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Balancing Competitive Executive Reward

Creating and balancing competitive executive reward is one of the trickiest feats. You can't do without it, and you find it difficult to justify - in fact it can affect your business capacity to recruit and retain, if you make even simple mistakes. This article takes a look at why, during designing executive compensation and reward, businesses need to look at competitors, and where they are handicapped by competitive compensation.

Why you need to watch executive compensation and reward programs of your competitors

Competitors are going to poach your high-performers and approach them even before they decide to leave, and if they decide to leave, they will most likely go to your competitors. It's perfectly ordinary to wake up in the morning and find your vice president has become the president of a competing company which is performing poorly.

So, employers and organizations need to keep an eye on the executive compensation and reward programs of your competitors and design their own. This is one of the major keys to remaining competitive in a market where good performers are truly scarce.

Your problem increases with business growth. The better your company performs, the more your best people are going to be targeted by headhunters, and the more the market for executives is going to get inflated.

To remain truly competitive in retention, you need to understand that companies which are competitors for your customers and companies which are competitors for your executives may be different.

Usually competitors for your executives would be companies in the same market space but who are performing poorly. For them the quick way out is to hire your star performers, without giving a thought to the fact that while talent is portable, performance is not, especially where performance depends upon unique environmental support provided by an organization.

Though poorly performing competitors in your market segment will be the first to poach your executives, there is no more any limit to the industry from where an executive may be recruited where skill sets are transferrable. The only thing you can do is try to understand the economics of the industry, and the position of your firm in it. Companies with similar positions are all competitors for your executives.

You cannot afford to copy the executive compensation and reward patterns of your competitors

Competitors form one of the biggest environmental factors in deciding executive pay and rewards. However, one of the biggest mistakes that happen in organizations is to copy patterns from the executive compensation programs of your competitors. Too often we find decision makers playing safe and copying the compensation patterns of industry leaders or competitors. This leads to unseen risks.

By doing just what the other guy is doing, you fail to differentiate your compensation program from that of your competitors. While you may claim to be as good, you can never claim to be different. And that makes it easier to poach your executives.

Creating competitive executive compensation programs do not mean copying patterns from competitors, but creating programs that take into consideration, both the unique needs of your business, as well as the unique talents of individuals. Individuals are not equal. Placing unequal individuals in default slabs of compensation and reward packages reduces fairness, and reduces your ability to retain executives or be truly competitive. Reward dollars are scarce resource and should be used with intelligence and with their best use - copying the rewards patterns of competitors often do not suffice.