What Is Executive Compensation?

Jim B.

Executive compensation refers to the amount of pay received by the top employees of large companies. This compensation can come in many forms, including base salary, stock options, and bonuses for performance. The topic of executive compensation is often a controversial one, since many people feel that executives are paid out of proportion to their contributions to a company while rank-and-file workers struggle to get by on menial salaries. By contrast, some would argue that many executives, who must have the experience and expertise to oversee large corporations and make daily decisions involving large sums of money, deserve the money they receive.

High-level executive payment contracts use the term "remuneration" rather than salary to indicate that a total compensation package can consist of more than just wages.
High-level executive payment contracts use the term "remuneration" rather than salary to indicate that a total compensation package can consist of more than just wages.

Since they stand at the top rung of the business ladder, executives often demand extremely high pay. To get to that point, they often have to work for a long period of time and demonstrate a high degree of competence at the many skills required to run a business. Considering how much is at stake concerning the work they do, it makes sense that executive compensation is significantly higher than that of other employees. Still, some would argue that skyrocketing pay to executives can get out of control.

There are many factors that determine the executive compensation for a chief executive officer or other top business employee. Experience is a big factor, since, as with other jobs, salaries for executives tend to rise as they put in more time on the job. Performance is another key factor, since a successful firm tends to reward its leadership for their efforts.

It is important to understand that executive compensation might not be limited to just salary. In fact, many executives get the bulk of their yearly pay from sources other than salaries. Some executives are rewarded with ownership shares in the company or even stock options that allow them to purchase valuable company stock at a favorable price. Bonuses are another way that companies can get around any existing salary restrictions. These bonuses often reward an executive for some statistical benchmark reached by the company, like a certain amount of earnings or a rising share price.

In times of economic turmoil, many critics of executive compensation point out how much better executives are compensated compared to average workers. These critics consider this disparity something of an outrage when many people are struggling to pay for the necessities of living. Others would argue that the heavy demands placed on executives who must lead their employees and satisfy the company's bottom line require them to be paid a significant amount.

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