Pay for Performance
Executive Compensation seeks to align the interests of top managers and owners through salaries, bonuses and long-term incentives such as stock and options. Much of the discussion these days focuses on the magnitude of bonus payments. However, the more important question is the way that performance is measured and incentivized.
Research on the relationship between company performance and executive compensation does not always show a causal link between executives’ remuneration and company performance. Our focus is to design a Balanced Score Card containing targets that really drive company performance and increase shareholder value.
Fixed and variable components of Executive Compensation need to be appropriately balanced. We believe that the Basic Salary level must be sufficient and related to the nature and phase of development of the company. Examples of Fixed Pay are the Basic Salary, pension rights and other elements such as health care contributions.
Short Term Incentive
On the basis of accounting performance measures, executives can earn cash bonuses, mostly expressed via a percentage of their basis salary. Bonuses might contain some non-accounting performance measures: this part of the bonus is rewarded on the basis of an informed judgment of the performance of the executive.
Long Term Incentive
Such incentive plans are often also based on deferred cash, stocks and/or options. Within these plans the right to receive cash, exercise options or obtain stocks is clearly attached to performance measures. Stock appreciation rights (SAR) provide the right to the monetary equivalent of the increase of the value of a number of shares over a period of time.