Executive remuneration is the compensation officers of a company receive for services rendered to the organization. Remuneration usually refers to financial compensation and is determined by the company’s board of directors, falling under the purview of corporate governance. Members of the board usually approve executive pay packages that are aimed at creating value for the company and encouraging executives to perform effectively. Compensation packages for executives usually consist of a base salary and additional incentives for performance, such as shares of stock, bonuses and call options on stock. Other parts of remuneration also include insurance, long-term incentive plans, paid expenses, and employee benefits and perks.
Corporate officers are usually the highest paid employees in an organization, and they usually hold the most responsibility. Therefore, executive remuneration tends to reflect this scenario. The main responsibilities of executives are to align shareholders’ interests with corporate strategy and create value for shareholders and the public. Financial compensation is often structured to reflect these expectations, and usually the largest part of executive pay is based on performance. Senior executives, in particular, often receive packages with large incentive options for performance.
Performance options for executive remuneration may include bonuses; however, stock options are often the most utilized form of performance incentive. Considered controversial by some, awarding stock options is meant to align executive’s interests with the best interests of the company’s shareholders. Some organizations may even award restrictive stock to executives in which the executives must meet certain performance targets or other criteria before the stock is sold. Overall, stock options usually account for the largest portion of an executive’s performance incentives.
Perks and other benefits round out executive remuneration packages and are often used to attract top executives. Such perks may include executive housing, interest-free loans, chauffeured limousines, forgiveness of loans, and paid expenses. Other perks might include an office in a prestigious or convenient location, first-class travel arrangements, legal services, club memberships, or a corporate jet. Almost always, a contract for executive remuneration will include a termination provision.
Benefit packages are also an important component of executive remuneration. Packages may include medical insurance, life insurance, and income protection insurance. Investment benefits are often included as well. Examples of investment benefits include college tuition for children, retirement packages, and financial, tax and estate planning services. While employee benefits packages are seldom negotiable, many organizations will offer supplemental insurances packages to boost the attractiveness of the total package for executives.