Blackwell Reference Online

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Because senior managers are responsible for creating and implementing the firm's strategy, most companies recognize the need to develop special pay packages for these individuals. Thus, executive compensation addresses the reward systems used for chief executive officers (CEOs) and members of the top management team (e.g., vice presidents and other officers of the firm). Executive compensation is significant because of its visibility and symbolism, and its ramifications for pay systems at lower levels of the organization. Executive salaries have shown limited correlation with firm size or performance, have grown at a much faster rate than the salaries for production workers or middle managers, and are substantially higher in the US than overseas. Since 1992, numerous groups have expressed concern with executive pay, including politicians, the Securities and Exchange Commission (SEC), institutional investors, boards of directors, and individual shareholder groups ( Boyd, 1994 ). Still, despite such criticism, a properly designed executive compensation system can help a firm to significantly boost its effectiveness. Key elements to the understanding of executive compensation include its components and implications for design of reward systems. The elements of an executive's pay package include base salary, bonuses , long‐term compensation , and benefits . Many chief executives ... log in or subscribe to read full text