executivecompensation (1).pptx

7/24/2019 executivecompensation (1).pptx

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Executive

Compensation


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Executive compensationor executivepayis composed of thenancialcompensationand other non-nancial awardsreceived by an executive from their rm fortheir service to the organization.

It is typically a mixture of salary, bonuses,

shares of or call optionson thecompany stock, benets, and peruisites,ideally congured to take into accountgovernment regulations, tax law, the desiresof the organization and the executive, andrewards for performance


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!xecutive "ompensation#he compensation program serves three mainpurposes.

It must attractexecutives with the skills,

experiences, and behavioral prole necessaryto succeed in the position.

It must be su$cient to retaintheseindividuals, so they do not leave foralternative employment.

It must motivatethem to perform in a mannerconsistent with the strategy and risk-prole of

the organization and discourage self-interested behavior.


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#he %rinciples of the !xecutive "ompensation are&

"lear focus on prots generation

'ong-term orientation of the compensation

scheme(otivation of manager by high bonuses

)on-cash focus of the compensation *stockoptions, shares, share phantom schemes+

isk (anagementalanced corecard implemented into the

"ompensation cheme


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#he executive compensationconsists usuallyfrom two main parts&

hort #erm %ay'ong #erm %ay


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#he hort #erm %ay#he short term pay of the executives is about

the base salary and short term bonuses,which are paid on the basis of the immediateperformance of the organization.

#he bonuses are usually deferred over aperiod of time. #he short term pay is usuallyfully cash based executive compensationcomponent.


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#he 'ong #erm %ay#he long term pay is about the stock options, shares,

restricted stocks and pay based on the performanceagainst the index.

#he shareholders use these long term compensationcomponents to protect the value of the organizationand betting of the top executives on the growingvalue of the organization on the market.

#he long term compensation components can berealized /ust in case, the stock price of theorganization grows. #he long term pay component isusually non-cash based.


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Types of Executive Compensation

#here are many di0erent forms of executive compensation thato0er a variety of tax benets and performance incentives.elow are the most common forms&

Cash Compensation1 #his is the sum of all standard cashsalary compensation that the executive receives for the year.

Deferred Compensation1 #his is compensation that isdeferred until a later date, typically for tax purposes. 2owever,changes in regulations have lessened the popularity of this typeof compensation. !xamples of deferredcompensation include pensions, retirement plans etc


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Long-Term Incentive Plans (LTIPs) 1 'ong-

term incentive plans encompass allcompensation that is tied to performance fortax purposes. "urrent tax laws favor pay forperformance-type compensation.

!toc" options-

3n employee stoc" option*E!#+ iscommonly viewed as a complex call option onthe common stock of a company, granted bythe company to an employee as part of theemployee4s remuneration package


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$estricted stoc"-

5utright grant of shares that are restricted intransferability and are sub/ect to vesting. 5nce vested,

they are economically euivalent to outright ownership ofstock%

$etirement Pac"ages1 #hese are packages given toexecutives after they retire from the company. #hese are

important to watch because they can contain so-called6golden parachutes6 for corrupt executives.

Executive Per"s1 #hese are various other perks given toexecutives, including the use of a private /et, travelreimbursements and other rewards.


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!xecutive "ompensation enetsEmployee &ene'tsis a term used to

indicate the non-wage partof remuneration consisting of a broad range ofspecial payments or benets in kind.

#ypical !mployee enets are&

Insurance,

%ension7retirement benets,


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Income protection7social security,

(aternity pay7daycare7child care,

%rot sharing7!mployee tock 5wnership %lan,

2oliday7vacation, relocation assistance7benets,

'egal assistance, company car, company

computer7internet access,

"ompany mobile phone, (embership of sport and

health clubs7leisure activities during work time,!ducation7personal development, sta0 discounts,

industry-related benets.


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olden andcu*is a form of employeebenets or executive compensation, in whicha *substantial+ bonus is built into anexecutive4s contract, sub/ect to continuousemployment for a certain number of years.

In case of leaving the employment prematurethere would be substantial nancial penaltiesor the entire amount may have to be repaid.


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olden andsha"eis a form of employeebenets or executive compensation, wherein alarge payment made by a company to asenior executive is done upon termination ofemployment *retirement+ before his7hercontract ends.


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olden ellois a form of employeebenets or executive compensation, wherein asigning bonus is given to an executive to

induce him to leave a previous employment inorder to take up a new employment by thepayment of a large sum of money or otherconsiderable remuneration.

uch welcome arrangement could be in cashor in shares or in options.


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olden Parachuteis a form of employeebenets or executive compensation, whereinthe executive is provided with a lucrative

severance package in the event of/ob termination, for example in case of atakeover by an acuiring company. 3 8% mayinclude a continuation of salary, bonus and7or

certain benets and peruisites, as well asaccelerated vesting of stock options.

executivecompensation (1).pptx

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