Executive compensation is how top executives of business corporations are paid. This includes a basic salary, bonuses, shares, options and other company benefits for work on the board of directors. Over the past three decades, director remuneration has risen dramatically beyond the rising levels of an average worker's wage.
The board of directors is the controlling organ of the company, so responsibility for the levels of pay for all company employees is ultimately theirs. Pay is just one element in the wide range of spending and resource allocation decisions by the heads of firms. Others include investment decisions, which suppliers to use, which business partners to contract with, how to distribute capital and dividends to shareholders, and so on.
Types of compensation
- Cash Compensation – This is the sum of all standard cash salary compensation that the executive receives for the year.
- Option Grants – This is a list of all options granted to the executive; the information includes strike prices and expiration dates.
- Long-Term Incentive Plans (LTIPs) – Long-term incentive plans encompass all compensation that is tied to performance for tax purposes. Current tax laws favor pay for performance-type compensation.
- Retirement Packages – These are packages given to executives after they retire from the company. These are important to watch because they can contain so-called "golden parachutes" for corrupt executives.
- Executive Perks – These are various other perks given to executives, including the use of a private jet, travel reimbursements and other rewards.
- Deferred Compensation – This is compensation that is deferred until a later date, typically for tax purposes. However, recent changes in regulations have lessened the popularity of this type of compensation.
|