Executive compensation differs substantially from typical pay packages for either
hourly workers or salaried management and professionals in that executive pay is
heavily biased toward rewards for actual results. Hence if a company underperforms,
the executives typically receive a smaller fraction of their potential pay. Conversely,
if a company meets its annual objectives and the stock price responds long term,
the executives stand to receive a much larger payout.
This section of the site describes the typical Executive Compensation program and
explains the most commonly used terms. It includes several charts, including one
below that shows the share of compensation that is at risk by executives, as compared
with managers and hourly employees.
The pay packages given to the senior executives of corporations often consists of
six components:
Executive pay is structured to reward company performance and align executive pay
with shareholder value. As a result, unlike most other employees, a majority of
executive pay is at-risk; in other words, executives may never receive it. However,
if executives and the company perform well, they along with the company's shareholders
stand to gain much more from superior performance.
