Coming soon · Book Profile
Effective Executive Compensation Graham
A comprehensive guide for designing a truly effective executive total rewards strategy by aligning it with the unique context, strategy, and capabilities of the business, rather than defaulting to simplistic and often flawed market benchmarking.
A profile of this book is on the way.
What it’s about
This book dismantles the conventional wisdom of executive compensation, arguing that the common practice of benchmarking against competitors—dubbed the "Ratchet, Ratchet, and Bingo" approach—is a lazy and ineffective strategy that leads to a disconnect between pay and performance. Instead, it provides a rigorous, step-by-step framework for creating a tailored total rewards strategy that drives genuine business results. The authors guide readers through a deep analysis of their organization's unique context, including its business environment, key stakeholders, vision, strategy, and capabilities. This foundation is then used to architect a compensation plan by strategically manipulating the three core levers: Money (the total amount), Mix (the balance of components like salary, bonuses, and equity), and Messages (the performance criteria and cultural signals). By following this disciplined process, board members, executives, and HR leaders can build a defensible, performance-driven compensation system that attracts and retains the right talent, creates long-term shareholder value, and avoids the scandals that dominate the headlines.
The through-line
- Who it’s for
- The reader is a board member, compensation committee member, CEO, or HR executive responsible for designing or approving executive compensation plans. They want to create a fair, effective, and defensible rewards strategy that truly drives business performance and avoids public criticism, but they are frustrated with the simplistic, cookie-cutter advice they typically receive from consultants.
- The problem
- Designing an executive compensation plan is complex, and relying on traditional benchmarking often leads to programs that are disconnected from business strategy, fail to motivate the right behaviors, and attract negative attention from shareholders and the media. The reader feels overwhelmed by the complexity, uncertain if their current plan is actually effective, and fearful of making a mistake that could lead to public embarrassment, shareholder lawsuits, or the loss of key talent.
- The plan
- Analyze your unique organizational context, including the business environment, key stakeholders, and vision/mission/values.
- Decode your core strategies by assessing your business strategy, organizational capabilities, and people strategy.
- Design your Total Reward Architecture using the 'Money, Mix, and Messages' framework to align rewards with your strategic needs.
- Structure the specific components of the plan (base salary, incentives, benefits, etc.) to deliver on the architectural design and drive performance.
- The payoff
- You will have a clear, defensible, and highly effective executive compensation plan that is perfectly aligned with your business strategy. · Your executives will be motivated to drive long-term value, leading to superior company performance. · You will successfully attract and retain the right executive talent needed for success.
See our guide
Related profiles we’ve built
Additional reading
- IRS and SEC Legal Code (via Cornell Law School Legal Information Institute) · U.S. Government
Provides the primary source for the specific rules governing equity compensation discussed in the book, such as IRC Section 83(b), Section 422 (for ISOs), Section 409A, and SEC Rule 701.
- VentureHacks.com · Nivi and Naval
Cited as a source of 'good advice for startups,' specifically for providing benchmarks on appropriate equity grants for advisors.
- AngelList (angel.co/salaries) · AngelList
Mentioned as a key resource for both founders and employees to research and benchmark typical salary and equity data for various startup roles, ensuring offers are competitive.
- The Open Guide to Equity Compensation · GitHub community (jlevy)
Listed in the end notes as a resource, suggesting it provides more in-depth or community-driven information on the topic.
- Clerky.com · Clerky
Referenced as a provider of streamlined legal documents for startups, including a set of stock plan forms developed in collaboration with Y Combinator and Orrick.
- Crunchbase.com · Crunchbase
Listed in the end notes as a platform for finding business information about private and public companies, useful for general research.
- Founder’s Pocket Guide: Startup Valuation · 1x1 Media (implied)
Expands on a core topic of the cap table guide, covering various valuation methods for arriving at a defensible pre-money valuation.
- Founder’s Pocket Guide: Convertible Debt · 1x1 Media (implied)
Provides details on convertible debt, a funding structure mentioned as a key item to be tracked on a cap table before it converts to equity.
- Founder’s Pocket Guide: Terms Sheets and Preferred Shares · 1x1 Media (implied)
Details the rights, preferences, and protections of preferred shares, which are critical for accurately modeling exit scenarios in more sophisticated cap tables.
- Founder’s Pocket Guide: Stock Options and Vesting · 1x1 Media (implied)
Explains how to structure and track stock options and vesting, which are managed within the option pool recorded on the cap table.