When it comes to benchmarking compensation, big companies have it relatively easy. They have human resources departments, access to compensation consultants like Mercer, and the best tool built-in tool available for compensation benchmarking: on-going turnover.
Real-Time Market Intelligence
Large companies that experience on-going turnover get periodic, market based information on what skill sets and/or levels of experience are worth. If inflation has crept in because of a booming economy or a lack of a particular skill set, companies see it as it occurs and can gradually adjust their pay scales accordingly. If there’s a glut on the market, companies may cut wages but more typically, they’ll hire better for the same dollars.
What Should I Pay My VP Finance?
Small and medium sized businesses don’t (or shouldn’t) experience the same kind of turnover and may not need to go to the market for years at a time. So when they do need to recruit someone from the outside to fill an executive position like vice president of finance, they often don’t know what they really need to pay.
The default position is to use the out-going incumbent’s remuneration as the set point. However, if the company hasn’t hired for a number of years, there are two factors that can make this the wrong approach: 1) they may need to hire a different profile and 2) they may not have kept up to the market in terms of management / executive compensation.
CEOs of medium sized businesses often turn to one of the salary surveys published by the big recruitment firms. I looked at one of these surveys recently and among the dozens of levels and titles the survey reports on, on the line for companies with revenues of $50M to $100M, the survey reported a salary range for vice presidents of finance as being between $121,750 and $164,000.
Somewhat confusedly, the same survey reported that CFOs of companies of that size paid their CFOs in a range of $131,250 to $177,750.
Where’s My Sweet Spot?
If I was the CEO of a $75M manufacturer in Mississauga or a $60M hi-tech concern in Markham and I needed to hire for the top financial spot in my organization, I don’t think I would find that information all that useful. There’s a 36% differential between the reported low and the reported high end of the range – how do I decide where to peg my particular VP Finance’s salary?
It may not be scientific, but the best way to benchmark compensation for your vice president of finance or any other management / executive position in your team is anecdotal. Talk to your fellow CEOs in the same industries, specialist executive recruiters, or if you have the time and patience, post an ad on LinkedIn. While I don’t think job boards are the best way to hire executive talent, you may get lucky and in any event, the resumes you receive will give you a decent sample size to benchmark compensation.