Executive Compensation

Executive pay packages usually have several parts. Base salary provides fixed pay. Annual bonuses reward short-term performance against targets. Long-term incentives, such as performance shares, restricted stock or stock options, aim to align executives’ interests with shareholders’ over several years. Pensions and benefits, such as health cover, make up the rest.

For example, a chief executive’s package might consist of a salary of 1,000,000, a potential annual bonus of up to 150% of salary and long-term share awards worth up to three times salary if performance targets are met.

Because a large part of pay is often variable and linked to shares, actual pay can differ greatly from target pay, depending on performance and share prices.

Executive pay is set by the board’s remuneration committee and disclosed in detail in the annual report. It is often controversial, with debates about its level compared with employees’ pay, whether it rewards genuine performance or luck, and whether it encourages short-term thinking. Many countries require disclosure of the ratio between chief executive pay and typical employee pay.