Short-termand long-term ideas for executive incentives
Bonusesare calculated using a particular formulae and characteristicallycontain some performance criteria that are attached to them dependingon the role that the executive have in the organization. The idealbonuses plan given to the executive should be based on theincremental profit and the growth of revenue. This ensures that itencourages the executive to understand how their decisions affect theperformance of the organization.
Thesestock incentives includes
Stock options that are described as a contract between the company and the executives that give them a right to buy the entity shares at a price that is fixed within an agreed time.
Restricted stocks are given to the executives and cannot be sold until some conditions are met.
Theidentified long term incentives are effective because they align theinterests of the executive to those of the shareholders and thus thestock incentives are valuable only if the value of the stock is abovethe strike price.
Thetotal percentage of executive compensation that should be in
Short-termbonus- the ideal total executive compensation percentage for theshort term bonus is 40 percent.
Stockincentive program- the total executive compensation percentage for astock is 20%.
Short-termbonus should be higher because it is paid once certain annualperformances are met. Stock incentives are not perfect because itencourages the executive to focus on a defined period hence ignoringthe longer term interest of the shareholders.
Addressingthe interests of the following groups in executive compensation plan
Stockholderinterests are addressed by ensuring that the program is designed in away it aligns with the long-term interests of the executives and thestockholders. (Reed & Bogardus, 2012).  It should be acombination of cash and equity compensation and ensure that it istransparent.
Customers’interests are addressed by ensuring the cost of maintaining theexecutive compensation plan doesn’t increase the cost of productsand services offered by the enterprise.
Employeesinterests are addressed by ensuring the employees are also consideredin compensation plan, and it adequately represents fairness.
Yes. The stockholder should approve all packages on executive pay.
Yes. The standard ratio between the total compensation for the CEO and the average employee of the company is needed.
Yes. The compensation committees of the board of directors should be made up of public members.
Yes. The compensation committees should justify recommendations regarding the outlined combination.
Reed,S. M., & Bogardus, A. M. (2012). PHR/SPHR:Professional in Human Resources certification study guide.John Wiley & Sons.