How to Salary Benchmark KMP: A Practical Guide for ASX-Listed Companies

Salary benchmarking for Key Management Personnel, or KMP, is one of those exercises that sounds technical but is actually deeply human. Done well, it helps a company attract and retain the leaders it needs, gives the board confidence that pay decisions are defensible, and shows shareholders that remuneration is linked to performance and long-term value. Done poorly, it becomes a spreadsheet ritual: a few peer companies, a median number, a quick uplift, and a remuneration report that invites uncomfortable questions at the AGM.

For ASX-listed companies, KMP benchmarking is not just about “what does the market pay?” It is about answering a sharper question:

What should we pay this person, in this role, at this company, at this stage of growth, for the performance we expect, in a way shareholders will understand and support?

That is the difference between benchmarking as data collection and benchmarking as governance.

Start with the purpose, not the data

The first mistake companies make is jumping straight into market data. They ask, “What is the median CEO salary for companies like us?” before asking, “What are we trying to solve?”

A good KMP benchmarking exercise should begin with a clear purpose. For example:

Are we hiring a new CEO or CFO? Are we worried our executive pay is falling behind the market? Are we preparing for the remuneration report? Are we redesigning STI or LTI arrangements? Are we responding to shareholder or proxy adviser feedback? Are we trying to retain a critical executive through a transformation, merger, turnaround or growth phase?

Each purpose requires a different benchmarking lens.

If the company is recruiting externally, market competitiveness may carry more weight. If the company is facing shareholder sensitivity after weak performance, restraint and pay-for-performance alignment may be more important. If the company has recently moved from small cap to mid cap, the board may need to reassess whether legacy remuneration settings still fit the scale and complexity of the business.

The practical point is simple: do not benchmark in a vacuum. Benchmark against the business problem.

Define who is actually KMP

Before comparing pay, be clear on who is being benchmarked. KMP are the people with authority and responsibility for planning, directing and controlling the activities of the company. In an ASX-listed environment, this usually includes executive directors, the CEO, CFO and other senior executives who have real strategic influence.

But titles can mislead. A “Chief Growth Officer” in one company may be a true enterprise leader. In another, the role may be closer to a divisional sales leader. A “COO” in a mining services company may oversee complex national operations, safety, capital equipment and thousands of employees. A “COO” in a software company may have a very different scope.

For benchmarking, role scope matters more than title.

A practical role profile should capture:

Role title, reporting line, business unit or enterprise-wide accountability, revenue or cost base influenced, number of employees led, geographic complexity, strategic importance, regulatory or safety exposure, decision rights, and whether the role is a true KMP role or a senior executive role below KMP level.

Without this step, the benchmark can be technically “market-based” and still wrong.

Build a peer group that would survive scrutiny

Peer group selection is where many benchmarking exercises become fragile. A company can unintentionally, or conveniently, select peers that justify the answer it already wanted. Shareholders, proxy advisers and experienced directors can usually spot this.

A strong peer group should be explainable in one paragraph.

For ASX-listed companies, the peer group should usually consider:

Market capitalisation. This is often the starting point because it reflects scale, investor expectations and market complexity. A common approach is to select companies within a reasonable range around the company’s market cap, such as 0.5x to 2x, though this should be adjusted for sector and volatility.

Revenue and enterprise value. Market cap alone can be distorted, especially for early-stage resources, biotech, technology and high-growth companies. Revenue, assets, funds under management, production volume or enterprise value may be more meaningful depending on the sector.

Industry and operating model. A retail CEO, mining CEO, financial services CEO and SaaS CEO may all lead ASX-listed companies, but the talent market and performance levers are very different.

Company lifecycle. A pre-revenue exploration company, a founder-led growth company, a mature dividend-paying industrial and a turnaround situation should not be benchmarked as though they face the same executive talent challenge.

Complexity. International operations, regulatory exposure, safety risk, capital intensity, workforce size and M&A activity can all justify differences in remuneration.

A practical peer group often has two layers:

First, a primary peer group of companies most similar in scale, sector and complexity.

Second, a talent market reference group that reflects where the company actually recruits from and loses executives to. For example, an ASX-listed technology company may need to look beyond local ASX peers if its executives are being recruited by global technology firms or private equity-backed companies.

The board should be able to explain why each peer is included. If the only reason is “they pay more,” it probably should not be in the peer group.

Benchmark the whole package, not just fixed pay

KMP remuneration is not one number. It is a package.

The key components usually include:

Fixed remuneration, short-term incentives, long-term incentives, equity grants, superannuation, sign-on arrangements, retention awards, termination provisions, minimum shareholding requirements and other benefits.

