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What is one common method used by compensation committees to help set executive pay amounts?

A) Benchmarking against industry competitors
B) Relying solely on the CEO's salary expectations
C) Providing a fixed salary without performance metrics
D) Setting pay based on the company's charitable contributions

1 Answer

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Final answer:

Compensation committees commonly use benchmarking against industry competitors as a method to set executive pay amounts, ensuring competitiveness and alignment with market standards while attracting top talent.

Step-by-step explanation:

One common method used by compensation committees to help set executive pay amounts is A) Benchmarking against industry competitors. This approach involves comparing the salary, bonuses, and other forms of compensation of executives within similar industries and companies of comparable size and success. This allows the committee to ensure that their executive pay packages are competitive enough to attract and retain top talent, while also aligning with shareholder interests and market standards.

Options B), C) and D) are less common as B) would rely too heavily on the input of a potentially biased party, C) does not account for individual or company performance which is a significant aspect of modern executive compensation, and D) would tie income to philanthropic efforts rather than company performance, which is not a usual practice.

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