4 - Constructing the package

Summary

This chapter explores the typical elements of executive remuneration, ranging from salary and pension provision to bonus and long-term incentive opportunities. It begins by examining the principles of benchmarking and data analysis and focuses on some of the pitfalls associated with using market data. This is followed by an in-depth analysis of short- and long-term incentive plan design and the tax, accounting and regulatory issues associated with such plans. One of the key aspects of any bonus or incentive plan is the choice of performance measures and the setting of targets, and the second half of this chapter explains the most common performance measures and some of the issues that can arise when using them. The chapter concludes by looking at how the different elements are balanced and how this varies by size of company and type of business.

This chapter is followed by an exploration of how these different elements come together in different commercial contexts and how the package can be constructed to support the business strategy in a variety of different phases in the life of an organisation and the principles behind good remuneration design.

Determining the policy

The first point to make is an obvious one: the remuneration policy should support the business strategy.