A common benchmarking mistake is to focus too heavily on fixed remuneration because it is easy to compare. But for KMP, the real question is often total reward and pay mix.

Two executives may both have fixed pay of $800,000. One may have an STI opportunity of 50% of fixed pay and an LTI opportunity of 75%. Another may have an STI opportunity of 100% and an LTI opportunity of 150%. Those are very different remuneration propositions.

Boards should benchmark at least four views:

Fixed remuneration. Is base pay competitive and appropriate for role scope?

Target total remuneration. What does the executive receive if expected performance is achieved?

Maximum total remuneration. What is possible if stretch performance is achieved?

Realised or actual remuneration. What did executives actually receive after performance outcomes, vesting and share price movement?

For ASX-listed companies, this distinction matters because shareholders are not only looking at opportunity. They are looking at outcomes. If the company underperforms but executives still receive strong rewards, the benchmarking exercise will not protect the board from criticism.

Choose the right market position

Many companies default to “pay at median.” It sounds balanced and defensible. But median is not a strategy.

The right market position depends on the company’s circumstances.

A company may choose to position fixed remuneration around the median but provide upper-quartile total reward for exceptional performance. Another may pay above median fixed remuneration because it is recruiting a scarce executive into a complex turnaround role. A mature company with stable leadership may target median or slightly below median fixed pay, with strong alignment through equity.

The board should decide its remuneration positioning deliberately:

Do we want to lead, match or lag the market? For which roles? For which components of pay? Under what performance conditions? How does this align with shareholder returns, risk appetite and culture?

A practical framework is:

Median for competence. Upper quartile for exceptional performance. Clear downside when performance disappoints.

That philosophy is easy for shareholders to understand. It also prevents benchmarking from becoming a one-way ratchet where pay only ever moves up.

Adjust for role scope and individual context

Benchmarking gives a market range, not an answer. The final recommendation should adjust for the person and the role.

Consider:

Experience, tenure, internal succession versus external hire, proven performance, scarcity of skill set, flight risk, readiness, breadth of accountability, founder status, transformation requirements and whether the person is operating at full role scope.

For example, a newly promoted internal CFO may appropriately start below the market median, with a pathway to median as they prove themselves. A highly experienced CFO hired to lead refinancing, acquisitions and investor confidence after a difficult period may justify a premium.

This is where boards should be careful. “Retention risk” is often used as a vague justification for higher pay. A better approach is to document the evidence: recent approaches, scarcity of comparable executives, criticality to strategy, succession depth and the cost of replacement.

Good benchmarking is not mechanical. It combines data, judgement and evidence.

Do not ignore internal relativities

KMP benchmarking often focuses externally, but internal relativities can be just as important.

If the CEO receives a large increase, what does that imply for the CFO, COO or divisional heads? If a newly hired executive is paid significantly more than a long-serving peer, is the difference justified by scope, market scarcity or performance? If KMP pay is increasing faster than the broader workforce, can the board explain why?

ASX-listed companies operate in a public environment. Remuneration decisions can affect culture, employee trust and external reputation. Internal relativities do not mean every executive must be paid similarly. They mean the differences should make sense.

A practical test is:

Could we explain this pay difference to the affected executives, to employees, and to shareholders without relying on vague language?

If not, the rationale needs work.

Link benchmarking to performance, not entitlement

The most credible KMP remuneration frameworks use benchmarking to set opportunity, then use performance to determine outcomes.

That means the company may benchmark STI and LTI opportunities against market practice, but vesting should depend on performance that is genuinely aligned with strategy and shareholder value.

For ASX-listed companies, this often includes a combination of financial, strategic and shareholder measures, such as earnings, cash flow, return on capital, relative TSR, safety, customer outcomes, project delivery, sustainability milestones or transformation goals.

The exact measures will vary. The important point is that the incentive framework should answer three questions:

What performance are we paying for? Why does that performance matter to shareholders? How difficult is it to achieve?

Avoid incentive structures that pay executives for simply doing the job. Avoid soft targets that are impossible to explain. Avoid too many measures, because complexity weakens accountability.

A simple, well-explained framework usually beats an elegant but unreadable one.

Watch for the “benchmarking ratchet”

One of the biggest problems in executive pay is the ratchet effect. Every company wants to pay at or above median. Over time, the median moves up, even if performance does not.

Boards can reduce this risk by applying discipline:

Do not increase pay just because the benchmark moved. Ask whether the role changed, the company changed, the executive’s performance changed or the retention risk changed.

