Executive Compensation in ESOP Companies

Sharing Equity with Key Employees in ESOP Companies
Compensating ESOP Company Executives in the New Regulatory and Accounting Environment
The 2009 NCEO Executive Compensation Survey
Using Competitive Compensation Studies at ESOP Companies
Fiduciary Issues for ESOP Trustees Regarding Executive Compensation
Thoughts on Compensating ESOP Company Executives

From Chapter 3, "The 2009 NCEO Executive Compensation Survey"

Table 3-13 looks at the compensation of executives in ESOP companies versus a comprehensive sample of executives from the economy as a whole. It shows the comparison for all companies and also a breakdown for smaller and larger companies (those with up to 100 or more than 100 employees).

The comparison data are from 2008 Compensation Data, a publication of the company CompData Surveys. The data are from over 1,000 companies across the country and are a good representation of the overall economy.

In order to make the NCEO and CompData results comparable, the following table makes four changes from the methods used in other parts of this chapter. First, we use averages instead of medians or quartiles. Second, because averages are far more sensitive to outlying data than medians, we have eliminated the two companies with compensation out of line with the rest of the NCEO database. Third, to be compatible with CompData, this table uses "total cash compensation," which is base pay plus cash incentive pay. In the rest of this chapter we use the NCEO's definition of total compensation, which is base pay, plus cash incentive pay, plus deferred compensation awarded in the most recent year, plus stock-based compensation awarded in the most recent year. Fourth, we omit the executive "top divisional vice president," which does not have an equivalent in the CompData survey.

From Chapter 4, "Using Competitive Compensation Studies at ESOP Companies"

For the most part, ESOP-owned companies are no different than other employers who have the desire to assess the competitiveness of their management compensation programs. It is important for any employer that undertakes a competitive compensation study to understand that the study is only the starting point in determining pay levels. Other factors must be considered, such as the employee's experience, institutional knowledge, leadership skills, tenure, industry experience, marketing skills, and job performance, along with the perceived risk that the employee may leave the company and the associated replacement costs. The employer must also consider its own competitive and marketplace circumstances.

ESOP-owned companies do have some unique considerations. To begin with, the employer maintains an ESOP. In many cases, the annual ESOP benefit provided to employees may be well above market for retirement plan benefits. We are often asked whether the ESOP should be included in the LTI analysis for management compensation. Our answer is an emphatic negative. The ESOP is clearly a retirement plan and should be treated as such and not included as part of the LTI or any other part of the compensation analysis. Having said this, the ESOP benefit is clearly a factor that an ESOP employer should consider in setting its compensation philosophy and determining the appropriate level of competitive compensation.