How to Benchmark a CEO’s Salary

Benchmarking a CEO’s salary is not as simple as finding a few companies with the same job title and comparing what their CEOs earn.

The title is identical in almost every organisation, but the jobs can be completely different.

A CEO running a $100 million business is not directly comparable with a CEO running a $5 billion listed company. The same applies to a founder-led growth business, a mature industrial company and a highly regulated financial-services organisation.

The quality of CEO benchmarking therefore depends on how carefully the comparison group is built.

Start with the size of the business

Company size is one of the most important factors in CEO remuneration.

Useful measures include:

• revenue
• market capitalisation
• enterprise value
• number of employees
• geographic footprint
• operating complexity

For an ASX-listed company, market capitalisation and revenue are often particularly useful starting points.

Suppose your company has:

Revenue of $900 million

Market capitalisation of $750 million

1,800 employees

Australian operations with some activity in New Zealand

You would normally avoid comparing the CEO directly with companies worth $10 billion unless there was a very strong reason to do so.

A practical starting point might be to identify businesses within a reasonable size range and then refine the group further.

Build a sensible peer group

The peer group should include companies that are broadly comparable in scale and complexity.

Look at:

• market capitalisation
• revenue
• industry
• workforce size
• business model
• geography
• growth stage

For example, a company with an $800 million market capitalisation might initially look at businesses between roughly $400 million and $1.6 billion, then remove companies that are clearly not comparable.

The exact range does not need to be mathematically perfect.

The objective is to create a group that reasonably reflects the market for the CEO role.

Do not make industry the only filter

Industry matters, but it should not always dominate the analysis.

A CEO may be recruited from another sector if the role requires general leadership, capital management, transformation or growth experience.

A very narrow industry peer group can also produce a small and unreliable sample.

For many companies, the strongest approach is to use:

a core peer group of close industry comparators

plus

a broader group of similarly sized companies.

This gives a better sense of whether the remuneration outcome is being driven by industry or by company size.

Benchmark more than fixed salary

CEO remuneration should not be assessed using fixed remuneration alone.

At minimum, compare:

This matters because two CEOs can have very different remuneration structures.

CEO A may receive:

Fixed remuneration: $900,000

Target STI: 75%

LTI: 100%

CEO B may receive:

Fixed remuneration: $1.1 million

Target STI: 50%

LTI: 50%

CEO B has the higher fixed salary, but CEO A may have the higher total opportunity.

Looking only at salary can therefore give a misleading result.

Use remuneration reports carefully

For ASX-listed companies, remuneration reports are one of the most useful public sources.

You can extract:

fixed remuneration

STI opportunity

STI outcome

LTI opportunity

LTI structure

and changes to remuneration.

The difficulty is making sure you compare the same measure across companies.

Do not compare one CEO’s statutory remuneration expense with another CEO’s target remuneration.

Share-based payment accounting can distort the statutory figure, particularly where several historical equity grants are being expensed at the same time.

Where possible, compare each company on a consistent basis.

Create a simple peer table

A practical CEO benchmarking table might look like this:

These numbers are illustrative, but the table makes the comparison easy to understand.

It also shows whether your CEO is positioned differently because of fixed salary, STI, LTI or the total package.

Calculate the market position

Once you have enough reliable observations, calculate the median and, where useful, the 25th and 75th percentiles.

For example:

You can then compare the CEO’s package with the market.

If fixed remuneration is $800,000, the CEO may sit slightly below the median.

If target total remuneration is $2.2 million, the overall package may be close to P50.

That is a much more useful conclusion than simply saying the CEO’s salary is below market.

Decide where you actually want to pay

Benchmarking should inform the remuneration decision rather than make it automatically.

The Board may decide that the company wants:

fixed remuneration around P50

target total remuneration around P50

and stronger upside for exceptional performance.

Another company may deliberately position fixed remuneration below market but provide a larger performance opportunity.

The appropriate position depends on the company’s remuneration philosophy and the strength of the executive market.

Consider the CEO’s experience separately

The market benchmark values the role.

You then need to consider the individual.

A newly appointed CEO with limited listed-company experience may reasonably sit below the median.

A highly experienced CEO with a strong track record, significant shareholder responsibilities and deep sector experience may sit above it.

The benchmark provides context, but it should not be treated as an entitlement to P50.

Review internal relativities

It is also useful to compare the CEO with the rest of the executive team.

Suppose:

CEO fixed remuneration: $850,000

CFO: $600,000

COO: $575,000

Chief People Officer: $430,000

The differences may be appropriate, but the Board should understand them.

If the CEO is paid three times more than every other executive in fixed remuneration, there should be a clear reason.

Internal relativities are particularly useful where external data is limited.

Avoid building a peer group that guarantees a higher result

This is one of the biggest risks in CEO benchmarking.

If the peer group is changed every year to include larger and higher-paying companies, the market benchmark will naturally keep moving upwards.

The peer group should be agreed before the remuneration outcome is known.

For a listed company, the Remuneration Committee should be comfortable that the selected companies represent a genuine executive talent market rather than simply supporting a desired pay increase.

Use more than one source

For an important CEO remuneration decision, relying on a single source is usually not enough.

A robust exercise might combine:

published ASX remuneration reports

a reputable executive remuneration survey

and relevant recruitment or market evidence.

If all three sources point to a similar range, the conclusion is more defensible.

If they differ materially, investigate why before making a recommendation.

The difference may be caused by company size, peer selection, job complexity or inconsistent remuneration definitions.

Present the recommendation clearly

The final Board or Remuneration Committee paper should be easy to understand.

For example:

The CEO’s fixed remuneration is approximately 5% below the median of the selected peer group and broadly aligned with external survey data. Target STI is consistent with market practice, while the LTI opportunity is slightly below the peer median. Overall target remuneration is estimated to sit between P40 and P50 of the relevant market.

Then explain what you recommend.

You may decide no change is required.

You may recommend a modest increase to fixed remuneration.

You may conclude that the issue is actually the LTI opportunity rather than salary.

The benchmarking should support the decision, not predetermine it.

The practical takeaway

A good CEO salary benchmarking exercise should answer four questions clearly.

Is the peer group genuinely comparable?

Are we comparing the same remuneration components?

Where does the CEO sit relative to the market?

And is that position appropriate given the company’s remuneration philosophy and the CEO’s experience?

The most common mistake is treating CEO benchmarking as a title comparison.

It is not.

The real work is selecting the right peer group, normalising the remuneration data and understanding the difference between fixed salary and total remuneration.

Once those parts are done properly, the final decision becomes much easier to explain to the Board and, for listed companies, to shareholders.