What to ask in an executive compensation package depends on the employer and the position, but the most common components include:
Base Salary
The base salary for executives is stated as an annual salary even though it is paid monthly or weekly like the other salaried staff. The pay for the chief executive officer varies depending on the industry, company, and executive tenure. In most cases, CEOs receive a base salary of $1 million or more.
Short-Term Incentives
The purpose of short-term incentives is to reward executives for achieving short-term business goals. These incentives are paid in cash and are mainly expressed as a percentage of the executive's salary.
Equity Compensation
Most executive pay packages are in equity, mostly company stock or a derivative form of company stock. Equity compensation is based on the company's stock price, so as the value of the stock increases, the equity value increases. The three types of equity in executive compensation include:
Stock Options: Companies use stock options to link executives' financial interests with that of shareholders. In stock options, the holder is given the right to purchase the company's share at a particular price for a specified time. Companies also offer other incentive plans under stock options like Stock Purchase and Deferral Plan (SPDP).
Restricted Stock: Though restricted shares may be awarded to executives as compensation, they are not sellable before the vesting schedule is complete. However, owners enjoy other benefits that come along with shares, like dividends and voting rights.
Restricted Stock Units (RSUs): This compensation type is similar to performance compensation. An employer promises an executive staff to pay a specified number of company shares after completing a vesting schedule. RSUs have several distinct advantages compared with restricted stock.
Employee Benefits
Executive benefits programs are similar to the ones offered to other salaried employees. They include statutory benefits like workers' compensation, Medicare, Social Security, and unemployment insurance. Executives also enjoy other company benefits like holidays, vacation, severance pay, medical and life insurance. They also participate in retirement plans like 401(k), deferred compensation plans (DCP), employee stock purchase plans (ESPP), cash deferral plans (CDP), among other benefits.
