{"id":134042,"date":"2023-08-16T00:00:00","date_gmt":"2023-08-15T23:00:00","guid":{"rendered":"https:\/\/gs:8890\/academy\/basics-of-equity-executive-compensation\/"},"modified":"2022-06-19T00:00:00","modified_gmt":"2022-06-19T00:00:00","slug":"basics-of-equity-executive-compensation","status":"publish","type":"post","link":"https:\/\/www.jpmorganworkplacesolutions.com\/uk\/insights\/basics-of-equity-executive-compensation\/","title":{"rendered":"Executive Compensation Plan: How it works & Structure"},"content":{"rendered":"
Company executives make important strategic decisions and goals, and coordinate organizational operations. Having your key employees head-hunted by another organization can be a nightmare for your business.<\/p>\n
Traditional executive compensation packages aren\u2019t enough anymore. It is important to look for new ways to keep them happy and motivated.<\/p>\n
In this post, we\u2019ll discuss executive compensation and introduce a non-cash method of rewarding valuable employees \u2013 executive equity compensation.<\/p>\n
What is executive compensation?<\/b><\/h2>\n
Executive compensation is the combination of salary, benefits, and bonuses offered to executives or other top management positions at a company in return for their work.<\/p>\n
As they are experienced and skilled professionals at the top of their respective industries, companies often compensate them with a more valuable and complex compensation package.<\/p>\n
Why is it important to discuss executive pay?<\/b><\/h2>\n
Executive compensation structure has been widely discussed because it\u2019s important to get it right due to :<\/p>\n
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War for executive talent:\u00a0<\/strong>Approximately 60% of private firms polled compete against public companies for executive talent according to the compensation policy surveys completed by several consulting firms.<\/li>\n
Talent retention:<\/strong>\u00a0Executives or senior management, as mentioned, are key to a company so a well-designed structure helps maintain staff stability and thus grows the company and business profit.<\/li>\n
Public sentiment:\u00a0<\/strong>All public companies are required to disclose how much they are paying their executives and how this amount is derived. Not getting it right can bring a lot of public attention.<\/li>\n
Regulatory<\/strong>: An executive compensation policy of publicly traded companies is overseen by governmental regulations.<\/li>\n
Board of directors<\/strong>: Boards may have concerns about their role in the approval of compensation packages.<\/li>\n<\/ul>\n
What are the components of a typical executive compensation package?<\/b><\/h2>\n
\t\tA typical executive compensation package has financial and non-financial components. They are salary, benefits, bonuses and equity:<\/p>\n
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Salary:<\/strong>\u00a0A fixed yearly salary, also known as a base salary<\/li>\n
Benefits:<\/strong>\u00a0They may include insurance (e.g. health insurance and life insurance) and perquisites (e.g. club\/gym membership and other company mobile phones)<\/li>\n
Bonuses<\/strong>: Considered short-term or annual incentives, they\u2019re usually non-fixed, one-off sums of money, based on KIPs<\/li>\n
Equity:<\/strong>\u00a0Considered a long-term incentive (over 3 years), equity compensation represents a form of ownership in the company and motivates employees to work harder \u2013 the better the company performs, the better their own shares get! It also provides a way to significantly grow an individual wealth compared to fixed cash bonuses.<\/li>\n<\/ul>\n
![\"compensation-package-across-industry\"](\"https:\/\/www.jpmorganworkplacesolutions.com\/wp-content\/uploads\/2013\/08\/compensation-package-across-industry.png\")