From the course: Human Resources: Compensation and Benefits
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Executive compensation
From the course: Human Resources: Compensation and Benefits
Executive compensation
- In the United States, executive pay is based on a tournament model. Think of a golf tournament, it's a reverse progression. The winner gets the biggest paycheck, number two gets some percentage of the winners take, and number three gets some percentage of what number two gets and so forth, all the way down to the lowest paid performer. A similar approach is typical in companies, both large and small. Their number two executives will make some percentage of the CEO's pay. Number three will make some percentage of number two's, and so forth in a reverse progression. There's a lot more to executive compensation than simply base pay. In fact, the board of directors normally determines executive compensation and structures it around five basic components. The base pay for executives is often determined by analyzing salary survey data on executive jobs from comparably sized firms or from competitors in the same industry. Based on that information, the board will choose to pay above, at…
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