EXECUTIVE

COMPENSATION
PREPARED BY:
RAVI KANT
EXECUTIVE COMPENSATION-highlights

 Components of executive compensation..

 Nature of executive compensation..
 Trends in compensation?
 Ranking of different companies..
 Conflicts….
 Reason for high executive compensation..
 Board of Directors

Managing Director

General Manager

Executive Committee

Departmental Managers

Deputy Mangers

Assistant Managers

Foreman, Supervisor

Workers or Operative Employees

Relevance of Topic
 Executive compensation has been a hot HR topic
because of:
 High visibility
 Frequently perceived unfairness
 Importance
FEATURES OF EXECUTIVE COMPENSATION

 Executive compensation cannot be compared

with wage.
 Executives are denied of having the unions.
 Executive pay is based on corporate
performance rather than individual.
 Executive remuneration may be subject to
statutory ceilings.
 It is based on competence,loyality, non-
substitutability.
Nature of Executive Compensation
 Can either be a motivational tool encouraging
executives to pursue strategic decisions that are in
the best interest of shareholders or it can be
designed to reinforce the wrong strategic choices
Conflicts faced...
Special group issue
Supervisors Caught between upper management and
employees.
Top management Stockholder want higher return &
government wants compliance with laws.
Board of directors Difficult to design corporate strategies.
Professional employees Ambiguity between organizational goals
and ethical standards.
The Role of Risk in the Executive Compensation
Contract

 Employment risk - the possibility that the executive

will be terminated either due to unsatisfactory
performance or due to change in control
 Compensation risk - the potential unpredictability in
the executive’s future pay represented mainly by the
proportion of stock options in the total pay package
The Role of Risk in the Executive Compensation
Contract Continued

 Business risk - the uncertainty surrounding the

firm’s competitive environment
Recent Trends
Reason for high executive compensation

 Social compensation
 Economic approach
 Self motivation
 Government regulations
Ranking of different companies
RANK COMPANY PERCIEVED ADVANTAGES
1 INFOSYS ESOPS,insuance policies for
employees,leave facilities and
opportunities to graduate on a higher
package.
2 TATA GROUP Insurance policies,leave
facilities,inexpensive
food,ESOPs,accident insurance,food
coupans.
3 WIPRO ESOPs,opportunities to graduate to a
higher package,allowing family
members to accompany employees on
official visits.
4 HSBC Cash component,loan facilities and
advances.
5 CITIBANK Incentives and opportunities to graduate
to a higher package.
6 ICICI Advances and incentives.
Infosys-an example
 During fy06 Infosys ceo earned Rs 0.41 crore.
 Chairman Narayana Murti earned Rs 0.42 crore.
 Infosys group lead S.D Shibhulal earned Rs 1.01
crore.
 Customer delivery head earned Rs 60 lakh.
 Retail vp earned Rs 50.7 lakh.
 S.v.p earned Rs 49 lakh.
Components of executive compensation

 Base salary
 Short-term incentives or bonuses.
 Long -term incentives and bonuses.
 Supplementary benefits.
 Perquisites
Short-term incentives
 Annual incentive plan
an average percent of 57 percent salary for high
level executives and 20 to 25 percent for
low level executives.
Long-term incentives
 Stock option
An option is not a bonus.
The returns are subject to market risk.
They are a form of profit sharing.
…contd..
 Cash bonus
Different from profit sharing.
Money is used as a motivator.
Easy to operate for small companies
Supplementary Benefits
 Deferred Compensation
It is deferred to future date.
Future date is when tax rates are slightly
reduced.
Depends upon future tax rates and
inflation.
Executive Perquisites
 Internal perks:luxury office,an executive dining
room,special parking e.t.c
 External perks:Payment of hotel,resort,air travel
and incidental expenses.
 Personal perks:low cost loans,personal & legal
counselling,expenses for vacation e.t.c
Additional benefits
 Severance benefit :A special perk available to some
executives,a security to the executives if they lose
their job.
 Retention benefit:Retaining those ceos emotionally
who are attaining higher results.
THANK YOU