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Executive Compensation

No aspect of compensation has been as controversial or received as much attention in recent years as executive compensation. It is almost impossible to pick up a newspaper or business magazine without seeing an article about problems with executive compensation or about unethical practices executives have participated in to enhance their own personal wealth. Greater attention from shareholders and new and proposed legislation have led companies to reconsider how they provide executive compensation. Generally, a larger proportion of the pay mix for executives is being tied to the performance of their firms. Executive compensation includes the same components as other compensation packages - base salary, short- and long-term incentives, and benefits and services. Short-term incentives often include rewards based on financial measures of company performance. Long-term incentives such as stock options are used to encourage executives to try to improve their company’s performance for a long period of time. Executive compensation differs in the magnitude and mix of these components as well as the perquisites not offered to other employees. The perquisites can include the use of a company plane, a car and driver, country club memberships, and even a bodyguard. It is worth mentioning that a number of CEOs are very aware of the controversial nature of their pay relative to their workers and have made adjustments in their pay in response. In fact, a number of high-profile CEOs have sacrificed their salaries in favor of performance-based pay.