EXECUTIVE COMPENSATION

Submitted by
Keerthy c unni
 EXECUTIVE COMPENSATION

• Executive Compensation is the compensation paid to executives of business

corporations .
• Managers in short supply.
• Organizations competing with each other to attract, retain and motivate managers for
their strategic requirement .
 COMPONENTS OF COMPENSATION

• Specifically, this category includes presidents, vice-presidents, managing directors

and general managers.
Executive compensation generally comprises five elements. They are:
1. Salary
2. Bonus
3. Commission
4. Long-term incentives
5. Perquisites (perks)
6. Others.
 COMPONENTS OF
EXECUTIVE COMPENSATION
• Salary
Salary is the first component of executive compensation. Salary is supposed to be
determined through job evaluation and serves as the basis for other types of benefits. But
job evaluation may be only a partial solution because executives must be paid for their
capabilities—for what they can do—rather than for job demands. This is the reason why
norms of wage and salary fixation are generally not observed while fixing salaries for
executives.
• Bonus
Bonus plays an important role in today’s competitive executive payment programs. This
type of incentive is usually short-term (annual) and is based on performance. For this
reason, the definition of performance is crucial. Executives deserve bonus because they
have much more opportunity to influence organizational success than non-managerial staff.
Commission
Some companies pay commission to their executives and commission constitutes a
major share in executive remuneration. But the Companies Act puts a ceiling on the
amount of commission payable to executives. Commission is paid to executives as a
percentage on profits. Commission is common in private sector.
Long-term Incentives
If bonus constitutes a short-term benefit, stock options are long-term benefits offered
to decision makers. Companies allow executives to purchase their shares at fixed
prices. Stock options are valuable as long as the price of share keeps increasing. The
share price crashes when the company starts incurring loss, and executives stand to
lose in the process. Stock options are attractive to shareholders too.
• First, an option is not a bonus. Executives must use their own resources to exercise
their right to purchase the stock.
• Second, the executives are assuming the same risk as all other shareholders, namely,
that the price could move in either direction. Options are a form of profit sharing that
links the executive’s financial success to that of the shareholders.
• Finally, stock options are one of the few ways to offer large rewards to executives
without the embarrassment of “millions of dollars of obvious money changing
hands.”
• Perquisites
Perks constitute a major source of income for executives. In addition to the normally
allowed perks like provident fund, gratuity and the like, executives enjoy special
parking, plush office, vacation travel, membership in clubs and well-furnished houses.
Perks take care of all possible needs. Executives are rarely required to spend money
from their pockets. Their holidays, servants, telephone bills and even electricity and
gas bills are taken care of by their companies.
Perks to executives include the following.
• A company provided car
• Accessible, no cost parking
• Kidnapping and ransom protection
• Counselling service, including financial and legal services.
• Spouse travel
• Home entertainment allowance
• Special living accommodations away from home
• Club memberships
• Special dining privileges
• Season tickets to entertainment events.
• Use of company credit cards
• Medical expense reimbursement; coverage for all medical costs
• Reimbursement for children’s college expenses and No- and low-interest loans.
• Others
There are two more components of executive compensation as well. One is pension
and the second is termination benefits. Some companies have pension scheme in
place, either specially designed for executives or open to a wide range of employees.
Many companies provide termination benefits for executives, either as a lump sum or
in the form of continued payment of compensation after the expiry of a contract. The
termination clauses may preclude payment if the termination of the contract is caused
by the executive, in the event of unilateral termination of contract, or as the result of a
serious fault of the executive.
 MEASUREMENT OF EXECUTIVE
PERFORMANCE
• It varies from firm to firm.
• A short-term focus of one year is used in some executive compensation packages, so
performance in a given year may lead to large rewards even though corporate
performance over multi-year period may be mediocre.
• This difference is especially pronounced if the yearly measures are carefully chosen.
• Executives can even manipulate earnings per share by selling assets, liquidating
inventories, or reducing research and development expenditures, All these actions
may make organization performance look better, but they may impair the long-term
growth of the organization.
 UNIQUE FEATURE OF
MANAGERIAL REMUNERATION

• Managerial remuneration cannot be compared to wage & salary schemes meant for
non-managerial employees
• Managers are denied the privilege of having unions and collective bargaining
• Their competence and contribution are the strengths for determining their pay
package
• Secrecy is maintained in respect of managerial remuneration.
• No two managers in private sectors, in same grade receive same pay
• Compensation and reward depends upon such factors as competence , length of
service , contributions, and loyalty to the company Unique feature of managerial
remuneration
• Managerial pay is based organizational performance
• Manager’s own performance directly reflected in corporate performance
• Managers compensation is subjected to statutory sealing
• Monthly salary may vary from Rs 40,000 to 100000 subject to limit fixed per
annum
• Exorbitant amounts are paid to executives in some organizations.
• Annual salary of CEOs’ range from Rs 50 lakhs to few crore
 BENEFITS OF EXECUTIVES

Benefits generally comprises of : -

• Furnished or unfurnished company owned or leased accommodation
• Use of company owned or leased vehicle
• Medical coverage
• Provident fund - Pension - Superannuation gratuity
• Post retirement medical assistance
• Easy loan scheme for utility items , vehicle or furniture
• Renting employee owned housing
• Club entrance fee reimbursement Benefits
Minor benefits could be:
• Provision of security
• Drivers - Gardening assistant
• Sales of products or assets at the concessional rate
• Relocation and transfer expenses including admission fees for children
• Credit card fees,
• Phones
TOP 10 HIGHEST PAID CEO’S OF INDIA
TOP 10 INDIAN CEO’S ANNUAL SALARY

COMPENSATION(
RANK CEO COMPANY
In crocres)
1 Mukesh Ambani Reliance Industries 15
2 Gopal Vittal Bharti Airtel 169.7
3 CP kurnani Tech Mahindra 165.6
4 S N subrahmanyam Larsen & Tourbo 31
5 Kalanidhimaran sun group 77.9
6 Pawan Munjal Hero Motocorp 60
7 Salil Parekh Infosys 35
8 Satya Nadella Microsoft India 25.84
9 Yogesh Chander ITC 20
10 Guenter Butschek Tata motors 22
     source Business connect