Well-drafted executive compensation programs aren’t just used to recruit and retain top-level leadership to your company. Public and private companies can tailor executive pay packages to encourage executives to achieve certain goals.
We can put strings on short-term and long-term benefits to drive executive behavior and that’s one of the things that’s really coming to the forefront now.
What are the key components of an executive compensation program?
In general, an executive compensation program consists of four key parts. These are base pay, annual bonus, long-term incentives, and perquisites, which could include car allowances, country club memberships, executive physical programs, security services, and use of the company airplane. Because of recent economic events and more scrutiny by shareholders, perks are not such a big part of he package anymore; employers are providing higher base pay and instructing executives to acquire the perks on their own.
An optional component is a sign-on and/or retention bonus. A sign-on bonus is appropriate when trying to hire an executive from another company who would lose a bonus if he or she left. The retention bonus — a promise to stay through a certain date or event in order to receive a bonus— is used when you have incurred hard times and worry the executive is going to leave.
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