Partners and generalizations in compensation communication

A quick one in today’s Sunday Skills. I have already written about the importance of using the right words when communicating compensation matters, and a recent post at HRzone made me react.

The post covers news from Deloitte about the backlash against excessive executive compensation and how about half of senior executives in the UK did not get a pay increase this year.

One section in particular held my attention :

Stephen Cahill, a Deloitte partner, said that the bonus element was “the part of the package where there is still work to be done. Any pay-out in excess of half the maximum should be the result of better than ‘good’ performance”.

(Emphasis is mine).

Do you see what is wrong with this statement ?

As a Compensation professional I am shocked to read that a PARTNER at Deloitte would make this comment.

Think about it : this sentence assumes that in all companies a target bonus should be set at half of the maximum opportunity.

This is really wrong, because your reward schemes must be adapted to the company specifics – not based on what all the others are doing.

The corollary of the consultant’s comment is that all companies would have the same acceleration curve for performance above expectations (because maximum payout is assumed to always be twice the target).

Sometimes a company sets very stretching goals and the maximum opportunity is not that much higher than the target because the organisation does not want to accelerate payment for over-performance that much, especially if there is difficulty to assess performance quantitatively (for example in start-up situations).

So it makes me angry to see that, as of writing this post, 570 people have read a statement which is based on a set of assumptions. A generalization which, if read by any CFO or anyone who has a basic understanding of statistics and /or incentives design, will reduce the credibility of the compensation consulting industry.

Does anyone ever challenge these bigwigs at large consulting firms when they make incorrect statements like that ?

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Comments

  1. Hey Sandrine — go for it! I get upset when I see supposedly “experts” making gaffes like this. Call them on it. They charge $300-400 per hour. If I were a client I would want to get the best advice for that price! Do it!!

    • Hi Jacque, that’s exactly what I will do with my consultancy – real, customised advice that won’t be copy and paste like the generic stuff that the big firms provide in the region 🙂

  2. Tom Raftery says:

    Need to be careful here and look at the context. We need to understaand what they mean by ‘good’ and ‘better than good’ If achieving you target is seen as good performance and there is a big stretch on the bonus range then the above statement may not be so outlandish. I do agree that what you have quoted is confusing.

    Also all executive pay consultants have to take some responsibility for the growth in excessive pay packages, they have been told by CEO’s to put a good package together and the consultanst are only willing to oblige. Where is ethics with executive pay consultants?

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