Executive Compensation

Meaning and Definition

Executive Compensation is how top executives of business corporations are paid.

This includes Basic salary, bonuses, shares ,options

and other company benefits.

According to Robert W. Kolb Executive compensation refers to the total reward provided by the firms to the top level of executives in a corporation such as Chief Executive officer(CEO), Chief Operating officer(COO), Chief financial officer(CFO) and other executives.

Objectives

Aligning managerial interest with ownership interest. Enhancing Employee Motivation, Involvement and Commitment. Ensuring Complete financial security. Bringing in the best executives. Promoting managerial efficiency Encouraging progressive Learning.

Elements of executive compensation

Current Core Compensation Short term incentives Deferred core compensation(Stock compensation) Deferred core compensation( Golden parachutes) Fringe compensation

Current core compensation: Base pay Bonusesa. Discretionary Bonuses b. Performance- contingent Bonuses c. Predetermined allocation Bonus d. Target Plan Bonus ties.

Short-term incentives:
Companies award short-term incentive compensation to executives
To

recognize their progress toward fullfilling competitive strategy goals.

It is usually apply to a group of executives within a company. The BOD distributes short-term incentive awards to each executive based on rank and compensation levels.

Deferred core compensation

It refers to an agreement between an employee and a company to render payments to an employee at future date.

It creates a sense of ownership, aligning the interests of the executives with those of the owners or shareholders of the company over long term. Company stock shares are the main form of executives deferred compensation.

Deferred core compensation(Golden parachute)

Golden parachutes provide pay and benefits to executives after a termination resulting from change in ownership or corporate takeover. BOD include golden parachute clauses for two reasons.

Golden parachutes limit executives risks in the event of these unforeseen events. Golden parachutes promote recruitment and retention of talented executives.

Fringe compensation:

Enhanced protection program benefits

Prerequisites

Factors affecting Executive compensation

Complexity of the job Competency required Capacity to pay Organizational philosophy

International Impact