Page 25 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

Chapter 1. Executive Compensation Framework 11

Stakeholders and
Rulemakers Board of
Directors
Compensation
Elements
Type of
Company
Design
Structural
Considerations
Organization
Performance
Change
Measurements
and Standards
Market Strategic
Lifecycle Thinking
Figure 1-4. Compensation design considerations

in Figure 1-4. First, we have the stakeholders. They consist of the executive, other employees,
shareholders, customers, suppliers, and the community. Within the community are the rule-
makers, who limit the design and amount of pay. In the United States, at the federal level,
they are Congress, the IRS, the SEC, and the Financial Accounting Standards Board (FASB).
The stakeholders and rulemakers are covered in some detail in Chapter 4. A subset of the
shareholders is the board of directors (and its compensation committee); they are not only
expected to be shareholders but also to act on behalf of the shareholders. The board and the
compensation committee are discussed in Chapter 10.
We have already highlighted the five compensation elements, indicating where they will
be reviewed in more detail: salary (Chapter 5), employee benefits and perquisites (Chapter
6), short-term incentives (Chapter 7), and long-term incentives (Chapter 8). The perform-
ance measurements and standards that can be used in the design of the executive pay program
are reviewed (Chapter 2). Also included is a write-up on current vs. deferred compensation
(Chapter 3).
That leaves us to review strategic thinking, market lifecycle, structure organizational
change, and type of company within the context of the organization—the place where the
executive earns his or her compensation.

THE ORGANIZATION

Type of Company
There are a number of ways to describe an organization, namely, publicly traded vs. privately
held, for-profit vs. not-for-profit, or new economy vs. old economy.
For-Profit vs. Not-for-Profit Companies
For-profits are companies formed to make a profit, on which they will be taxed. Under
certain conditions executives may be personally liable for the acts of the corporation; howev-
er, for the shareholders, financial liability is limited to the funds invested in the company
stock. The corporate tax rate may be higher or lower than an individual personal income tax
rate, depending on level of income and most recent tax law.