Executive remuneration has never been under more scrutiny
Between shareholder expectations, media attention, regulatory oversight and internal equity concerns, HR leaders now sit at the centre of a delicate balancing act: paying enough to attract and retain top talent, without overpaying, misaligning incentives, or damaging the organisation’s social licence to operate.
In conversation with HRD, Mark Phillips, partner and executive reward specialist at Mercer, walked through how to think about executive pay design in a way that is competitive, defensible, and aligned with long‑term value creation.
Reward versus remuneration: Start with the right lens
Before you structure the package, clarify the scope. There are two key lenses:
- Remuneration: The cash and incentive components – base salary, short‑term incentives (STI) and long‑term incentives (LTI).
- Reward: A broader concept that includes remuneration plus benefits, learning and career opportunities, and the overall employee value proposition.
For executives, HR typically focuses on the remuneration structure but should never lose sight of the broader total reward story.
That context matters because an executive may accept a lower cash package if the broader reward offering – purpose, flexibility, development, reputation, equity upside – is strong.
The core building blocks of executive pay
Across most industries and organisation types, executive remuneration tends to be built from four main components:
- Fixed remuneration (base salary): The foundation on which everything else sits
- Short‑term incentive (STI): Typically, an annual bonus linked to achievement of one-year goals
- Long‑term incentive (LTI): Alignment over three to five years
- Benefits and perquisites: This could include insurance, vehicle allowances, financial advice or planning support, club memberships, enhanced leave, relocation assistance, or mobility benefits
These support the overall reward proposition, but they should be framed and governed as part of a coherent philosophy – not as ad hoc sweeteners.
How creative should you get?
Phillips noted that sometimes, HR leaders look for “creative” ways to differentiate their executive offer – quarterly bonuses, novated leases, or unusual perks.
“Executive remuneration is one of those quite finely tuned disciplines in that whilst, on one hand, we would like to perhaps be competitive… on the other hand, we don’t want to be too creative,” Phillips said.
“We don’t want to be too different to the market and to be seen as having arrangements which are not competitive, fair, and reasonable.”
His central message: be careful.
For listed companies in particular, executive pay is:
- Highly visible: Disclosed in detailed remuneration reports
- Voted on annually: Through the remuneration report vote at the AGM, with the risk of “strikes” if shareholders are unhappy
- Scrutinised by proxy advisors, media, and the public
That means you want enough differentiation to attract and retain talent, but not so much creativity that your arrangements look too much out of the ordinary, overly generous, or detached from performance.
In practice, most organisations Innovate “around the edges,” Phillips said. They also usually stay within broad market norms – in terms of both structure and overall ranges.
For unlisted companies, private equity‑backed businesses, and some mid‑market organisations, there is often more flexibility – but the same principles of competitiveness, affordability, alignment, and defensibility still apply.
The five fundamentals of executive pay
Across industries and ownership structures, some principles come up repeatedly. For HR and reward leaders, these are the non‑negotiables, explained Phillips.
- Market benchmarking and positioning
- Balance of fixed, short‑term and long‑term
- Alignment and cascade through the leadership chain
- Governance, judgment, and defensibility
- Fairness and pay equity
Putting it all together: HR’s role
For senior HR and reward leaders, designing executive pay is as much art as science.
The science is data, benchmarking, market norms, modelling different scenarios, and ensuring regulatory and disclosure compliance.
The art is all about judgment about what is affordable, what truly motivates your leadership team, what aligns with your values and strategy, and what will be acceptable to shareholders, employees, and the broader community.
The practical challenge is to build a clear structure, underpinned by solid benchmarking and a defined market position, backed by strong governance, discretion, and a commitment to fairness.
Get that right, and executive pay becomes a powerful lever for strategy and performance – and, critically, one you can confidently explain and defend when the questions inevitably come.
