Factors Affecting Executive Compensation

ABSTRACT: Executive managers represent the smallest percentage of employees in a business organization, but also the most important. An ideal executive compensation strategy ensures retaining and attracting the best talents, while minimizing the fluctuations. Executive compensation consists of basic pay, short and long-term incentives, benefits and perquisites. Since the 1970s, executive compensation started and continued to grow exponentially. The compensation ratio between executive manager and average employee has increased year by year. For these reasons, special attention of the scientific and general public is paid to the executive compensation, and to the factors affecting its level and structure. The paper provides an overview of factors that may influence the executive compensation, while seeking to determine the executive compensation strategy design, that supports the long-term business objectives. The paper analyzes the effect of organizational size, growth opportunities and risk, ownership and capital structure, as well as manager age, on the level and structure of executive compensation.

KEYWORDS: executive compensation, executive compensation components, executive compensation factors, salary, incentives