March 13th, 2017
There are several types of compensation that CEOs and executives can receive from their company. Frisch Financial provides financial planning and wealth management services for CEOs and executives to help you better understand the different CEO and executive compensation options.
Base Salaries – In today’s world, most CEOs and executives receive a base salary. Base salaries as well as performance based compensation are awarded to the CEO or executive regardless of whether the company does well or does badly. While total compensation can be in the millions, many companies limit the base salary to the federal tax-deductible limit of one million dollars and compensate the CEO or executive through other compensation means.
Bonuses – Bonuses are used as a way to measure and reward CEOs or executives for good company performances. Providing bonuses based on the performance of the company and the performance of the CEO and executive encourage hard work as an incentive. The performance can be based on profits, equity return, share price appreciation, or revenue growth. Generally, a board of directors judges the effectiveness of the CEO or executive to determine the percentage of the bonus.
Stock Options and Restricted Stock – Stock options are another way to compensate CEOs or executives by linking shareholders’ and executives’ financial interests together. There are a few different types of stock options available. Restricted stock is stock that cannot be sold until specific conditions are met and it has the same value as the market price of the stock. This can allow companies to add performance type features, such as earnings per share or internal financial targets, to the conditions of the stock. Stock ownership allows CEOs and executives to own stock shares instead of stock options. Owning stock shares allows CEOs and executives to act more like owners, thus they have more incentive to take part in the company.
Benefits – Generally, the benefits offered to CEOs executives are enhanced versions of the benefits offered to the rest of the company employees. This includes medical insurance, life insurance, pension plans, vacation days, holidays, and sick days. The enhanced versions could include extra levels of life insurance, fully paid medical insurance, stock purchase plans or long-term stock based plans. CEOs and executives are also typically able to participate in specific retirement plans, such as nonqualified deferred compensation plans and supplemental employee retirement plans (SERPs). These plans allow CEOs and executives to save a portion of their income until a certain date.
Perks – Perks, or perquisites, are additional incentives given to CEOs or executives as a form of compensation. These perks can vary from company to company, but can include exclusive club memberships, convenient parking, company vehicles, use of company planes or other incentives to maximize the CEOs and executives time. Some companies provide financial planning and wealth management services, similar to the services offered by Frisch Financial, to their CEOs and executives as an added perk. These perks are used to demonstrate the value of the CEO or executive to the company.