Some of the most prevalent executive-pay myths come from questionable sources, including companies that have an agenda or that have proven to be examples of greed, a compensation consultant said May 1 at the 2013 WorldatWork  Total Rewards Conference in Philadelphia.

These companies "are serving a constituency that is sometimes at odds with executive compensation" when they perpetuate myths to serve their purposes, said Chris Crawford, executive director and owner of Longnecker & Associates, an independent compensation consulting firm.

Crawford tackled some common misconceptions, separating the compensation myth from the reality:

• A competitor for market share is a competitor for talent: Many companies believe that if they compete with a company for market share, they also compete with it for talent. "Competing for market share is not the same as competing for talent," Crawford said. Competition for talent does not hold true for senior management positions, he said.
• Executive perquisites are egregious:  Generally, companies use less than 5 percent of total cash for most executive perquisites, Crawford said. "Perks deliver more psychological intrinsic value to the recipient than the actual dollars spent," he said.
• A pay philosophy should be reserved for executives that differs from the one used for other employees: Some companies believe that executive pay should fall within the 75th to 90th percentiles while the pay for all other employees should be at or below the 50th percentile. "You should have consistent philosophies down through the organization," Crawford said.
• Total compensation should only reflect past performance:  Although Institutional Shareholder Services Inc. analyzes executive compensation based on past performance to determine say-on-pay recommendations, past performance should not be the only factor, Crawford said. "Paying for the past does not position you to retain talent for the future."
• Actual bonuses paid are what matters when analyzing market competitive compensation: "When you're looking at actual bonus-paid data, it is informative to know where you are, but it should not set the new standard of targets for the future year," Crawford said.
• Employment contracts are bad: Contracts are commonly believed to provide enormous payouts to a few executives, benefitting the recipient but not the company, Crawford said. In fact, contracts can include non-compete, non-solicitation, and confidentiality clauses that benefit the company. The contracts "actually should provide more protection to the company than they do the executive," Crawford said.
• Company owner profits and distributions should be considered compensation: Being an owner is an investment decision, but being an executive is an employment decision, Crawford said. A company owner should "be paid a fair and competitive wage from a compensation standpoint, independent of the ownership and distribution," he said.
• Change-of-control payouts are excessive:  These payouts retain executives through company change. Also, it takes an executive about two years in a normal labor market to find a relatively similar job.  "Executives are going to lose their job, they need some protection," Crawford said.

 By Kristin Washington