Use ranges, not single-point numbers. A benchmark that says the market median is $900,000 does not mean the correct salary is $900,000. A range of $800,000 to $1 million may be more useful.

Consider whether the data is affected by outliers, one-off grants, founder arrangements, sign-on awards or unusual company circumstances.

Most importantly, separate market movement from performance reward. Fixed pay should not become the place where performance is rewarded year after year. That is what incentives are for.

Prepare for disclosure from the beginning

For ASX-listed companies, benchmarking should be done with disclosure in mind. The remuneration report should not be an afterthought written months later by people trying to reverse-engineer the board’s reasoning.

The board should document:

Why benchmarking was undertaken, who was benchmarked, what peer group was used, why those peers were selected, what remuneration components were compared, what market positioning was chosen, what judgement was applied, and how the final decision aligns with company performance and shareholder interests.

This does not mean every detail must be disclosed publicly. But if the reasoning is not clear internally, it will be difficult to explain externally.

A strong remuneration report tells a coherent story:

This is our strategy. These are the executives accountable for delivering it. This is how we pay them. This is why the opportunity is competitive. These are the performance conditions. This is what happened during the year. This is why the outcomes are fair.

That story matters, especially in an environment where shareholders can vote against the remuneration report.

A practical step-by-step process

Here is a simple process boards and remuneration committees can use.

Step 1: Define the decision

Be specific. Are you setting pay for a new appointment, reviewing annual remuneration, redesigning incentives, preparing disclosure, or responding to investor feedback?

Write the decision down before looking at data.

Step 2: Confirm the KMP population

Identify which roles are KMP and why. Check whether role scope has changed during the year.

Step 3: Build role profiles

For each KMP role, document responsibilities, reporting line, financial accountability, operational complexity, strategic importance, people leadership and risk exposure.

Step 4: Select peer groups

Create a primary ASX peer group based on size, sector and complexity. Create a secondary talent market group if needed. Remove companies that cannot be justified.

Step 5: Collect and normalise data

Compare fixed pay, STI, LTI, target total remuneration, maximum total remuneration and actual outcomes. Adjust for part-year appointments, one-off grants and unusual arrangements.

Step 6: Analyse positioning

Look at where each KMP sits versus market. Do not rely only on median. Consider quartiles, ranges and trends.

Step 7: Apply judgement

Adjust for performance, tenure, experience, succession risk, scarcity, internal relativities and company circumstances.

Step 8: Test against performance

Ask whether proposed pay outcomes make sense in light of company performance, shareholder returns, employee experience and risk outcomes.

Step 9: Stress-test the narrative

Before approving the recommendation, ask: how would this look in the remuneration report? How would proxy advisers interpret it? How would a major shareholder react? How would employees react if it became a headline?

Step 10: Document the rationale

Keep a clear record of the data, peer group, judgement and decision. Good documentation is a governance asset.

Common mistakes to avoid

The most common mistake is selecting peers that are too large or too generous. This creates an inflated benchmark and a weak governance story.

Another mistake is benchmarking title rather than role scope. A CFO, COO or Chief People Officer can vary significantly across companies.

A third mistake is treating market median as an automatic entitlement. Benchmarking should inform decisions, not replace judgement.

A fourth mistake is ignoring actual pay outcomes. Shareholders care about what executives actually receive, not just theoretical opportunity.

A fifth mistake is failing to connect pay to performance. A beautifully benchmarked package can still fail if the company cannot explain why the outcome was earned.

The boardroom questions that matter

Before approving KMP remuneration, directors should ask:

Would we make the same decision if this were published on the front page tomorrow?

Can we explain why these peers are the right peers?

Are we rewarding performance, retention or simply market movement?

Does the package encourage the right behaviour?

Is the balance between fixed pay, STI and LTI appropriate?

Have we considered the employee and shareholder lens?

Are there any one-off awards that need stronger justification?

Would the remuneration report tell a clear and credible story?

If the answer to any of these questions is uncomfortable, the recommendation probably needs more work.

Final thought: benchmarking is a compass, not a steering wheel

KMP salary benchmarking is essential, but it should not drive the company by itself. Data can show what others pay. It cannot decide what your company should value, what behaviours it should reward, what risks it should avoid, or what story it should tell shareholders.

For ASX-listed companies, the best remuneration decisions sit at the intersection of market data, business strategy, performance outcomes and governance judgement.

A strong benchmark answers the market question.

A strong board answers the harder question:

Is this the right pay for this executive, in this company, at this time, for the value we expect them to create?