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Executive Compensation
Introduction

For the higher management, salaries are influenced by the

size of a company, performance of the company, by the
specific industry, and in party by the contribution of the
incumbent to the process of decision-making. The more
profitable the organization is the firm, the better is the
compensation paid to the executives.
The industries that are more highly constrained by
governmental regulation (banks, life insurance, railroads,
public utilities) pay relatively less than those that are more
free to carry on their business (private firms).

Executive remuneration has certain unique features,

such as:

1 (1) It cannot be compared to the wage and salary

schemes meant for other employees in organization.
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3 (2) Executives are denied the privilege of having
unionized strength.

4 (3) Secrecy is maintained in respect of executive

remuneration

5 (4) Executive pay is not supposed to be based on

individual performance measure but rather on unit or
organizational performance.

6 (5) Executive remuneration is subject to statutory

ceilings in some respects

Executive remuneration generally comprises four

elements: -
1 (i) Salary and allowance
2 (ii) Benefits
3 (iii) Incentives (Bonus and Stock Option)
 4 (iv) Perquisites
Description of each element:

Salary is the first component of executive remuneration.

Salary is supposed to be determined through evaluation and
serves as the basis for other types of benefits.
Bonus plays an important role in today's competitive
executive payment programmes.There are almost as
many bonus systems as there are companies using this
form of executive remuneration. If bonus constitutes
short-term benefit, stock options are long-term benefits
offered to executives. Stock options are attractive to
shareholders too.

Perquisites contribute a major source of income for

executives.

Bonuses related to performance are also aid to executives at

a certain percentage of the profits. The bonuses may
average from 30 per cent- to 50 per cent of the basic salary.
These bonuses operate most effectively in increasing
motivation when the following conditions exist:

• The amount paid is closely related to the level of

individual performance;
• The amount paid after taxes represent a clearly
noticeable rise above the base salary level.
• The amount paid is closely related to the level of
company performance;
• The amount paid is tied into the base salary in such a
way that the combined earnings are equitable both in
relation to internal and external standards;
• The amount paid is reduced drastically whenever an
individual experiences a real and continuing decrease
in performance effectiveness;
• The amount paid is based on an easily understandable
system of allocation, and the individual is provided with
complete information on the relationship between
bonus and performance.
Moreover, executives are compensated for the various
expenses incurred by them, for taxation takes away a major
portion of their salary. Such payments are in the form of –
(a) Medical care;
(b) Counsel and accountants to assist in legal, tax and
financial problems;
(c) Facilities for entertaining customers and for dining out;
(d) Company recreational area (swimming pool and
gymnasium);
(e) The cost of the education and training of executives,
scholarships for their children, and allowances for business
magazines and books; and
(f) Free well-furnished accommodation, conveyance and
servants.

All these go under the head of perquisites.