Finding the difference between ‘headline’ and ‘realized’ CEO pay

Startup companies may need a guideline to follow when examining the ways in which they might compensate their CEO. An article in Fortune recently looked at the way financial CEOs were paid last year.

To understand this, the savvy executive needs to understand two terms used by Fortune's Paul Hodgson that mean very different things in regards to compensation: "headline pay" and "realized pay."

All this distinction really signifies, as Hodgson notes, is the difference between what a CEO is promised in payment and what the actual, concrete results are. Because both payment calculations contain the salary and bonus, it can be easy to get them confused. Typically the projected versus actual value of the executive's stock options is the largest variant.

Hodgson spells out the differences in terms of how they affect the executive in question, and what they mean for the long term CEO tenure.

"Headline pay is a reflection of what the board thinks of performance right now," he says. "Realized pay is a reflection of actual performance over anything up to the last 10 years." 

Recently, Slate noted the way that all of the focus on CEO pay might skew the conversation away from the real challenges that exist in the business world. Instead, the piece's author Zachary Karabell says, perceptions of inequality among members of a company would persist if rates of payment were scaled down. Karabell insists that the real issue is an inefficiently scaled payment system that doesn't account for the most popular, current ways of conducting business.

This is why startups beginning to create their payment plans might want to model what both headline and realized pay would look like for their organization. A recruitment consultant can help startups start thinking about executive pay and recruitment realistically.

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