One of the most debated and critically analyzed financial decisions within an organization is deciding on executive compensation. The usual questions are: What factors should you consider? How to structure it correctly? How do you align it with business goals and group performance? It is indeed a difficult task to comprehend all the elements and then design a great executive compensation package.
No matter how difficult it may sound, it is extremely important to get it right. The top executives in your organization are responsible for preparing the strategies, implementing them, and ensuring that you are on the growth trajectory. Additionally, these packages are often scrutinized by the board, regulatory bodies, and other interested parties. This package plays a pivotal role in retaining top executives and maintaining stability.
It might be a challenge, but it is not an impossible task. If you understand the components that go into this compensation and then follow a stepwise approach, it becomes simpler! Multiple components go into this package – fixed pay, performance-linked pay, stock options, perks, medical and family welfare benefits, retirement plans, and other such benefits.
To design a sustainable executive compensation package, you need to identify your corporate goals followed by benchmarking the current package with the industry standards. Get all the involved stakeholders on board, take their opinion, and decide who would be eligible for this package. Once finalized, make sure you document and communicate the same with the concerned party. Remember this is not a one-time activity, come back and revise the plan to continuously meet the changing business landscape and organizational needs.