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Global HRM

Notes 12. ……… allowance provision implies that employees should be entitled to maintain their
home-country living standards.
13. Tax ………… is by far the more common taxation policy used by multinationals.

8.4 Executive Compensation

Executive compensation refers to the compensation received by the top executives of business
corporations. This includes a basic salary, bonuses, shares, options and other company benefits.
Because of the changing economic conditions, it is very difficult to find and retain the executives
who can motivate the people and lead the company to the heights by clearly communicating
and achieving the vision of the organisation.
It is a common trend that the executives are swayed by the unique and the challenging opportunity
rather than the attractive compensation packages. But, over the past three decades, executive
compensation has risen dramatically beyond the rising levels of an average worker’s wage.
Executive compensation is an important part of corporate governance, and is often determined
by a company’s board of directors.
Overall compensation is very important as the qualified candidate enjoys more negotiating
power. So, the company needs to have a flexible compensation packages for their executives.
Executive compensation packages can be designed by studying the competitors offerings as
well.

8.4.1 Components of Executive Compensation

The basic components of the executive compensation includes the base salary, short-term
incentives or bonuses, long-term incentive plans, employee benefits, perks and compensation
protection (golden parachute). Long-term incentive plan comes in the form of performance
shares or matching shares of the company.

In addition to it, the executives participate in “broad based” employee benefit plans and receives
special benefits like life insurance and supplemental retirement’s plans. The compensation
package of the executives is very flexible as the components of their compensation packages
may vary from equity, restricted stock, flexible schedules, deferred compensation, performance
incentives and other kind of compensation.
1. Equity or stock options are the contracts which give the recipient the right to buy the share
of the stock at a “pre-specified” exercise price for a pre-specified term. The amount of the
stock option given by the company to its executive depends on the industry and the
valuation of the stock. They typically become exercisable over time. They are normally
non-tradable and are forfeited if the executive leaves the firms before exercising.
2. Restricted stock are the stocks given to an executive that cannot be sold until certain
conditions are met and has the same value as the market price of the stock at the time of
grant. As the size of stock option grants have been reduced, the number of companies
granting restricted stock either with stock options or instead of has increased.
3. Now a day’s international companies have started adding flexible schedules to the
executives pay packages. Employers offering the flexi time or compressed workweeks, in
geography (telecommuting or satellite workplaces), in time off (floating holidays or
vacations carry over) and in career paths (job-sharing) have an added advantage in
attracting the talent pool.
4. Deferred compensation plans are effective tools for retaining employees because they
reward employees based on the company’s performance over time (typically three to five

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