’ve included a video on executive pay that touches on this subject in detail below):
With that said, I love the idea of companies making a dedicated, college recruiting style, red carpet effort to entice non-c-suite level employees to jump ship. Unfortunately, outside of the executive level an employee rarely impacts the P&L at a significant enough level to justify the sort of costs Tim describes in his post.
There are a lot of great ways to attract talent without the use of monetary 4. You can find these links in archived blog post I’ve referenced, but Steve Boese and Hunter Walk both have some great ideas on attracting external talent.incentives, however, as I’ve talked about in the past. 4
Good discussion all around, and one that no doubt warrants even deeper analysis at a later date.
Share your thoughts below.
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