Why the Executive Pay and Banker Bonuses Landscape Will Be Turned Upside Down

Rocketing executive pay, bumper bonuses and golden parachutes have vexed and antagonised the public and politicians over recent years because of the spate of financial scandals that followed alongside the burgeoning wage gap between the 'ordinary worker' and their corporate counterparts.

But far from the misconception that companies, across all sectors such as banking and tech groups, seem to be out of control is terms rewarding their staff, it is far more complex than at face value assumptions.

Speaking to IBTimes UK at the CompCloud14 conference in San Francisco, Christopher Cabrera, CEO, Xactly gave us the low-down on developing trends, why companies and banks pay their senior staff comparatively big salaries and bonuses.

Xactly is a software firm that works with a range of companies of all sizes and industries to provide research and insight into optimal incentive compensation programmes, while also motivating staff through performance management.

Customers include Hyatt Hotels, Coca Cola, Twitter and Linkedin.

Q: Firstly, for those who may not know, how complex can it be to install salary structures and incentive schemes into companies?

A: They can be very complex but they don't have to be. The biggest challenge for a lot of companies is actually down to the data, which the process of pay is very dependent on. It is not uncommon that a company will be receiving data inputs from 8 to 10 different sources which, of course, add layers of complexity each time.

The other element that makes pay and incentive scheme structures complicated is the size of the people of your payroll. It's not just about calculating pay for one person or senior executive, it is about looking at whole groups of people across the organisation and then assessing performance on an individual basis and rewarding the employee on that data.

Q: Big banker bonuses are clearly a hot topic across the globe and are being widely blamed for a number of financial scandals. How toxic would you say having substantial reward schemes in place can be for business?

A: I think for executive bonuses, the problem lies in the lack of transparency over why people are awarded perceivably a lot of money. In the banking world, people become vexed when they see a person being awarded a bonus despite the group performing financially poorly or if they are laying people off across the company.

Intellectually that feels like the right opinion to have but what we don't know is what exactly is in their charter to make them receive that extra reward.

For example, their performance metric to get a bonus may be based on reducing costs by a certain amount of closing a deal in operations. We have no idea, really, what those bonuses are based on and the public want to quickly crucify executives without knowing what the employee's contract entails.

There is a giant piece of data missing and without the public knowing all the facts, opinions can get visceral very quickly.

Q: Within financial institutions, remuneration committees sign off on these big pay deals, but how independent are these groups, especially when they have such long standing relationship with the parties in question?

A: Looking at the human element to the process, these committees are faced with a challenge over the next couple of years over how they are going craft salary and incentive packages for senior staff as the market is going to change dramatically.

A lot of the people on these company and banking boards may have had a long standing and successful career in various areas but that does not make them experts in the corporate compensation field.

I have worked on a number of compensation packages for people and I do know that one mistake can be very costly. However, if boards take into account empirical data and craft packages with clear goals, it should be fine.

The good news is that the future is bright and [remuneration committees] could improve if they use data in tandem with their decisions.

Q: So do you think technology will be the key part of the process in the future for perceivably 'better' decisions over executive pay and incentive packages?

A: The beautiful thing is that you can't argue with data. It will show what empirically works and what doesn't work.

The people who decide on compensation will be held more accountable for the decisions they make as empirical data across the industry should stop people being self-selecting. As [Freakonomics co-author] Steven Levitt said, sometimes it's the most simple idea or super obvious thing that can change a landscape.

Q: We've talked about some of the pitfalls of the compensation world in banking but are there any industries that are a bit more ahead of the curve in terms of adopting more efficient and appropriate methods of compensation for staff?

A: Tech companies have embraced better ways of incentivising and rewarding staff through software because of effectively they operate in that area. But what transcends each industry is that when the company is trying to incentivise and reward everyone, from truck drivers to financiers, is that there needs to be more simplicity to the process with a clear set of goals.

Q: So what would you say are the top tips in incentivising and rewarding staff?

A: To me it is making sure you are truly connected to all your employees and so you can hone in the individual being incentivised and inspired to do better and to grow with the company.

A Gallup poll recently showed that 25% of employees are actively disengaged in their company, meaning they are unproductive, looking to leave and not happy. I am not saying that there is a panacea and this problem of stopping employees being actively disengaged will be solved but you can at least mitigate the level of those people in advance.

There needs to be more transparency in these forms of programmes.

We are in the early innings of transforming the way people are incentivised and rewarded and with richer, deeper data through the empirical data sets from Insights (Xactly's new service] the world of compensation is going to be turned upside down.

Don't forget to check out IBTimes UK for more coverage on CompCloud14 from San Francisco, California.