Breaking Down Executive Compensation

Executive compensation is something that investors will want to take a look at before investing in a particular company. Executive compensation has risen dramatically over the last few years and you want to understand how a company values its executives before you invest with them. Here are the basics of executive compensation and why it is important.

Salary

One form of executive compensation is the salary that executives receive. Executives typically receive some type of fixed salary in addition to their other types of pay. This salary is going to be paid regardless of the performance of the company or any other outside factors.

Short-Term Incentives

Another way that executives are paid is through short-term incentives. Short-term incentives provide executives with bonuses for short-term projects. For example, if they meet a certain quarterly goal, they may get a small bonus.

Long-Term Incentives

Executives can also get bonuses based on long-term goals. These incentives provide extra compensation when long-term budgets are met.

Benefits

Most executives also have a solid benefits package as part of their compensation. These benefits will include things like comprehensive health insurance, dental insurance, vision insurance, flexible spending account, paid vacation, and sick days. These are extra incentives that are paid for by the company in order to reduce personal expenses for the executive.

Perks

Many executives also received additional perks. For example, they might get a chauffeured limousine, a jet, or some other type of perk for being an executive. 

Golden Parachute

Many executives also receive a golden parachute. This is a form of compensation protection. This means that if they are fired for any reason, they are going to receive a generous severance package. This helps when a company is at risk of being bought out by another company.

Who Decides on Compensation?

Since executives are at the top of the corporate ladder, they cannot choose their own compensation. In order to decide on how much executives are going to be paid, the Board of Directors of the company will vote on how much they should be paid. This provides some level of control for the company.

Regulation

Executive pay is one area that is regulated by the SEC. When a company decides on compensation for an executive, they have to file certain documents with the SEC and that information becomes part of public record. There are a few different places that you could potentially find information about executive compensation for a company. For example, you can find it in the annual proxy statement, the annual report on form 10-k, registration statements, and on the current report of the company on Form 8-K. 

Investors

As an investor, you can access this information and determine how much a company is paying their executives. You want to find a company that pays their executives fairly, but you do not want to see a company that is overpaying their executives. Finding a company that treats their executives fairly but not as if they were royalty can help you see that the company has solid values. 

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