Executive compensation benchmarking: best practices

• Salary benchmarking provides the data-driven foundation for setting competitive, defensible executive pay aligned to market realities and business strategy.
• Effective executive compensation structures balance fixed pay, short- and long-term incentives, and executive benefits to drive performance and retention.
• A robust compensation strategy combines benchmarking data, governance oversight, and specialist HR consulting services to mitigate risk and support sustainable growth.

In today’s climate where salary is the number one reason workers leave roles, benchmarking executive and leadership compensation is key. Organisations across all sectors need to ensure that their C-suite employees are receiving salaries in line with organisational goals and local averages, while also remaining competitive.

Decisions about executive pay influence shareholder confidence as well as employee trust. What employees at the highest level are paid should show their work is valued, without undermining the work and salaries of those ranking below them by being vastly disproportionate.

Salary benchmarking is also very important for leadership retention. When poor decisions are made around executive remuneration, leaders may choose to seek greater compensation elsewhere. When leadership roles are vacated, this can damage morale throughout the company, and create an unstable, unreliable environment for workers – putting the company’s reputation at risk.

When these salaries are carefully benchmarked, they drive performance across the board, plus strengthen succession planning.

What does compensation benchmarking at executive level involve?

Salary benchmarking at executive level involves comparing total reward against a clearly defined market. This includes not only base salary, but also total direct compensation, long-term incentives, pension contributions, executive benefits, and exit provisions.

The purpose is not simply to match the market median, but to determine the appropriate positioning for the organisation based on size, complexity, sector, geography, and performance expectations.

For more information, visit our Ultimate guide to salary benchmarking.

How to benchmark executive and leadership compensation

Define peer group to benchmark against

The first step is defining an appropriate peer group. The scope of responsibility, reporting lines, international exposure, and revenue accountability all shape the true extent of a role. A chief executive leading a global group with multi-jurisdictional operations cannot be benchmarked solely against a domestic, mid-sized business.

Industry, turnover, profitability, ownership structure, and organisational complexity should all inform the selection of comparator companies. A credible peer group ensures that benchmarking outcomes are defensible to boards, remuneration committees, and shareholders.

Consider total remuneration package

Once a comparator group is established, attention should turn to total compensation rather than base salary alone. Base pay provides stability and reflects role scope and experience, but it is often only one element of executive reward.

Annual incentives are typically linked to financial, operational, or strategic targets and can represent a significant proportion of total earnings. Long-term incentive plans, often structured around share awards or performance-based equity, are designed to align leadership interests with sustainable value creation over several years. In private companies, equity participation or growth share arrangements may provide similar alignment.

Executive benefits also form part of the wider package. These may include enhanced pension contributions, private medical insurance, life assurance, relocation assistance, tax equalisation for internationally mobile leaders and tailored wellbeing support. Although benefits may represent a smaller proportion of overall value than incentives, they can play a decisive role in attracting and retaining senior talent, particularly in competitive or international markets.

Consider your strategy

When benchmarking salaries, businesses must consider how reward structures align with their organisational priorities. If the business is in a growth phase, greater weight may be placed on performance and long-term incentives.

In a mature, stable organisation, reward may lean more heavily towards predictable earnings with moderate variable components. During periods of transformation or turnaround, higher levels of performance leverage may be required to incentivise delivery against ambitious change objectives.

For more information, visit our article, What do employees want from remuneration?

Keep governance top of mind

In addition to strategy alignment, governance considerations are central to executive pay design. Transparency, accountability, and documentation are critical. Remuneration committees should review benchmarking data independently and ensure that pay decisions are supported by clear performance criteria.

Clawback and malus provisions are increasingly common to safeguard against misconduct or financial restatement. In some jurisdictions, shareholder advisory votes on remuneration policy further heighten the importance of a defensible and well evidenced approach.

Benefits of benchmarking for high level roles

Ensure equity across borders

If your business operates overseas, international operations add further complexity. Currency fluctuations, tax treatment, cost-of-living variations, and local regulatory requirements must all be factored into benchmarking decisions.

Globally mobile executives may require tax equalisation arrangements, mobility allowances, and international healthcare support. These factors can significantly influence total reward and must be considered holistically rather than in isolation. Specialist HR consulting services can provide valuable guidance in navigating cross-border compliance and market data interpretation.

Support DE&I

While external competitiveness is essential, internal equity should not be overlooked. Executive compensation sits within the broader organisational reward framework. Excessive disparities between senior leaders and the wider workforce can create cultural tension and reputational risk.

Not to mention, salary benchmarking will highlight local inequalities in your country of hire, such as gender and race pay gaps, allowing you to make decisions to combat these gaps. Benchmarking outcomes should be reviewed alongside internal pay structures, succession planning pipelines, and diversity metrics to ensure coherence with the organisation’s overall reward philosophy.

Common pitfalls when salary benchmarking

There are several common pitfalls in salary benchmarking. Relying on outdated or anecdotal data can distort outcomes. Selecting aspirational peer groups that do not accurately reflect the organisation’s scale or complexity may artificially inflate pay expectations.

Focusing exclusively on median pay without considering performance leverage can weaken incentive alignment. Ignoring the long-term cost of equity dilution or failing to consider regulatory disclosure requirements can create downstream risk. Executive compensation should be reviewed regularly, particularly following acquisitions or changes in market conditions.

How Mauve Group can help

With 30 years in global HR and hiring, our team has international expertise gained from first-hand experience. They know a thoughtful compensation strategy balances fixed and variable elements, rewards sustainable performance, and reflects the organisation’s risk appetite and growth ambitions.

So, contact us and find out how our Salary Benchmarking service can support your company, no matter where you are.

FAQs

1. What is salary benchmarking and why is it important for executives?

Salary benchmarking compares executive compensation against relevant market data to ensure competitiveness, fairness, and alignment with business strategy.

2. How often should executive compensation be benchmarked?

Most organisations review executive pay annually, with deeper structural reviews every two to three years or following major strategic changes.

3. What should be included in executive salary benchmarking?

Benchmarking should assess total direct compensation, including base salary, short- and long-term incentives, equity participation, executive benefits, and severance arrangements.