CIO pay tied to overall business success

By Kim S. Nash, CIO |  IT Management

Some companies disclose more than others. Home Depot, for example, reveals three levels of goals for each of its four metrics for 2011: sales, operating profit, inventory turns and return on invested capital. (See "Measuring CIO Performance: The Rise and Fall of Compensation.") The company also shows the relative weighting of each metric in its incentive plan. CIO Matt Carey earned $1.1 million in stock and $656,000 in options mainly because the company surpassed targets for operating profit and return on invested capital over a three-year period. Carey's total compensation of $3.2 million puts him in the top 10 among our 45 most highly paid CIOs.

Weight Watchers, on the other hand, is more vague in its SEC filing. The company specifies a target for operating profit (at least $423.2 million, the same as it saw in 2010). But it doesn't reveal numerical goals for its online business, which Basone runs as president. He says he surpassed his marks for WeightWatchers.com, with online subscribers up 50% in 2011 compared to 2010. Basone earned $1.3 million last year; he got a $390,000 bonus, or 91.5% of his $426,000 salary, for attaining goals for the online business and for the company as a whole. He also received awards in stock ($199,000) and options ($252,000), the same as his fellow officers, and other financial benefits.

Ericson at PwC notes, however, that even the most inventive compensation plans can't pull a great performance from a mediocre CIO. More important to the company over time is getting the right CIO in the first place. With all that top officers are responsible for, he says, "if things go badly, any one person can materially hurt a company."

No "I" in Team

CIOs may also have individual technology goals set by the CEO and approved by the board. But achieving individual goals doesn't boost annual take-home pay by much because the IT goals aren't weighted nearly as heavily as corporate financial targets. For every $100 in incentive compensation for top officers, Ericson estimates, $10 or less comes from achieving personalized goals. "That's the numerical reality."

So, while rolling out mobile applications to the sales force is important for the CIO to do well and it might ultimately help increase corporate revenues, the mere act of completing the mobile project doesn't buy a CIO much, personally.

For a company, allowing too many individualized goals creates the risk that particular executives will focus on their own targets to the detriment of the corporation, says Vincent Milich, a compensation expert at Hay Group, a management consulting company. Metrics define behaviors, he says. "During the recession, we had people making millions in bonuses and grants while the organization was going down the tubes."


Originally published on CIO |  Click here to read the original story.
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