On March 6, the Strategic Human Resource Management (SHR) Center welcomed back alumnus Ben Burney (MBA ’08) to conduct the Center’s first ever Friday Workshop. The workshop was open to all the current SHR students, faculty, and other members of the MBA program who were interested in the topic. I was unsure of what to expect when we packed students and a few faculty members around the table in the SHR Center for a talk on executive compensation, but I was incredibly pleased with the result.
Ben Burney is a Senior Advisor and Executive Compensation Consultant for Exequity, where he works with the heads of other companies’ HR departments to determine how much Section 16 officers (the executives who oversee company policy) should be compensated, and the ways they should receive that compensation. Ben wanted to come back to his alma mater to share a bit of the knowledge he has accumulated in this area, as he knows how rare and valuable executive compensation knowledge truly is in the HR industry. He split the workshop into two sections; the first part focused on explaining the principle components of executive pay, and the second showed us the different ways in which executive compensation is disclosed.
So, how much should a CEO (and the rest of the Section 16 officers at a company) be paid? To answer that question, Ben first walked us through the basic definitions of pay, pointing out the differences between Target Pay and Actual Pay, or Realized Pay and Realizable Pay, and how those are influenced by salaries, bonuses, and long term incentives (LTIs). Ben expressed that, “the fun really begins with LTIs,” as he showed us all the LTI vehicles and how a company can use specific LTIs to align an executive’s compensation with the company’s strategy. I found it especially interesting how the maturity of the company typically dictates which LTIs are used.
Executive compensation must be disclosed in a narrative and tabular form. Ben walked us through each component of the Summary Compensation table and the Grants of Plan-Based Awards table. It was fascinating to see examples of how companies fill out these tables, and how to look up proxy statements through the SEC. Ben also spent a good chuck of time explaining the purpose of peer groups, or who a company compares themselves to. Peer groups are analyzed to determine the median pay of executives, because median pay is used to set executive compensation goals. I was intrigued by how peer groups can be manipulated to reduce or increase executive pay, and the fact that HR determines the peer group made the learning even more fun. It was cool seeing how a company uses these tables and their peer groups to justify their compensation processes.
Overall, the first Friday Workshop for the SHR Center was a huge success. The topic was captivating, and Ben did a great job of relaying all the information in just over two and a half hours. I’m looking forward to more applied learnings next year!