Executive compensation in privately owned firms is very different from incentive systems in public companies. In fact, applying typical public firm compensation approaches and practices to privately held firms can result in costly, long-lasting problems. The most basic differences between the two types of businesses include the lack of publicly traded stock as a compensation vehicle and the absence of public shareholders as stakeholders in private firms.
While the components of executive compensation systems may differ between public and private firms, the principles with which those systems may be approached are the same. I reviewed the four interrelated, overarching principles that any executive compensation strategy or design should reflect in an article published recently in the Private Directors Association’s newsletter. This excerpt is reprinted with the Association’s permission. To read the complete article, including the 10 key compensation questions private companies must address, click here.
For more on Willis Towers Watson’s Principles and Elements of Effective Executive Compensation Design, see “How are companies stacking up? Assessment framework highlights possible priorities for executive compensation,” Executive Pay Matters, December 9, 2014.
Founder of the The Delves Group, Don Delves joined Willis Towers Watson as a director in our executive compensation practice in Chicago. He leads the practice’s consulting team for closely held businesses. Email firstname.lastname@example.org or email@example.com.