Uses of Executive Compensation Survey
Posted: Jun 28, 2017
Executive compensation is a survey is an essential thing to consider when considering an investment opportunity. Executives who are not compensated well will not have the zeal to perform in the best interest of the organization, which can be unbeneficial to the organization. While new laws and regulations have made executive compensation much clearer in company filings, many investors remain clueless as to how to find and read these critical reports.
Paying executives well is good for business. If you Underpay executives, employees will eventually look for a better offer elsewhere. Overpay, and the payroll budget and profitability will suffer. That's why companies use executive compensation surveys to research the value of their jobs.
To decide on the common rate for an executive job, an organization can "benchmark" jobs against compensation surveys that are detailed to the companies' and regions.
An excellent compensation survey utilizes standard, proven techniques of data gathering and accurate analysis to determine how much companies pay for a particular executive job in a specific industry. Some organizations conduct salary surveys, including compensation information businesses, compensation consulting firms, industry associations, and state and federal governments.
Types of Executive Compensation
There are many different types of executive compensation that offer a variety of performance incentives and tax benefits ranging from:
Cash Compensation - This is the sum of all standard cash salary compensation that the executive receives for the year.
Option Grants - This is a list of all the possibilities granted to the executive; the information includes strike prices and expiration dates.
Deferred Compensation - This compensation is conceded until a later date, normally for tax purposes. However, changes in regulations have lessened the popularity of this type of compensation.
Long-Term Incentive Plans (LTIPs) - Long-term incentive plans encompass all compensation that is tied to performance for tax purposes. Current tax laws favor paying for performance-type compensation.
Retirement Packages - These are packages given to executives after they retire from the company. These are important to watch because they can contain so-called "golden parachutes" for corrupt executives.
Executive Perks - These are various other perks given to executives, including the use of a private jet, travel reimbursements, and other rewards.
Evaluating Executive Compensation Surveys
Pay Vs. Performance
One of the most common ways of evaluating executive compensation survey is by comparing pay versus performance. Unfortunately, many executives are given bonuses and rise even when their companies are faltering. Comparing stock to pay performance can help determine whether executives are being underpaid or overpaid. The particular metric used most often is comparing the change year-over-year in executive pay increases to the change year-over-year in stock price.
Apparently, the executive is not overpaid, if the change in the stock price passes the payment change
Another traditional approach to evaluating executive compensation is by comparing one executive to his or her industry peers. While market leaders typically have officials that are paid slightly more than their industries, the majority of executives should be paid on par with their peers.
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