I was having a conversation with a CMO and we started talking about pay—how is it determined, who do firms benchmark against, are they the “right” benchmarks, how much variance there is, what’s negotiable and what isn’t, and so on. I realized that although I had been a GM and CMO, I actually didn’t know the answer to most of these questions. Someone above my level was figuring this out, and in the course of negotiations, compensation numbers were proposed. Consequently, I decided to look into the process and reached out to Caren Fleit, Managing Director, Global Marketing Officers Practice and a core member of the Consumer/Retail/Digital Practices at Korn-Ferry, a global organizational consulting firm and the world’s largest executive search firm. Below is her insight on CMO compensation.
Kimberly Whitler: How is CMO pay determined?
Caren Fleit: When talking about large, established firms, they tend to work directly with Executive Compensation Practice consultants at firms like ours, or others like us, to establish compensation targets. Assume Fortune 100 firm X hires us to conduct a CMO search for them. That firm will typically have already done a C-suite market benchmarking study, which includes the CMO position. The client would tell us what they think the comp target should be, based on their benchmarking. We will offer a point a view based on our experience in the market, and then have a discussion around what hiring target numbers make sense.
Whitler: How are the benchmarks determined?
Fleit: To create compensation benchmarks, firms will compare against a set of companies considered to be a peer group, based on similar industry sector and size. For example, assume the client company identifies 20 companies as their peer set. Consultants will then identify CMO compensation at those 20 peer companies to determine market pay percentiles. If the company’s across-the-board comp philosophy is to set pay at the 50th market percentile, they might set the midpoint compensation for their targeted CMO search at the 50th percentile mark, based on the results of the external benchmarking.
Whitler: Are there any issues with this method of benchmarking CMO pay?
Fleit: There can be. First, from one company to another, even within the same industry, CMOs may or may not have the same role and responsibilities, even though they have the same title. Because no two CMO roles are the same, peer group may not be the most relevant benchmark. Second, often, CMOs are not coming from within the same industry sector—companies are looking to bring in a CMO to drive transformation, so they are often hiring from other industries, which may have very different compensation levels and structures. Third, when looking for a new CMO, clients are always looking for an A+ performer. If they use the comp benchmark and target the 50th percentile, that’s a midpoint based on the good and the bad performers— if you instead created a midpoint using only the top performers, you would be looking at a higher number. Often you need to pay above the 50th percentile of a benchmark study. Benchmarks are a great place to start, but other factors need to be considered.
Whitler: How much of the process is done by the client firm versus the executive recruiting firm?
Fleit: Most mid to large size companies have a compensation strategy that includes a leveling system, or “bands,” and they do market benchmarking regularly to ensure that they are competitive and equitable. This is a talent management best practice, and a common starting point for CMO compensation. However, in most cases, the executive search firm will bring additional market perspective based on how the new CMO role is being defined and where the new CMO is likely to come from. A discussion will follow, resulting in compensation targets that may vary somewhat from the market studies that the client has previously conducted.
Whitler: Any advice you would offer?
Fleit: The process of determining compensation is important. It’s important that companies have a disciplined approach to comp strategy. It matters… a planned, thoughtful, fact-based underpinning is important. Benchmarking studies are an invaluable place to start. However, it’s also important to layer on to that the specifics of the role, where the person will come from, the challenge of the role, and expected impact and timeframe. All of this can then impact the compensation. It’s important to balance the company’s comp strategy and internal equity with wanting the hired executive to come in feeling they are well positioned given the expectations for the role.
Also, given the nuances of the CMO role, perhaps we should be considering benchmarking differently. It might be more relevant to define the peer group differently — going beyond just competitive set, and similarly sized companies—-instead looking at roles with similar mandates and impact and type of mandate.
*Summary and detailed analyses from KF’s 2018 CMO Pulse Survey
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