Page 20 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

6 The Complete Guide to Executive Compensation

Total Compensation

Perquisites
Long-Term Incentives

Short-Term Incentives

Benefits

Salary

Job Value
Figure 1-2. Total compensation (consisting of five element)

contributions to the organization. When this is true, it is important that salary be competi-
tive in the marketplace with annual cash compensation (i.e., salary plus annual incentives) at
levels comparable to similar positions in other companies. However, the extent to which a
company chooses to be directly competitive on salaries is a function of the degree of risk or
reward it wants to build into its program.
Employee Benefits and Perquisites
The employee benefits (Chapter 6) element deals with providing time off with pay, employ-
ee services, awards (other than performance), health care, survivor protection, and retirement
coverage to all employees in the organization. Cost effective to both the organization and the
executive because of economies of large-scale coverage, employee benefits meet many needs
the executive otherwise would have to pay for from his or her own pocket. The extent of cov-
erage is typically determined by years of service and/or level of pay. Since benefit coverage is
rarely related to performance, it is not a viable incentive for inducing behavior modification.
Also covered in Chapter 6 are perquisites, namely, employee benefits that are designed only
to apply to executives and, therefore are also called executive benefits. In some instances, they
merely supplement employee benefit coverage (often that limited by law); in other instances,
they provide coverage that does not exist in the employee benefit program. Some executive
benefits take the form of intrinsic or psychic income (e.g., a large, well-furnished office).
Perquisites are given to individuals based on organization level (and perhaps to some
extent are viewed as symbols of authority); in other situations they are rationalized as making
the executive a more productive performer by delivering compensation in a more tax-effective
manner. Like benefits, they have a low risk factor because degree of participation does not vary
with performance. Once given, they are rarely taken away. Therefore, they do not lend them-
selves well to behavior modification. Their value to recipients is often more intrinsic than
extrinsic in nature, although even most forms of intrinsic compensation have an extrinsic value
to the taxing authorities. About the only thing they have not figured out how to tax to date is
an impressive job title.