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Executive and managers have a significant impact on the success of a business. They constitute an important group. In addition to a base salary, they are usually entitled to a variable compensation based on results and to advantages linked to their status.
The typical compensation program of executives in private companies includes:
- A competitive and equitable base salary which takes into account responsibilities, market, competencies and performance;
- a significant bonus based on yearly results;
- a long term incentive program based or not on real shares of the company; often it is a bonus based on long term results, this does enhance employee retention and the organization’s long term success;
- selected benefits include a company provided automobile or an allocation and possibly other benefits.
Different factors affect the level and structure of a compensation program. Its industry and size will contribute to the determination of the compensation level. Its organization structure and management philosophy will impact the compensation structure and modes. Its developmental stage and its business strategy should impact on the incentive programs criteria.
Short term incentive programs (generally based on one year results) are a form of compensation based on individual or the organization’s performance. Performance may be measured in relation to pre-determined objectives or, alternately, may be on a discretionary basis. Almost all organizations offer a short term incentive program to their executives. The amount varies on the basis of the success of the organization or of the executive.
While publicly traded corporations allow their executives to earn significant amounts of money through their long term incentive programs, this type of program is far too neglected in privately held companies. Hence, they could help attract and retain key executives. Introduction of a long term incentive program in a private company is an important engagement. This type of program must be developed with care because of its long term implications. If there are risks in introducing such a program, there are also risks in not introducing one. It is prudent to create a close financial link with those individuals who will ensure the organization’s success.
The other components of the compensation program typically include special benefits in addition those offered to other employees . |
