Executive Remuneration Benchmarking: Importance, Process and Frequency

We explore the basics of executive remuneration benchmarking, reiterate its critical significance in the Australian context, and review best practices for conducting benchmarking exercises.

GRG Remuneration Insight 174

27 March 2025

Remuneration benchmarking is the process of using market-relevant remuneration data to assess the quantum and mix of remuneration elements that constitute a market-competitive total remuneration package for a role. While benchmarking remuneration is an important ingredient for any pay review, it is particularly crucial for executive roles, where remuneration structures are often complex. Effective benchmarking of executive pay ensures that each element remains competitive, fair, and aligned with both corporate strategy and market expectations. Given the dynamic nature of the corporate landscape, companies must regularly assess their pay structures against industry peers to attract and retain top talent while meeting shareholder expectations. The growing emphasis on stakeholder interests, transparency, and corporate governance has led Australian boards to adopt a more rigorous approach to remuneration. While independent remuneration consultants provide valuable insights, it is ultimately the responsibility of the board to critically assess recommendations and ensure alignment with the company’s strategic objectives and shareholder expectations.

Given the increasing scrutiny on executive pay and evolving remuneration structures, boards must stay informed about contemporary trends, benchmarking practices, and regulatory considerations when determining remuneration. This article explores the basics of executive benchmarking, its significance, and best practices for conducting benchmarking exercises within the Australian market.

Why Benchmarking Executive Remuneration is Essential

Conducting regular executive benchmarking offers multiple benefits to Australian companies:

1. Ensuring Competitiveness: Companies need to offer market-aligned remuneration to attract and retain high-calibre executives. Underpaying can lead to talent loss, while overpaying can result in excessive costs and shareholder pushback.
2. Regulatory Compliance: Australian listed companies are subject to stringent governance requirements, including disclosure of executive pay in remuneration reports. Benchmarking ensures that remuneration aligns with market standards and avoids potential ‘two-strikes’ risks at annual general meetings.
3. Stakeholder Expectations: Institutional investors and proxy advisors such as the Australian Council of Superannuation Investors (ACSI), ISS, and Glass Lewis assess executive pay structures closely. Companies that fail to justify their pay practices may lose the support of shareholders.
4. Internal Pay Equity: Benchmarking also helps maintain fair pay structures within an organisation, ensuring that CEO and executive pay do not create significant disparity relative to other senior leaders.
5. Aligning Pay with Performance: Effective benchmarking helps ensure that executive pay is linked to performance, promoting long-term value creation and sustainable growth.

How Often Should Executive Remuneration be Benchmarked?

The frequency of benchmarking executive pay depends on factors such as company size, industry volatility, and regulatory environment. Best practices in the Australian market include:

• Annual Reviews: Most ASX-listed companies conduct an annual review of executive pay, particularly in preparation for annual general meetings.
• Major Business Changes: Companies undergoing mergers, acquisitions, or leadership transitions should reassess executive pay structures.
• Every Two to Three Years: A more comprehensive benchmarking study, including external consulting support, should be conducted at least every two to three years to ensure long-term alignment with market trends.
• Ad-hoc Reviews: In response to significant market shifts, economic downturns, or changes in regulatory expectations.

The Basics of Executive Remuneration Benchmarking

Executive remuneration benchmarking involves comparing the remuneration packages of senior executives against a peer group of companies within the same industry or of a similar size. This process helps boards and remuneration committees establish appropriate pay levels, taking into account market norms, corporate performance, and governance best practices.

Key components of executive remuneration benchmarking include:

• Fixed Pay (FP): It is the annual remuneration cost of salary, superannuation, benefits (which are usually FBT inclusive). Also known as Fixed Annual Remuneration (FAR), Base Package or Total Fixed Remuneration (TFR).
• Short-Term Variable Remuneration (STVR) or Short-Term Incentives (STIs): STVR is an element of remuneration that is variable in nature and rewards performance in relation to key outcome metrics identified in the company’s annual business plan. Performance is typically measured over 1 year and the outcome metrics are often a combination of financial, operational and strategic indicators.
• Long-Term Variable Remuneration (LTVR) or Long-Term Incentives (LTIs): LTVR is a conditional reward opportunity (“unvested”) that can only be converted (“vested” and “exercised”) into a benefit after several years, subject to delivery of required outcomes, which are generally referred to as “vesting conditions”. Most stakeholders define LTVR as being subject to a minimum 3-year condition assessment period, called the “Measurement Period”.
• Total Remuneration Package (TRP): Total Remuneration Package, which is the annualised cost of FP, STVR & LTVR
• Benefits: included in FP, and accounts for additional benefits such as car allowances, financial planning services, medical and additional leave entitlements etc.

How to Conduct Executive Remuneration Benchmarking

In a robust executive remuneration benchmarking exercise, Australian companies should follow these key steps:

1. Benchmarking Comparator Group

The first key step for benchmarking is to select a comparator group. To provide a reference point against which to judge what may be appropriate remuneration arrangements for a company’s executives in terms of quantum and structure, it is important to have up-to-date relevant market information. For benchmarking purposes, and to the extent possible, such market information should be from a group of companies that are as similar as possible, not only in terms of industry sector and nature of business, but more importantly also in terms of size and complexity of business operations.

