Who do you benchmark for comp?
A simple way to understand what's really going on
Who do you benchmark for compensation?
I’m asking this question a lot lately, and the answers can be surprising. Some real examples from the past couple weeks:
An aerospace manufacturer who benchmarks to software startups
A gaming studio who benchmarks to oil & gas giants
An auto technology company that benchmarks to social networks
These answers can be slightly annoying to the uninitiated, like new members of my sales team. You’re a semiconductor company and you’re telling me Intel, Applied Materials, and TSMC aren’t awesome comparators?
How does your company make money?
I consulted at Mercer in my 20s, and although I was based out of San Francisco, I did a lot of work with a partner in Houston because the energy industry was experiencing a boom cycle.
He was smart, and tough.
We collaborated on several HR strategy projects, which included interviewing the CEO, CFO and other executives to establish a blueprint.
He always opened the interviews with the same question:
How does your company make money?
The question’s simplicity is deceptive — its answers reveal everything there is to know about the company:
The go-to-market model, including the risky bits
What makes the company special compared to everyone else
The org structure and must-not-lose talent
The big bets that have to work
I learned to ask that question when doing M&A, too. When diligence gets too fast and overwhelming, just focus there. It’s a great rule of thumb.
(By the way — if you can’t find your job description in the answer to that question, you may have lost the plot line.)
Your benchmarking peers
“Who do you benchmark for compensation?” reminds me of that question. The answers tell you what’s really going on.
Exec peer groups are just one type of benchmarking group (more on that in another post), but they illustrate the point.
For example, look at Apple’s peer group:
The traditional big tech companies - Cisco, Oracle, Alphabet - are perhaps obvious. But Disney and Netflix underscore the importance of its streaming services like Apple Music and Apple+. Visa’s inclusion suggests a focus on Apple Pay, and Intel and Qualcomm the importance of Apple’s new silicon chips.
The secondary peer group is quite interesting too — the proxy statement describes this list as a group of “premier companies that have iconic brands.” Hmm.
So — can you guess what the aerospace manufacturer, gaming studio, and auto-tech companies are up to, based on their benchmarks? 🤔
Share your guesses in the comments.
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