|An executive compensation package is the total value of base salary, annual bonus/incentives, the expected values of all longer-term programs, and benefits and perquisites expenses. The following is a brief overview of each of the components:
Base salary is the “fixed” component of the compensation package. Base salary is the value that the organization attributes to a position and are typically based on competitive levels within the relevant labor market, and may vary within a set range based on performance.
Bonuses and/or incentives are one of the “variable” elements of the total compensation package. Annual bonuses/incentives are typically awarded based on the employee’s contributions, in conjunction with the organization’s financial performance, payable in cash or a combination of cash and stock. Bonuses tend to be discretionary, whereas incentive awards are determined by a formula.
Long-term incentives are one of the “variable” elements of the total compensation package. Performance periods typically run from three to five years or may be geared to “career” wealth accumulation. Long-term incentives can be either cash or stock based.
Benefits are a “fixed” component of the package and typically consist of health coverage, life insurance, short- and long-term disability coverage, retirement programs, etc.
Perquisites & Supplemental Benefits
Perquisites and supplemental benefits are “variable” components that provide executive level employees with additional benefits above those typically provided to employees in general. Perquisites and supplemental benefits may differ by officer level and between companies. Examples of supplemental benefits include full medical expense reimbursement, additional life insurance, post retirement medical coverage, etc. Examples of perquisites include company car/car allowance, club memberships, cellular phones, meal and travel allowances, first class airline travel, etc.