Pay Packages Explained

Executive pay packages differ substantially from typical salaried or hourly employee compensation because unlike typical employee pay, the vast majority of an executive's pay is contingent compensation and structured only to reward the executive for actual, positive company performance and growth in shareholder value. To this end, executive compensation packages typically utilize six distinct compensation components:

Base Salary

Short-Term Incentive

Long-Term Incentive

Employee Benefits

Perquisites

Severance/Change-in-Control Payments

A company's Compensation Committee will structure their executive's pay packages utilizing a combination of the above components to help achieve the company's Pay for Performance and/or Retention objectives.

Using this article and the text, work through the following: You are on a BOD and head of the compensation committee. The company sales are flat, profitability in the lower quartile for the industry that is growing at 5% per year. Outside consultants have determined it will take three years to turn the company around. Develop a structure for a compensation program for the CEO and key officers. Define the elements, potential measures and targets for a comp program.