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EXECUTIVE COMPENSATION PROGRAMS FOR ALL STAKEHOLDERS

fair · mission-oriented · competitive · compelling

Executive compensation practices are under fire from the public, shareholders, the government and the media. Sometimes complaints relate to a perception that the money paid to executives should be spent elsewhere – toward the services the organization provides, to reduce prices, or perhaps paid to other employees. There are often very practical responses to these criticisms, but it is more difficult to respond to a very fundamental complaint – “it’s just too much.”

Justifiable

Merces believes that executive compensation programs, like any other business policies or decisions, should be established and maintained for the betterment of the organization and its mission. Most executive compensation practices used today, particularly among small employers, are not inherently flawed and would not be termed “excessive.” However, executive compensation suffers from a perception problem, and our view is that the best way to correct the perception problem is to create a program that is truly justifiable.

 

New regulations limit compensation or require disclosure of information. Shareholders have been given new rights and board members have new responsibilities. Compensation paid to contractors of the federal government, for example, is now limited, as is compensation to recipients of grants from the government and private organizations. All of these are intended to curb abuse, but too often the zeal to control perceived abuse ends up causing more problems than it solves.

Compelling

In the private sector, most executive compensation programs are designed to be competitive. Some owners might seek the best way to maximize compensation in order to reduce the impacts of double taxation in the “C” corporation environment. Other organizations might wish to pay more reasonable compensation to non-owner executives to maximize profits.

Family-owned businesses face additional challenges, as family members with various levels of involvement in company operations must feel they are compensated fairly. Professional services firms have to balance the need to provide competitive pay with the fees they can charge. They must also ensure that the benefits of firm ownership overcome the added stress of membership.

Transparent

Among non-profits, where compensation is disclosed and generally available to the public, the issues are more complex. However, the same principles can be applied to satisfy virtually any audience or constituency, in the for-profit or not-for-profit environment. These “best practice” programs include:

  • Philosophy – A board or owner approved “compensation philosophy”
  • Oversight – An independent “compensation committee”
  • Objectives – Meaningful job descriptions and formal performance objectives
  • Value – Pay ranges based on the internal value of jobs and credible market data
  • Review – A timely and transparent pay review process
  • Wisdom – Use of an independent compensation consultant

Meaningful

Merces’ approach begins with the simple question: What are you trying to achieve? Our program designs are tied to your mission and values, the value of each job to your organization, the competitive environment and the very real concerns of your organization’s constituencies (owners, employees, customers, regulators, media).

A Merces-designed executive compensation program will stand up to scrutiny because it will be fair and competitive, well documented, and appropriate to the situation. Merces consultants have experience in the for-profit and not-for-profit sectors, in both the privately-held and publicly-traded environments, in most every industry. Merces is able to design and optimize executive compensation programs that deliver value and withstand scrutiny.

Merces consultants are qualified to act as independent compensation consultants for not-for-profit organizations as well as publicly-traded companies.

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