What are the Principles of Executives Compensation ?
Executives compensation is critical to the long-term interest of shareholders and attainment of organizational goals and objectives successfully. Therefore, executives compensation must be based on certain sound principles as under:
Attracting and retaining executives talents: Executives compensation policies should to able to attract and retain high caliber individuals for ensuring organization’s ability to compete c successfully in the marketplace characterized by Olympian competition. This is critical for the survival, growth and success of the organization as executives are the drivers of the organization.
Uploading Shareholder Interests: Executive compensation should be linked with performance and profitability of the organization that they drive. Once an executive’s compensation is hiked to organization is hiked to organization growth and prosperity, they in his own self-interest to earn more money and other benefits, he shall act in the best interest of the organization in order to ensure its success. By doing so, the interest of the shareholders shall be protected.
Performance based Compensation: Executive compensation should be linked to achievement of performance objectives of the organization. By making explicit performance goals, executives are more likely to work for organizational competitiveness and profitability. If the executive is able to achieve successfully the performance objectives, as exemplified in origination’s balance sheet and other relevant data like increase in market share, new product launches, export performance etc, the executive should be paid well. However, in the event, the executive fails to achieve fails to achieve the performance objectives, and then his compensation should be reduced.
Effective Compensation Committee: Directors of compensation committee should be independent in both fact and conduct. They should have, and be perceived to have, the ability to exercise independent judgment free from any relationship or influence that could adversely affect their decision. This will help on bringing about the much desired transparency and validity of compensation decisions taken by the committee members in respect of setting executives compensation especially that of CEO’S.
Executives to shareholders: The compensation committee should establish requirements that executives (particularly CEO) acquire and hold a meaningful amount of the organization’s stock to align executive interests with the interests of shareholders. As executive’s own compensation and return on investment will be at stake, therefore due performance of responsibilities is expected to be carried out by the executives.
Compliance of law: The compensation committee should oversee executive compensation programs in order to ensure compliance with applicable laws and regulations and align with best practices.
Transparent Discloser: Organizations should provide complete, accurate, understandable and timely discloser concerning all elements of executive compensation and the factors underlying executive compensation policies and decision. Different countries have different norms about discloser of executive compensation.