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8 Things You Should Know About Executive Compensation

1)      Companies are shifting towards long term, multi-year goals, and executive compensation is following suit, often setting compensation based upon long term success metrics.2)      Executive Compensation is varied.  It often consists of a combination of salary, bonuses, equity, benefits, and other perks, and it typically based on company performance, length of employment, benchmark data, market practices, individual performance, and other factors.
3)      Phantom Stock and Stock Settled Appreciation Rights are compensation varieties that allows companies to offer executives the benefits of stock without actually owning real stock. If the actual stock increases in value, then the phantom stock held by the employee also increases in value. Similarly, stock settled appreciation rights are where an executive receives a payment based on the amount the stock has increased.  4)      Dodd-Frank reform allows shareholders of a public corporation vote on executive compensation and recommend whether executives are receiving a fair amount of compensation. However, for the moment at least, this vote remains non-binding. 5)      Executives are covered by the same laws as normal employees.  Just as employees must be paid all wages earned, that is no different for executives. This does not include minimum wage or overtime laws but does include executive compensation.
6)      It is always important to understand and often actually negotiate your package.  Do this to ensure you get what you deserve, but you also might do this to demonstrate you’re the type of executive they’re looking for. Make concessions and design the package how you would like it to be, but also design your efforts to convey your work style.

7)      Know your value. Do some discovery work and try to find out what other executives at rival companies are worth. This will help you determine your value to your company.
8)      Consult an expert. We highly recommend talking to an attorney who has experience in executive advocacy. This will allow you to receive a fair and profitable package and avoid any messy situations that we see frequently, ranging from the taxation of equity to severance packages. If you have any other questions surrounding executive compensation, check out our FAQs page or contact us today.
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Top 5 Ways to Improve Executive Compensation

  • Know your value — Start by gathering data.  What are other executives paid, in your own industry and your own company?  How has your company performed, compared to your industry peers as well as you own benchmarks?  How have you performed?  Are their particular compensation trends impacting your position?  If your company has been performing particularly well or if you are headhunted for a new executive position, you may be worth more than you think.

 

  • Don’t be afraid to negotiate, but align your interests  While base executive pay has been falling in recent years, more and more companies now offer “pay-for-performance,” and if you understand your value then you have room.  The key is aligning your interests with the company’s.  Ask yourself a simple question:  does your compensation package give you the incentive to achieve the company’s goals?  For example, a bonus plan targeted to increasing revenue may only encourage low-profit, high-revenue sales.  Is that your company goal?  Lofty goals prove similarly ineffective.  Better to work through your company’s strategic plan and approach your Board of Directors with an incentive package that has everyone facing the same direction.

 

 

  • Understand the terms — Frequently, even experienced executives fail to fully understand the terms of their own deal.  Between all the clauses and different types of stock, it can be a bit confusing.  But, small tweaks can yield significant results.  Look a bit more closely at your employment documents, and review our executive compensation FAQs here.

 

  • Take the long-term view — This applies to two separate areas of executive compensation.  First, when you negotiate the deal, try to see through the smaller, short-term stumbling blocks.  Are they important to your goals?  For example, if multi-year stock vesting troubles you, add accelerators.  If your starting salary is too low, add incremental pay raises tied to performance metrics or time.  Second, take note of the company’s realistic plans.  Are the stock grants truly valuable?  Are they buried under preferred stock, convertible debt or other senior obligations?

 

  • Get good advice — Your company’s lawyers and accountants look out for your company, much like you do, taking advantage of every chance to benefit the organization.  But who’s watching out for you?

 

If you would like to speak with one of our attorneys about any questions or concerns you may have, please contact us today.

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