Page 19 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

Chapter 1. Executive Compensation Framework 5

Pay-Value Combinations

Garbage
Collector

Extrinsic Executive

College
Professor

Intrinsic
Figure 1-1. Extrinsic vs. intrinsic pay

compensation—personally meaningful and satisfying. Executives, more than others in the
corporation, usually have sufficient flexibility in organizational issues to be able to organize
their work, at least in part, to meet their intrinsic needs; however, their accountability may
be in areas of low interest. The emphasis in this book is on extrinsic compensation, although
even extrinsic pay has intrinsic aspects.

The Compensation Elements

There are five basic compensation elements: salary, employee benefits, short-term incentives,
long-term incentives, and perquisites. As shown in Figure 1-2, only salary and employee ben-
efits are a factor at the lower portion of most organizations; however, all five are present at the
CEO level—each of the other three being phased in at different points in the organization.

Salary
It is believed that the word salary is derived from the Latin word sal for “salt,” a common
form of barter and payment in ancient times.
The salary portion of the compensation program is normally determined by sequential-
ly engaging job analysis, job evaluation, salary surveys, and pay guidelines for performance
and promotions. The objective of the salary element (Chapter 5) is to reflect extent of
experience and sustained level of performance for a job of a particular level in importance
to the organization. Many times it is also the basis on which the other four elements are
determined.
Salary is the income level that will allow the executive to meet some, but not all, of his
or her lifestyle objectives. A more extensive and expensive lifestyle can be supported through
the short- and long-term incentive plan payouts. The latter keeps the executive “at risk.”
Essentially salary is a no-risk form of pay since it is rarely, if ever, reduced. However, since
incentives are essentially nonexistent in some industries and in nonprofit organizations, the
salary program takes on added importance in adequately reflecting short- and long-range