Desiging Executive Compensation

Bricker & Eckler LLP routinely works with clients to design and implement executive compensation programs. This process involves defining the objectives of the program, determining the components of the program, and defining the conditions of the total compensation package - first of the CEO, and then of the rest of the executive management team.

Defining the Objectives. The preliminary step in designing an executive compensation program is to identify its primary objectives. The three objectives usually of the most importance to executives and employers are:

• Attracting executives for hiring by the organization;

• Retaining executives after they are hired; and

• Motivating executives by providing incentives while they are employed.

Determining the Components. The next step in designing executive compensation involves determining its components. The most common components of an executive compensation program are:

• Salary;

• Annual bonus;

• Long-term incentives;

• Retirement and severance benefits; and

• Other benefits and perquisites.

Defining the Conditions. After determining the objectives and components of an executive compensation program, the final step of this process requires the selection of conditions on receipt of compensation and forms payment.

Typical conditions include determination as to when compensation becomes legally vested or non-forfeitable and when and how the component is paid. Defining these conditions requires compliance with new Section 409A as well as sections 83, 451 or 457, and other sections of the Tax Code.