Executive Compensation Analysis

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performance. Compensation package became a tool to stimulate certain behavior and this concept is mainly represented in the agency theory, and not at all in the stewardship theory. The stewardship theory argues that certain executives are intrinsically motivated to achieve the goals of the company that were set by its owners. For the purpose of this research paper we assume that extrinsic motivation plays the most important role in achieving corporate sustainable performance. Furthermore, we assume that the design of a compensation package and the choice of performance measures have an effect on the executive motivation to behave in a certain way. Thus, the agency theory serves as a basic concept of this paper. Structure of executive compensation. The introductory part of this paper focuses primarily on the theoretical background of executive compensation, the role of motivation and corporate governance approach. The next part is dedicated to the different components of executive compensation package and how it can affect management’s choices. Usually executive compensation package consists of both salary and incentives. Executive compensation is designed to compensate executives for the risk-bearing that doing business entails, and provides the incentive to achieve better results thus maximize shareholder value. Moreover, a lot of companies tend to provide a competitive compensation package to attract the talent. The executive compensation package usually consists of a mix of fixed and variable, short- and long-term options. Higher management often receives a fixed monthly or annual salary, which is usually matched to industry salary and peers in the same industry. The fixed base salary can be determined based on all other dif... ... middle of paper ... ...y beneficiary to executives when companies pursue a growth strategy, because the value of stock options increases with the stock market price rising above the call price. Restricted stock became more popular in the mid-2000s as companies were required to expense stock-option grants. Restricted stocks are shares that are granted to executives on a discount basis. However, they can be forfeited under certain conditions, for example if executive retires before vesting of the stock. When executive is granted with the equity-based compensation, compensation committee usually stipulates the vesting period in the provided vesting schedule. One of the reasons behind compensating executives with restricted stock is to motivate them to stay with the company longer. However, when vesting period is over, stock belongs to executives who can cash them out at their convenience.

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