What Is Executive Pay?

Felicia Dye

Executive pay refers to the compensation that a company provides for a high ranking employee. Such compensation commonly consists of a variety of assets and benefits, such as salary and stock options. The rules determining who makes the decisions regarding this pay tends to differ for public and private companies. In some societies, executive pay is the subject of heated debates because some people argue that these individuals are excessively compensated.

Executives make decisions for their company.
Executives make decisions for their company.

Executives are a company's highest level of employees, including individuals such as the chief executive officer (CEO) and chief financial officer (CFO). These people commonly receive compensation that is drastically higher than that of the average working individual. This is due in part to high cash salaries, but also to the other means of compensation that are included in their pay packages.

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.

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It is common for executives to receive short and long term incentives. This is compensation that is provided for performing well or remaining with a company. Executives commonly receive stock options that make them substantial shareholders in the companies that they work for. In addition to this, executive pay normally includes an attractive retirement plan, lavish expense allowances, and health and life insurance benefits.

Although executives are the top tier of employees, when a company is publicly traded, these individuals do not generally have the power to decide how they will be paid. Their compensation is usually determined by the board of directors and may be subject to stockholder votes. Disclosure of the amounts paid to these executives may also be required. If a company is privately held, the top tier of employees may determine how much they are paid and they may be able to keep that information private.

Executive pay in some societies is the subject of a substantial amount of scrutiny. There are several reasons for this. To begin with, there is often a huge difference between the total amount of compensation for the highest tier of employees and those in the lower ranks. Many people argue that the amounts of money spent for executive pay cannot be justified.

Another reason for the concern is that it is a common practice for executives to receive bonuses. Sometimes these bonuses are paid when a company has not performed well or met its objectives. To aggravate matters, lower levels of employees may not receive raises for these very same reasons. This has led some to call for maximum wage regulations that would subject executives to earning limits.

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