Executive Compensation

Executive compensation is the sum of all financial benefits given to top executives (C.E.Os.) because of their services rendered to the firm.

According to Dhanya Joy executive compensation is a very important aspect of an employee’s hiring. It includes things like a basic salary, incentives, employee benefits and other components of an executive’s remuneration (Dhanya Joy). The effect of compensation in an organization cannot be overemphasized. In hiring the best out of the many executives out there and in order for a firm to pull out good executives in other organizations to their own organizations, firms must be ready to give a good compensation package to any top executives they are willing to hire. The effect of compensation to an organization goes a very great deal to get the best managers and when we even take a look at some soccer clubs such as Real Madrid, Barcelona and even top multinationals in the business environment, it is seen that the best compensation in turn provides the best managers which can lead to a great success of organizations.

So many components make up the executives’ compensation, some of which include;

1. Salary

Dhanya Joy says salary is the single largest component of an executive’s compensation. A lot of factors such as education are used in determining an executive’s salary and the salaries can be paid hourly, weekly or monthly. It depends on the agreement between the executive and the organization.

2. Total Cash Compensation

Short and Long term benefits are what makes up the total cash compensation for an executive. The total cash compensation may include compensation such as the C.E.Os annual base salary, annual stipends, auto allowance and all other forms of cash compensation but it should be noted that compensation such as temporary housing does not form part of the total cash compensation.

3. Deferred Compensation

This form of compensation works as the name implies .It is a form of compensation that is based on an agreement between the executive and the employer that certain amount of money will be removed from the executives’ salary and will be paid at a future date. It can be used to keep executives faithful to the job for a long period of time. It is usually paid at a certain period of time. This form of compensation can come in every 3years, five years etc. A good example is Frank Lampard of Chelsea Football Club who is willing to remain in Chelsea by all means till August 2013 because of the compensation he will be entitled to at that point in time.

4. Equity, Stock Options and Restricted Stock

Median total CEO compensation between 1992 and 2000 was produced largely by a fivefold increase in stock options (Murphy, 2002).Stock options have little or