A long time ago in the land of Financial Bliss where money is never a problem, there was a new CEO who felt undervalued because his base pay was not at the midpoint of the salary range. This was his first CEO position and he had done a truly stellar job of getting the “problematic” credit union back in the black in only two years. Accolades went out from the board, management team, and employees. Still, the young CEO was greatly disappointed in his $48,000 salary increase, which put him at 92% of the midpoint. After all, he’d put two years into the job and achieved his goals.
The analysts were ordered to make sure the market rate was truly accurate. The board vehemently assured the CEO that he was exceeding expectations and they had nothing but great respect for their new trailblazer. “What should we do? “cried the Chairman. Some of the board said “Give him what he wants. He might leave us for a better opportunity.” Other board members said, “If we cave, we are setting a precedent and he will never be satisfied.”
So, they called in the Great Fairy Consultant who asked what their compensation philosophy was. “It’s to be competitive to the market!”, they said in unison. After looking into all the credible surveys of the land, she confirmed their established salary range was indeed accurate and a 92% compa ratio after only two years of experience is aggressive, but in alignment with excellent performance.” “But he is still not happy!” exclaimed the incoming Chairman. “It feels good to make people happy, reflected the Great Fairy Consultant, “but people whose happiness is based on always getting what they want are difficult to keep happy, even if you achieve it in the short run. Situational ethics can get you in trouble. What if the next CEO is a member of a protected class and you pay them differently for reasons that have nothing to do with their gender or class status? Discrimination could be alleged. Follow the yellow brick road to your guidelines and you will find your answer.” “Make him like us and be happy with our salary increase and bonus”, they angrily demanded. “Ok, lets have him take a bite of this beautiful red apple” replied the Great Fairy Consultant. “Will that really work?”, asked the board. “Of course not, you Sillies.” laughed the Great Fairy Consultant. “Own your compensation philosophy or change it.”
After reviewing his total cash compensation, it was noted that his short-term annual bonus was less than what an average performing CEO would be compensated and his performance scorecard required a nearly perfect performance level to get an average salary increase. They recreated his scorecard, increased his short-term bonus to be more in alignment with the market and moved the midpoint to the 60th percentile to be more competitive; still paying his base pay at 92%. “Often times it is the ambiguity of how the salary increase and bonus are determined that is the real problem,” explained the Great Fairy Consultant. The new CEO found the new plan “ moderately acceptable for the time being” and they all lived happily ever after, until the next year.