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Running Head; Executive Compensation Review
Executive Compensation Review
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1
Executive Compensation Review
2
Executive Compensation Review
Organizations are faced with the challenge of determining the appropriate amount of the
compensation to pay their executives. This is since the company is bound to balance between the
budgetary position and the need to incentivize their executives for better organizational
performance and retention of top-performing executives. The pay for the executives is structured
to motivate the executives to accomplish the company’s performance consistently with the
increases in the stockholder’s value. Unlike other employees, the bulk of their pay is contingent
on the overall company performance, in other words, if they underperform, the pay is equally
low, but if they perform well, their pay is equally high. Usually, the pay packages given to the
executives mainly consists of the base salary, performance-based annual incentives, long-term
incentives, benefits, executive perquisites, and contingent payments (Sheehan, 2012).
The components of the compensation package, as well as how the incentive vehicles are
structured and implemented vary across companies. The base salary is the standard wage that is
paid to the executives. This is comparatively the largest share of the annual compensation
package in many companies. The performance-based annual incentives are short terms
incentives and are mainly allocated as cash rewards for the achievement of the annual milestones
or for achieving the incentivized goals. The long-term incentives are intended for sharing the
long-term value creation with the employees and take the form of equity or enterprise value.
Benefits are non-cash compensations that are provided on annual basis. They often include
provisions such as life and health insurance, paid vacations, and contributions plans.
The executive perquisites constitute additional compensation for the executives and
which are not available to other salaried employee...