There is no such thing as the “average” company or a “normal” executive. Unfortunately, because no two businesses and no two executives are exactly alike, it can be difficult to determine what a typical executive compensation package could or should even look like. So much depends on various factors like a company’s financial standing, its industry as a whole, and the unique abilities of the executive in question. However, to help businesses get a better idea of how they should structure their executive compensation packages, today we’ll explain what methods they can use to create them. Check it out here:
Unsurprisingly, all compensation packages begin with a base salary. On occasion, a business may be in a position to simply increase the base salary figure in order to retain an essential executive. Additionally, some businesses incorporate delayed cash payments into their regular compensation plan to free up extra cash in the short term.
Additionally, some businesses incorporate delayed cash payments into their regular compensation plan to free up extra cash in the short term.
Businesses can also choose to reward top executives with performance-based bonuses. Short-term bonuses generally operate on an annual basis and can be directly tied to company performance and growth. For instance, an executive may trigger a bonus in their contract if the organization grows their overall revenue by a predetermined percentage at the end of the year.
Similarly, long-term bonuses can cover achievements and progress measured over a longer period of time — often 3-5 years. While these bonuses may consist entirely of cash payments, businesses may also include increased stock options as a form of compensation as well.
In lieu of increased salary or cash bonuses, some businesses decide to include more stock options in their compensation plans for executives. Stocks are appealing for many reasons to both companies and executives. They may provide a business with a flexible way to satisfy a talented executive without overstretching their available capital. Plus, they can be structured to include vesting periods, which will ensure that an executive won’t be able to transfer the stock and realize it until certain time restrictions have been met. Stock options are incredibly versatile and nuanced, so it’s important for businesses to determine how to best present them in any compensation package before they implement this plan.
Insurance & Retirement Coverage
Depending on the needs and preferences of the executive, some businesses may decide to offer generous insurance and retirement packages within their compensation models. This could cover everything from health, life, and disability insurance for an executive and their family. Retirement packages in their own right often contain some form of healthcare coverage as well.
Also known as perquisites, creative businesses can offer their executives special benefits to entice them to stay on board. Examples of these extra perks could include anything from admission to an exclusive club or access to a private jet. These perks depend largely on the nature of the company and the desires of the executive and can be difficult to gauge or predict without proper context.
Creating a compelling and financially sound executive compensation package could allow a company to retain key team members and build a more successful future. At Blue Herring, we’re experts in business strategy, and we’ll work closely with your team to analyze your situation from all angles and form unique, customized compensation solutions. Contact us here to learn more!