Hypotenuse Enterprises, Inc.

THE CORPORATE DEVELOPMENT COMPANY


Click on the image below to see an enlarged text version:

 

Benchmarking Corporate Development Compensation

Excerpts From:
Benchmarking Corporate Development
Compensation

General conclusions of this article are quantified in much greater detail in the Corporate Development Compensation Survey which sells for $995. 

A careful look at the base salary of the CD head indicates five major areas that influence base salary: company factors, experience, the 3 Rís of responsibilities/reporting/results, the prestige factor and personal considerations.

Compensation Survey

As a result of requests by heads of Corporate Development (CD) responding to the CD Practices Survey, and because of similar requests for compensation data at the ACG Corporate Development Conference, Hypotenuse Enterprises, Inc. undertook a full study of the salaries, bonuses, stock options and grants, perquisites and benefits of the heads of CD and their professional staff members. The CD Practices Survey shows increased pressure on the CD professional; therefore, it has been of special interest to draw a baseline against which to track compensation as the CD function evolves. We believe this is the first in-depth survey of its kind.

The Compensation Survey received a significant response rate of 4.3% from a target audience of the Fortune 1000. Approximately half of respondents fall in the Fortune 500 tier. All companies responding are U.S. owned; 95% are publicly held; and 79% are globally oriented. There is broad industry representation.

Salary Correlations

The base salary range reported is $85,500 to $425,000, with an average of $184,400, and a median of $160,000. Short and long-term bonuses, stock options and grants, perquisites and benefits were also examined in detail, but due to space limitations only base salary will be discussed here. Similarly, results for CD staff (direct reports of the CD head) are detailed in the Survey itself.

A careful look at the base salary of the CD head indicates five major areas that influence base salary: company factors, experience, the 3 Rís of responsibilities / reporting / results, the prestige factor and personal considerations. These five macro factors are all associated with compensation. Some may be the effect of the salary levels; others may be the cause.

Company factors:
The first tier of the Fortune 500 is, as expected, more highly paid than the second tier. The mean salary of the CD head of the Fortune 500 respondents is $222,800. The mean for the respondents from companies smaller than the Fortune 500 is $144,200, or 35% less. In general, the larger the company, the higher the base salary of the CD head.

EPS growth: there is a salary premium in companies with growth rates of 0-15%, compared to companies in negative growth modes.

The technological basis has an effect. Companies described as low-tech by the respondents offer the CD head a salary premium compared to companies with medium or high-technology levels.

Experience of the CD head is very relevant. Key determinants are years of total business experience, number of years of CD experience, and lifetime number of deals completed.

Heads of CD average 21.5 years of total business experience. Those above the average earn a significantly higher base salary than those with less experience.

The Corporate Development Compensation, Perquisites and Benefits Survey  sells for $995.

The average number of years of CD experience is 8.4, including time as head of CD. Those above the average receive about one-quarter more in base compensation than those below.

Deal experience is rated highly. The mean number of ďlifetime dealsĒ by respondents is 45. The average compensation of those above the mean is significantly higher than those below the mean. 

Education is another factor relevant to compensation for the heads of CD. Responses show heads of CD with MBAs earn about $20,000 more per year than those with bachelors degrees.

Some experience factors do not command premiums and may even cause compensation to be discounted. For example, those heads of CD who have ever worked outside the U.S. earn 15% less base compensation than those who have never worked offshore. 

Responsibilities / Reporting Structure / Results. One of the classic methodologies for determining salary brackets in companies is the three Rs: responsibilities, reporting structure and results. Compensation of CD heads is consistent with this model.

Responsibilities: More than 70% of multiple-mention responses include with CD responsibilities acquisitions, mergers, divestitures, due diligence, valuations, joint ventures, and being a sounding board for the CEO. 

Reporting Structure: Based on to whom the CD head reports and who reports to the CD head, salary is affected, but there is a higher premium for having more than average direct reports than for reporting to the CEO. CD heads with staff numbers higher than the average report much higher salary levels than those CD heads averaging fewer direct reports. CD heads who are also officers of the corporation earn more than half again what non-officers earn in base salary. The title of senior vice president or executive vice president draws more salary than a vice president, who in turn earns more than a director or managing director level head of CD.

Results: Among the more measurable results for CD heads is the annual number of deals completed, but the results are not as dramatic as might be expected given the premium on lifetime deals. There is also a premium for increased professional staff tenure of direct reports.

Prestige. We have identified two dozen indicators of prestige for the CD head, and all but two correlate to increased salary, although not all with equal weighting. 

Personal Issues. One more viewpoint from which to analyze the salary of the head of CD is the effect of personal issues, such as job satisfaction, opportunity for advancement and quality of life.

Respondents were asked to assess their chances of moving to higher levels in their companies and of becoming CEO.  Those above the mean in their perception of opportunities to move higher currently earn less than those who are not as optimistic about their chances of moving up. 

Another subject examined is whether or not the CD head has warm, collegial, peer relations inside the company or a more authoritarian/administrative approach. While the average response was heavily weighted toward the former, those who report being more authoritarian and administrative in approach earn higher base salaries.

Workload and travel affect the quality of life of CD heads. Base salaries of CD heads are slightly higher for those who spend more than average time in the office and those who are away more than the average number of nights.

CD heads generally see moderate impact on their home lives. For those below the mean, who see less of an impact/problem on their home lives, base salaries are slightly higher than those who have more problem or impact. An overwhelming number of respondents would advise a son or daughter to pursue a CD career. Quantified data is continued in the survey itself.

The foregoing commentary affords a brief look into the base salary portion of the 1998 CD Compensation Survey. Similar analysis is applied to short and long term bonuses, stock options or grants, perquisites and benefits, and professional staff and individual factors. It is possible to examine the data from myriad viewpoints anti with multiple factors. For example, in consulting on the survey results with a particular Fortune 1000-tier company, we can look at what percentage of respondents with more than a 20-deal lifetime experience have company-paid club memberships. Or we can examine what percentage of companies with growth over 15% per year permit first-class airline travel or buy a computer for the CD headís home use. The possibilities are virtually endless...as are the opportunities to negotiate for the CD head who is armed with the right data.  

By Diane C. Harris, President, Hypotenuse Enterprises, Inc., 1 545 East Avenue, Rochester, NY 14610, a mergers and acquisitions advisory and consulting firm that specializes in outsourcing to the corporate development officer. 

Copyright © 1999-2007, Hypotenuse Enterprises, Inc., all rights reserved.
Hypotenuse and The smART of the Deal are registered Servicemarks of Hypotenuse Enterprises, Inc.

Contact Information: Phone: 585-473-7799,   Fax: 585-473-7465, 
E-mail: info@hypot.com

Hypotenuse Enterprises, Inc. is a New York State domiciled corporation and operates under the laws of New York State.  Hypotenuse is not a broker/dealer and does not offer broker or broker/dealer services.  No information on this web site is intended to provide broker, broker/dealer, consulting or advisory services, and Hypotenuse Enterprises, Inc. is not responsible for and accepts no liability for any use or misuse of such information by viewers of this web site.  Notwithstanding the foregoing, Hypotenuse Enterprises, Inc. is a registered business broker in the State of Illinois.