Executive compensation consists of salary, bonus, long-term incentives, and perquisites. Salary makes up 40-60% of compensation but is subject to taxes, while bonuses and stock options are meant to motivate and incentivize. Perquisites include benefits like cars, club memberships, and first-class travel. Compensation packages also include retirement benefits, health insurance, and vacations. Public sector executive pay is much lower than private sector. Companies determine pay based on job complexity, their ability to pay, and the executive's human capital.

1. Executive Compensation
Dr. G C Mohanta, BE(Mech), MSc(Engg), MBA, PhD(Mgt)
Professor

2. Introduction
Executive Compensation is the compensation paid to
executives of business corporations
Managers in short supply
Organizations competing with each other to attract,
retain and motivate managers for their strategic
requirement

4. Elements of Executive Compensation
Higher managerial post are - presidents, vise-
presidents, directors, general manager, etc
Managerial remuneration of such positions
comprises of 4 elements:
1) Salary
2) Bonus
3) Long Term Incentive
4) Perquisites

5. SALARY
Salary determined through job evaluation and serves as
basis for other benefits
Job evaluation plays only a part for managerial
compensation
Manager is paid for his capabilities and for job he
performs
Norms of wages and salary fixation are generally not
observed while fixing salary of manager

6. SALARY
Salary of managers varies by the type of job , size of
organization, region of the country and type of industry .
Salary makes up of about 40 to 60 % of top managers’
annual compensation but it is not significant , as it is
subject to deduction at source
To avoid such deductions managers are offered incentives
and attractive perks

7. BONUS or PROFIT SHARING
This type of incentive is annual and based on company
performance or profit sharing
There are many bonus system as there are companies
using this form of managerial remuneration
In some system annual bonus tied to share returns on
investments
Other bonus plans are based on subjective judgments of
board of directors and CEO’s
Managers deserve bonus because they have much more
stakes to influence organizational success than non-
managerial staff

8. LONG TERM INCENTIVES/STOCK OPTIONS
If bonus are short term benefits , stock options are
long term benefits offered to managers
Companies allow managers to purchase their shares
at fixed price
Stock options valuable as long as price of share keeps
increasing

9. Perquisites
 Special benefits for executives usually non-cash items:
- Companies provide health club memberships with personal trainers
- Discounted company products
- Automobiles
- Country club memberships
- First class airfare or use of the corporate jet
- Executive health plans
- Personal car service
- Personal computers and cell phones
- Entertainment
- Financial planning assistance

10. BENEFITS FOR EXECUTIVES
Retirement benefits
Health insurance
Vacations
Health plans with no payments by executive and
no limitations are popular among small and
middle sized business
Trust may be designed to help executives to deal
with estate issues
Deferred compensation offers another possible
means of helping executives to overcome tax
liabilities

11. Unique Feature of Managerial
Remuneration
Managerial remuneration cannot be compared to wage
& salary schemes meant for non-managerial employees
Managers are denied the privilege of having unions and
collective bargaining
Their competence and contribution are the strengths
for determining their pay package
Secrecy is maintained in respect of managerial
remuneration.
No two managers in private sectors, in same grade
receive same pay
Compensation and reward depends upon such factors
as competence , length of service , contributions, and
loyalty to the company

12. Unique feature of managerial remuneration
Managerial pay is based organizational performance
Manager’s own performance directly reflected in corporate
performance
Managers compensation is subjected to statutory sealing
Monthly salary may vary from Rs 40,000 to 100000 subject
to limit fixed per annum
Exorbitant amounts are paid to executives in some
organizations.
annual salary of CEOs’ range from Rs 50 lakhs to few crore

13. Why Managers Should Be Paid More
Managers can have considerable worth , hence command
hefty premiums
Manager’s success is the means by which organizational
goal is achieved
Financial reward is a symbol of manager’s role, its power ,
its dignity and its freedom
Organisation pay heavily to attract and retain talented and
competent manager
Manager may be motivated sometimes for better
performance through money
Lifestyle of manager needs considerable amount of money
For manager financial reward is symbol of social prestige
and position
High compensation is made to manager to eliminate or
minimise corruption .

