Explain three types of Executive Compensations

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kipling2448 | (Level 3) Educator Emeritus

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There are at least half a dozen types of executive compensation that come rapidly to mind, but to emphasize three, some logical examples could be salary, performance bonuses, and what are generally referred to as “perks.”  All three are common forms of executive compensation.  The first is the easiest to understand, as it is common to most management-level positions.  When a company hires a new executive, or promotes someone from within the organization, it is common for those doing the hiring or promoting to negotiate a total compensation package with the newly-hired or promoted individual.  The first part of that negotiation involves the base salary to be paid.  This is the minimum amount of income the executive in question will earn irrespective of performance and corporate earnings.  He or she is guaranteed at least that amount of money during the course of the year. 

The next form of compensation commonly provided to executives are performance bonuses.  These may or may not be negotiated during the hiring or promotion process, but typically are included as part of an executive compensation package.  Performance bonuses are precisely what the name suggests:  additional money provided to the executive as a reward for meeting certain specified goals or objectives, for example, an increase in production within the executive’s department or the successful signing of a lucrative contract with a client.  Many executives count on performance bonuses as a part of their overall compensation package and may suffer financially if they assume the bonus will be provided but isn’t, either because the executive failed to meet his goals or because the corporation in question has suffered financial losses for any particular reason, including reasons well-beyond the control of the executive.

A third form of executive compensation are known as “perks.”  Perks are non-monetary forms of compensation that enhance the quality of the executive’s life, for example, use of the company jet for business trips, use of a corporate gym or tennis court, a better-than-usual parking space, or use of an executive dining room.  Perks can consist of any number of possible privileges that may have a certain monetary value attached, but are not funds paid to the executive.  Again, an executive being recruited by a business might negotiate certain types of perks as part of his or her total compensation package.

As noted, there are additional types of executive compensation, but these are three of the more common ones.

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