Genuine remuneration advisors should apply best practices in statistical methodology and try to build tailored data samples around your business such that the measures of central tendency (median/P50 ideally, noting that averages are often skewed), will be highly relevant, reliable and valid, including industry peers to the extent possible. At GRG, for a primary comparator group we generally recommend a sample of at least 20 ASX listed companies, balanced (10 larger and 10 smaller) and within a range of around half to double the target market capitalisation, such that the P50 of sample company values is close to the market value of the client, and such that sample sizes will be robust while limiting the range of companies to those that are of comparable scale. That said, it is often useful to run at least one secondary or supplementary group to ensure that multiple views are considered; “industry” groups that ignore scale are often a popular choice as they provide insight into the practices of key industry competitors at different scales. In our experience, these are generally not used for statistical benchmarking, more for “market overview”.

2. Gather Data from Reliable Sources

Companies can access benchmarking data from various sources, including:

• ASX-listed remuneration reports: Publicly available data on executive pay structures.
• Remuneration surveys*: Conducted by consulting firms.
• Proxy advisor reports: Insights from Glass Lewis, ISS, and ACSI.
• Public company disclosures: Remuneration information in annual reports and ASX announcements

*GRG’s Executive Remuneration Survey (ERS) is designed to comprehensively meet the needs of Australian remuneration committees, boards and human resources professionals by providing a fully-serviced survey of market remuneration practices for Australian executive and general manager roles.

The ERS expertly combines the information disclosed in remuneration reports on executive key management personnel (KMP) remuneration with company-collected data for 70 executive and general manager roles to provide deep, granular data on quantum and variable pay plan metrics. GRG’s customer focus ensures data quality and completeness, so you can be confident in the data you receive.

3. Analyse and Compare Key Pay Components

Once data is collected, companies should analyse and compare:

• FP at Median (P50) and variable remuneration at P62.5 to P75 pay levels.
• Fixed vs. variable pay mix.
• STVR and LTVR mix and weightings.

When undertaking major pay reviews, particularly when organisation or job design has changed, benchmarking against available job-matches should only be the first step. Because organisation designs and job designs vary, and the same job title can have a varying impact in different organisations, tailored benchmarking or adjusted market data should be considered. GRG follows 3 phases in order to provide a customised recommendation:

Phase 1 – Model the Market

• Select Custom Comparator Group, analyse executive market data for matched roles, produce summaries and statistics.
• Analyse market data results to identify typical relativities between key roles and establish “anchor” pay points based on actual or recommended remuneration policy.
• Use comparator group anchor points to develop appropriate pay levels based on statistical relativity to produce a market linked FP model by matching observed market rates and typical role relationships.

Phase 2 – Customise FP Ranges and Model the Client

• Develop market model into a tailored FP Policy Ranges model based on benchmarking policy (external relativity).
• Determine the client’s specific role relationships based on role accountability and business impact, to produce a client role relativity model (internal relativity).

Phase 3 – Custom Advice and Recommendations

• Overlay client role relativity model onto the market model – based on the FP policy model to ensure remuneration competitiveness given each role’s design, allowing for Board assessment of incumbent competence.
• Develop appropriate remuneration mix for FP, STVR at Target and LTVR at Target, producing a target remuneration package, based on remuneration policy, market evidence, and GRG insights.

4. Assess Internal Consistency

Executive remuneration benchmarking should not only consider external competitiveness but also ensure that pay structures produce appropriate internal relativity. CEO pay, for example, should be proportionate relative to other key executives and senior management, based on role impact.

5. Addressing Individual Factors

Having considered the market data and applied adjustments for job-design variances, individual features of incumbents need to be recognised; it is common for companies to place a range of +/-10% to 20% around benchmarks to allow for variations in individual calibre, experience, performance and qualifications.

6. Consider Market Trends and Adjustments

Market conditions, inflation and emerging trends should be factored into any remuneration adjustments. Regular reviews allow companies to remain agile and responsive to market shifts.

7. Board and Shareholder Communication

Findings from an executive remuneration benchmarking exercises should be transparently communicated to the board, remuneration committees and shareholders. Proper documentation and disclosure in remuneration reports help build investor confidence.

Executive Remuneration Benchmarking is Essential to Long Term Business Success

Executive remuneration benchmarking is an essential practice for Australian companies to maintain competitive, fair, and performance-driven remuneration structures that can be supported by all stakeholders. By defining an appropriate peer group, gathering reliable data, and regularly reviewing remuneration structures, companies can ensure that executive pay aligns with corporate strategy, regulatory requirements, and stakeholder expectations. Regular benchmarking –conducted annually and supplemented with more in-depth studies every two to three years – helps Boards navigate evolving market trends and safeguard against governance risks. Ultimately, a well-structured executive pay framework fosters sustainable growth, shareholder alignment, and long-term business success.

GRG can assist with any remuneration related matters including benchmarking for your next remuneration review. If you have any questions regarding the above, please feel free to reach out to our consultants below.