Executive compensation system is very important, but the establishment of an efficient process, system and policy is challenging. Not only are the contribution and efforts of executives difficult to quantify, their decision affecting the performance of the organization cannot always be accurately assessed. Thus the executive compensation process, system and policy must rely upon proxies such as corporate profit or share price to assess the performance of executives, these proxies will be influenced by factors which are not under the control of executives.
The compensation system and policy in respect of executive compensation are as follows:
- Legal Compliance: Complying with relevant legislation like The Companies Act 1965 guidelines on managerial remuneration.
- Market Position Policy: Refers to where relatives to compensation surveys, an organization want to compensation its executives.
- My Compensation –my- way: Refers to structuring the employment contract and conditions of employment in the most flexible way. The impact is greater than total package
- Rand Hedging of Compensation: compensation practices designed to protect salary against a slide in currency.
- Compensation Committee: The appointed committee, usually comprising executive and non-executive directors, that decides on compensation policy and important compensation decision such as the executive’s compensation.
- Compensation Governance: The governance issues that apply to compensation including how decisions are taken and limits of authority.
- Compensation Mix: The mix or ratio between guaranteed compensation (e.g.; base compensation or total package) and variable compensation (e.g, short-term incentives, long-term incentives and share schemes).
- Retention Strategies: Strategies put in place to retain executives.