Learn the key first steps HR managers should take to ensure their company’s executive compensation practices are fair, including analyzing objectives, incentives, and company history.
Table of Contents
Question
Recently, HR has received complaints about the fairness of the CEO’s compensation. Which should the HR manager do first to ensure that the executive compensation practices of the company are fair?
A. Determine which objectives are being used to evaluate executives.
B. Identify the rewards being offered to incentivize long-term goals.
C. Analyze the company culture and compensation structure history.
D. Confirm the plan is balanced with long-term and short-term incentives.
Answer
C. Analyze the company culture and compensation structure history.
Explanation
To ensure the executive compensation practices are fair, the HR manager should first analyze the company culture and compensation structure history (Option C).
Conducting a thorough analysis of the historical context and evolution of the company’s compensation practices will provide critical background information. This includes understanding:
- The company’s overall compensation philosophy and approach
- How executive compensation has been determined in the past
- Rationale behind past compensation decisions
- Cultural norms and values around pay
Having this foundational knowledge of the company’s unique context is essential before diving into the details of the current executive compensation plan. It will help the HR manager identify potential legacy issues, understand employee perceptions, and frame the compensation practices within the company’s broader narrative.
Only after establishing this historical and cultural baseline should the HR manager then move on to evaluating the specific components of the executive compensation plan, such as performance objectives, short-term vs. long-term incentives, types of rewards offered, etc. The insights gained from initially analyzing the company’s compensation history will enable the HR manager to more effectively identify gaps and areas for improvement in the current practices to ensure they are fair and aligned with the organization’s principles.
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