Contrary to popular belief, there is a great deal of difference between regular monthly wages and executive compensation wages, the most fundamental difference being executive compensation is heavily based on actual results.
If you are interested in learning more about executive compensation and if it is indeed something that you yourself would be interested in, then continue reading.
The Basics Of Executive Compensation
The benefits of executive compensation are numerous and impressive and if you are considering this approach, it is important to know the fundamental rule of the idea.
Essentially, if your business suffers a lapse in profits or indeed a substantial decrease in takings, then the executives of the company would take a smaller fraction of their overall pay potential. Conversely, if your business meets and even succeeds its expectations, then you would stand to receive a much larger share.
The Five Components Of Executive Compensation
It is widely accepted that, within the proverbial umbrella discipline of executive compensation, there are five basic components:
- Base Salary
- Long Term Incentives Based On Performance
- Contingency Payments
- Executive Prerequisites
Under the sub-section of benefits, you can expect to find the normal elements you will already be familiar with, including Workers’ Compensation, Social Security, Unemployment Insurance, Healthcare and Medicare.
Top managers, executives and department heads will also have access to sick days, holidays, vacation time, life insurance, medical insurance and severance pay.
2. Base Salary
For business bosses and executives, it is usual that they receive an annual salary, divided into either monthly or fortnightly instalments, much in the way that other salaried staff receive their pay.
It is impossible to accurately estimate the average salary for a CEO or other top executive of a company, mainly because this is wholly dependent on the type of business and its size and scope.
3. Long Term Incentives Based On Performance
Easily the biggest element regarding executive compensation is that of long-term incentives, which are almost always exclusively based on performance.
Long-term incentives exist to reward the top executives of a business for their efforts and achievements in increasing profit and maximizing shareholder value. More often than not, long term incentives based on performance are provided in the way of a stock-based compensation, including stock options, performance-vested stock or similar devices and restricted stock.
4. Contingency Payments
Another popular and incredibly beneficial component of executive compensation is that of contingency payments.
Basically, contingency payments are part of the policy of covering CEOs and other business executives by severance pay, usually in the event of early retirement or simply being let go. Contingency payments are never in place, however, if an executive is let go due to misconduct.
5. Executive Prerequisites
Executive prerequisites are far more commonly referred to as simple ‘perks of the job’ and are only ever afforded to the people who hold job roles at the top of the individual company’s hierarchy.
Unequivocally, executive prerequisites are initiated within a business as to recognize the individual efforts from one or more executive and can be tailor-made to suit the individual.