Executive Compensation: It's not how much you pay, but how?

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Today, every business organization around the globe is trying its best to cope up with the changing trends and increasing levels of competition. Whether it is technology adaptation, skill development or changing marketing strategies, businesses invest the best they could to achieve the desired success. However, the need of employee compensation & benefits is one such area where many businesses fail. Overlooking the need of compensation management may sometimes cost serious threat to your business goals.

What is Executive Compensation?

Executive compensation is often referred as employee compensation or executive pay, which is nothing but a financial compensation or non-financial rewards, which is give to an employee or executive by the company/organization where s/he serves. It may be in the form of salary, company shares, bonus or expensive gifts, which are received by the employee for his/her work.

Evaluating the Need of Executive Compensation

Employee or Executive is an important aspect which every business organization must consider while evaluating its business investment plans. It must be noted that an improperly compensated employee will never be interested to work for company’s interest.

Compensation isn’t only about paying your employees. Rather, it must be considered as a strategic tool to motivate your workforce, which in return will help you in achieving business results effectively. In your business organization is not considering executive compensation as an initiative strategy, you’re probably on the wrong way.

Many research have proven that business organizations with effective compensation strategies are much stables and profitable than the ones who ignore it. There are many crucial aspects which you must consider when planning executive compensation for your business organization.

What are the goals you want to achieve with executive compensation plan?

The goals of employee compensation plan will vary from one business organization to other. Similarly, the compensation management process will also differ. Your plan will offer great incentive to employees who work hard to drive your business growth. If crafted properly, your compensation plan will help in improving your company’s employee retention rate and great talents will always love to stay associated with your company. Ensure that your employees are well aware your businesses’ goals.

How you will measure the success of the plan?

It is very important to have a strong and effective plan to measure the success of your firm’s executive compensation plan. Based on the changing trends, metrics and analysis, your plan must be tweaked or changed so that it suits the changing needs. If you do not have a proper tracking and measurement technique, you plan will never stand accountable for your business growth.

How much you are willing to pay?

Before coming to any conclusion, you must try to find out how much your business turnover allows investing in the compensation plan. There must be a strict policy to track the investments and its probable outcomes. Without a concrete strategy, all your compensation plans will fail to achieve its goals.

It's not how much you pay, but how you pay?

The most important aspect you need to consider is not how much you pay, but how you pay. There are a number of ways to compensate your executives. And it isn’t only bonus cash. Let’s have a look at some major type of compensation:

Cash Compensation

The most basic type of compensation is cash or bonus salary. Other than the basic salary, your employee will receive additional cash in the form of bonus. The amount of cash depends on your compensation sharing plan, which may differ from one business to other.

Company Stocks

The next big thing is a share in the company’s stocks. When the stocks’ price increases, the employees can reap huge benefits. However, when it decreases, the investors as well as employees lose money.

Stock Ownership

Stock ownership is a great way to benefit both your company and the employees. Your company can give additional bonuses with a compulsion to buy company’s shares. This will also benefit is targeting your investor’s interests.

Deferred Compensation

This type of compensation is mostly given on a later date, mostly for tax purposes. However, it isn’t popular these days.

Long-term incentive plans (LTIPs)

This is one of the best ways to compensate your employee. LTIPs or long-term incentive plans involves all types of compensation including performance for tax purposes. The current laws also favor this plan.

Retirement Packages

This is a very good way to appreciate your retiring employee who has served a major part of his/her life in your company. Essential health benefits as well as other perks in the retirement package will serve the purpose effectively.

Executive Reimbursements

You can offer Executive Reimbursements which may cover travel expenses, medical insurance or gym-memberships to your employees, which again is an effective way to compensate your employee. It is also in trend these days.

Having any effective and strategic compensation management plan will not only help your employees but will also help in achieving your businesses’ goals and profits in a longer run. It’s all about how you strategize compensation plan for your business organization.

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