When it comes to compensation, the plans for executives tend to differ from that of other employees. This group includes chief executive officers, chief financial officers, vice presidents and, in some cases, directors and other upper-level managers. In addition to a base salary, executive compensation can include some or all of the following:
- Bonuses: The intent of bonuses is to reward performance and can be based on any number of factors, including profits, revenue growth, return on equity or share price appreciation. Bonuses can get into a gray area, however, if they do not hinge on achievements. If executives are automatically awarded a bonus or a portion of their bonus regardless of the company’s or executive’s performance, they technically become part of the salary.
- Incentives: Many companies offer incentives to their executives. Most often, these come in the form of stock options. Similar to a bonus structure, stock options are meant to link the performance of the company with how much the executives earn each year. In general, stock ownership programs tend to do a better job of incentivizing employees of all ranks.
- Sign-on bonus: In addition to the executives’ base salary and quarterly or yearly bonuses, many are also given a signing bonus to lure new talent to the company.
- Additional perks: Like any employee of a company, executives get perks like paid time off, paid sick leave and insurance. Quite often, however, these perks are more generous for higher-ranking staff. They can generally expect additional vacation days or a better insurance package.
When combined, the salary, bonuses and financial incentives are known as total cash compensation most factors are at least somewhat negotiable before the employment contract is signed.