Executive pay packages differ substantially from typical salaried or hourly employee compensation because unlike typical employee pay, the vast majority of an executive's pay is contingent compensation and structured only to reward the executive for actual, positive company performance and growth in shareholder value. To this end, executive compensation packages typically utilize six distinct compensation components:
- Base Salary
- Short-Term Incentive
- Long-Term Incentive
- Employee Benefits
- Severance/Change-in-Control Payments
A company's Compensation Committee will structure their executive's pay packages utilizing a combination of the above components to help achieve the company's Pay for Performance and/or Retention objectives.