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How is executive compensation typically structured?

In the corporate world, the many terms and procedures of a contract can be confusing and daunting even for the most seasoned professional. Whether you are an executive or the company owner, it can help to go over the terms of an employment contract with a business attorney who has experience in executive compensation.

What exactly is executive compensation? To put it simply, this is the financial package that is developed by your company’s board of directors to compensate the executives of your company for the specialized work they do. According to the Center on Executive Compensation, a compensation package will usually include most or all of the following points:

  • An executive’s salary
  • Yearly bonuses and long-term incentives
  • Benefits
  • Severance packages or change of control agreements

Executive compensation packages are also meant to create an incentive for executives to meet certain conditions that were outlined in the contract, such as company objectives and figures. Failing to ensure these criteria are met can hurt your company’s growth, so it is in an executive’s best interests to strive to exceed goals and ensure continued success. Additionally, it is not considered unreasonable to exact penalties or exclude an executive from certain perks if he or she fails to uphold the terms of the agreement. This may include withholding bonuses, lowering salary, restructuring an executive’s duties or terminating employment.

Executive compensation is structured to allow a company to grow as well as to encourage executives to meet their full potential. It is important to understand that this blog’s content is meant for informational purposes only, and is not to be taken as legal advice.

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