14. Mythologies cum Strategies for
Managerial Compensation
Salary/basic salary/consolidated salary continues to
remain a major component of compensation
Performance determines pay and future revisions for
individual managers
Grade wise flat allowances are consolidated , except where
tax exemption benefits are available .
Allowances linked to basic salary as a percentage or by
slabs and those increase at discretion
Reimbursement of expenses incurred for company's work
are paid to executives
Expenses is not considered as part of compensation
Annual payments, such as, bonus, commission and leave
travel concession may be paid to executives
Some tax relief is applied for the later

15. Benefits
Benefits generally comprises of :
- Furnished or unfurnished company owned or leased
accommodation
- Use of company owned or leased vehicle
- Medical coverage
- Provident fund
- Pension
- Superannuation gratuity
- Post retirement medical assistance
- Easy loan scheme for utility items , vehicle or furniture
- Renting employee owned housing
- Club entrance fee reimbursement

16. Benefits
Minor benefits could be:
- Provision of security
- Drivers
- Gardening assistant
- Sales of products or assets at the concessional rate
- Relocation and transfer expenses including admission
fees for children
- Credit card fees,
- Phones

17. Benefits
Most of the companies are now moving away
from traditional compensation package: basics,
DA, HRA etc. to cost to company basis
Companies are talking in terms of gross salary
and asking managers to do their own tax planning

18. Benefits
Some companies give executives freedom to design
package keeping in view of total cost
Flexibility is given to executives to choose their lifestyles
within certain parameters
Performance linked payments , bonus, generous
increments and merit pay are given
Trend is to move away from seniority and hierarchy
system and attach value to performers
Concept of star performers are gaining ground
Lifestyle perks (good accommodation, club membership,
liberal furnishing, holiday abroad with family ) continues
to be the practice

19. New Way of Pay
Organizations are increasingly linking their variable
pay plans to individuals, teams and organizational
performance
Individual/team performance based profit sharing,
productivity based individual/team profit sharing,
productivity based incentives, stock options and
ownership and other customized schemes
Organizations with strategically aligned variable
compensation have experienced a positive impact on
individual as well as organizational performance
Companies have leveraged the variable pay to
aggressively position their top performer at the top
end of the market

20. New Way of Pay
Companies are experimenting with “cost to company
"concept , with focus on high compensation structure
New & emerging sectors like retail , telecom, aviation &
IT/ITES with younger employees adopt ing simplified pay
structures
With flexible pay structure employee can choose from
defined items of pay and optimize his own tax planning
This has gained acceptance and providing flexibility to
employee and tax compliance to organization

21. INDIAN PRACTICES
Executive compensation in India built around
three important factors:
Job complexity
Employers ability to pay.
Executive human capital

22. PRIVATE SECTOR vs. PUBLIC SECTOR
The salary of top executives of public sector are
miserable compared to private sector:
S B I chief is paid 10 % of HDFC Bank Managing
Director
BHEL’S chief is getting about 10 to 12 lakhs per
annum as against Asea Brown Boveri’s (ABB) MD
getting nearly 40 to 50 lakhs

23. EXECUTIVE COMPENSATION OF ORACLE
Basic salary
Conveyance
Special allowances
Gratuity
Provident fund
HRA (House Rent Allowances)
Traveling Allowances
Medical claim
Bank facility

24. IBM EXECUTIVE COMPENSATION PACKAGE
Two main components of executive compensation
package
 Base salary and Cash Incentive/Bonus
 Long-term Incentive Compensation
Three main elements drive compensation package
 Competitive marketplace
 Complexity of leading IBM &
 Gerstner performance
- Pay for performance not loyalty or tenure
- Differentiate pay based on the marketplace
- Differentiate increases based on individual performance pay in
marketplace
- Differentiate bonuses based on business performance and individual
contributions
- Differentiate stock-option awards based on critical skills of individual
and risk of loss to competition

25. Executive Compensation at Disney
Base Salary
Performance based annual bonus
Net Income, Return on Equity (ROE), Return on
Assets (ROA), Earning per Share (EPS)
Stock or cash awards
Stock options

26. THANK YOU