What Is Executive Pay?

Executive compensation refers to the use of incentives by shareholders to eliminate conflicts of interest between executives and shareholders, so that executives can maximize shareholder value while pursuing their own interests.

Executive compensation

Executive compensation refers to shareholder incentives to eliminate

The main components of executive compensation are generally: salary + bonus + long-term incentive compensation. Salary is a fixed salary and has nothing to do with the performance of the executives; bonuses are part of the rewards based on the performance of the year, and executives must meet certain performance goals in order to get. While long-term incentive compensation includes stocks or

Why motivate executives? This starts with the agency relationship between shareholders and executives. The company's shareholders hire senior managers to manage the enterprise, and a trust-agent relationship is formed between the shareholders and the executives. This

[Assessment Index]:

A senior staff is mainly based on strategic assessment, such as profit, cost, market, talent, product, system;

The middle-level personnel are mainly based on BSC indicators, while assessing financial performance, learning growth, service satisfaction, and process execution;

Evaluation of three employees, focusing on goals, such as production volume and sales

Four functional categories of assessment, linked to total performance and total profit;

Five project assessments, linked to project management, performance, and standards;

Six technical assessments are linked to market performance satisfaction.

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There are many types of long-term incentive compensation, but we believe that the most basic forms of compensation are mainly restricted stocks, stock subscription rights, and performance units. Other forms such as shadow stocks and stock appreciation rights are mostly their variants.

Executive compensation restricted stock

This is to grant real stock to senior management, but the exercise of stock rights is subject to certain conditions. Usually the simplest constraints are time constraints and the requirement to continue employment in the company. The biggest risk of this kind of reward is that executives may lose these stocks when the restrictions are not met. Therefore, the more difficult it is to monitor and judge the impact of manager behavior on the company, the more appropriate it is to give incentives to stocks. For example, in high-growth industries and development stages, granting restricted stocks to managers can greatly stimulate managers' entrepreneurial enthusiasm, which is also common in Chinese private high-tech enterprises.

Executive Compensation Stock Call Option

This is to give the manager the right to buy the company's stock at a fixed price agreed in advance within a certain period. If the manager meets certain conditions stipulated in advance within this period, then he can exercise the right to purchase shares in accordance with the conditions stipulated in advance. Stock call options are essentially an option. Whether to exercise this right depends mainly on changes in the stock market price. Obviously, when the performance of the company becomes better due to the hard work of the manager, the market price of the company's stock may be higher, and the greater the benefit that the manager receives from the exercise of stock options. This is the effect of incentives. Therefore, the premise of using this incentive method is that the stock market is reasonably evaluated, and the stock price can truly reflect the manager's efforts.

Executive compensation performance unit

This means that the company pays a certain number of performance unit stocks to executives based on industry rankings. For example, the company selects 10 companies in the same industry for the annual industry ranking, with 10,000 shares as a performance unit. If the company ranks in the top three, the executives are awarded 3 performance units (ie 30,000 shares); 6, awarded 2 performance units (20,000 shares); etc. The key point of using this type of incentive is to choose the appropriate peer companies and rank according to the appropriate indicators.

At present, when China chooses long-term incentive rewards for executives, it is generally in the form of stocks or stock subscription options as the only way, which is very immature. We need to choose richer content to combine according to the actual situation of the enterprise. In fact, most U.S. companies don't just use long-term incentive rewards, but usually a combination of several incentives.