Executive compensation (also, director remuneration) is how top executives of business corporations are paid. A corporation is a separate legal entity usually used to conduct business This includes a basic salary, bonuses, shares, options and other company benefits for work on the board of directors. Over the past three decades, director remuneration has risen dramatically beyond the rising levels of an average worker's wage. An average worker's wage is the Mean Salary of a group of workers. 
The board of directors is the controlling organ of the company, so responsibility for the levels of pay for all company employees is ultimately theirs. Pay is just one element in the wide range of spending and resource allocation decisions by the heads of firms. Others include investment decisions, which suppliers to use, which business partners to contract with, how to distribute of capital and dividends to shareholders, and so on. Dividends are payments made by a Corporation to its Shareholder members While various committees, or "human resource" departments will usually be delegated the task of setting pay levels, a particular problem arises for executive compensation. When responsibility for executive compensation levels is ultimately the executives', there could be, what management scientists call, significant agency costs. Management science (MS, is the discipline of using Mathematical modeling and other analytical methods to help make better business Management decisions An agency cost is an economic concept on the cost incurred by an organization that is associated with problems such as divergent Management - Shareholder objectives
There are five basic tools to compensation or remuneration. An employee stock option is a Call option on the common stock of a company issued as a form of non-cash compensation. A golden parachute is a non-contractual agreement between a company and an employee (usually upper executive specifying that the employee will receive certain significant benefits Performance-related pay is Money paid to someone relating to how well he or she works at the workplace
In a typical modern US corporation, the CEO and other top executives are paid salary plus short-term incentives or bonuses. LTIP is short for Long-Term Incentive Plan - a type of Executive compensation that typically comes in the form of performance shares or matching shares of the company Employee benefits and (especially in British English) benefits in kind (also called fringe benefits, perquisites, perqs or A chief executive officer ( CEO) or chief executive is typically the highest-ranking corporate officer ( executive) or administrator This combination is referred to as Total Cash Compensation (TCC). Short-term incentives usually are formula-driven and have some performance criteria attached depending on the role of the executive. For example, the Sales Director's performance related bonus may be based on incremental revenue growth turnover; a CEO's could be based on incremental profitability and revenue growth. Bonuses are after-the-fact (not formula driven) and often discretionary. Executives may also be compensated with a mixture of cash and shares of the company which are almost always subject to vesting restrictions (a long-term incentive). In Law, vesting is to give an immediately secured right of present or future enjoyment To be considered a long-term incentive the measurement period must be in excess of one year (3-5 years is common). The vesting term refers to the period of time before the recipient has the right to transfer shares and realize value. Vesting can be based on time, performance or both. For example a highly paid CEO would get 1 million in cash, and 1 million in company shares (and share buy options used). Other components of an executive compensation package may include such perks as generous retirement plans, health insurance, a chauffered limousine, an executive jet, interest free loans for the purchase of housing, etc. A retirement plan is an arrangement to provide people with an income or Pension, during Retirement, when they are no longer earning a steady income from employment The term health insurance is generally used to describe a form of Insurance that pays for medical expenses A chauffeur is an individual who operates any self-propelled vehicle ( Automobile) for a profession. Business jet, private jet or colloquially bizjet is a term describing a Jet aircraft, usually of smaller size designed for transporting groups of A loan is a type of Debt. This article focuses exclusively on monetary loans although in practice any material object might be lent
Supporters of stock options say they align the interests of CEOs to those of shareholders, since options are valuable only if the stock price remains above the option's strike price. In options, the strike price, or exercise price is a key variable in a derivatives contract between two parties Stock options are now counted as a corporate expense (non-cash), which impacts a company's income statement and makes the distribution of options more transparent to shareholders. An Income Statement, also called a Profit and Loss Statement (P&L is a financial statement for companies that indicates how Revenue (money Critics of stock options charge that they are granted excessively and that they invite management abuses such as the options backdating of such grants. Options backdating is the practice of granting an Employee stock option that is dated prior to the date that the company actually granted the option Stock options also pose a conflict of interest in which a CEO can artificially raise the stock price to cash in stock options at the expense of the company's long-term health, although this is problem for any type of incentive compensation that goes unmonitored by directors. Indeed, "reload" stock options allow executives to exercise options and then replace them in part (and sometimes in whole), essentially selling the company stock short (i. e. , profiting from the stock's decline). For various reasons, including the accounting charge, concerns about dilution and negative publicity related to stock options, companies have reduced the size of grants to executives.
Executives are also compensated with restricted stock, which is stock 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. Restricted stock, also known as letter stock or restricted securities, refers to Stock of a company that is not fully transferable until certain conditions 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. Restricted stock has its detractors, too, as it has value even when the stock price falls. As alternative to straight time vested restricted stock, companies have been adding performance type features to their grants. These grant, which could be called performance shares, do not vest or are not granted until these conditions are met. These performance conditions could be earnings per share or internal financial targets.
Cash compensation is taxable to an individual at a high individual rate. If part of that income can be converted to long-term capital gain, for example by granting stock options instead of cash to an executive, a more advantageous tax treatment may be obtained by the executive. Options are financial instruments that convey the right but not the obligation to engage in a future transaction on some Underlying security, or in a Futures
The levels of compensation in all countries has been rising dramatically over the past decades. Not only is it rising in absolute terms, but also in relative terms.
During 2003, about half of Fortune 500 CEO compensation was in cash pay and bonuses, and the other half in vested restricted stock, and gains from exercised stock options according to Forbes magazine (). Please do not add the complete list of fortune 500 companies The list is copyrighted by Fortune which makes money by selling the content In Law, vesting is to give an immediately secured right of present or future enjoyment Forbes is an American Publishing and media company Its flagship publication Forbes magazine is published bi-weekly Forbes magazine counted the 500 CEOs compensation to $3. 3 billion during 2003 (which makes $6. 6 million a piece). Notice that this figure includes gains from stock call options used; the options may have been rewarded many years before the option to buy is used.
The categories that Forbes use are (1) salary (cash), (2) bonus (cash), (3) other (market value of restricted stock received), and (4) stock gains from option exercise (the gains being the difference between the price paid for the stock when the option was exercised and that days market price of the stock). If you see someone "making" $100 million or $200 million during the year, chances are 90% of that is coming from options (earned during many years) being exercised.
The typical salary in the top of the list is $1 million - $3 million.  The typical top cash bonus is $10 million - $15 million.  The highest stock bonus is $20 million.  The highest option exercise have been in the range of $100 million - $200 million .
There are a number of strategies that could be employed as a response the growth of executive compensation.
Many newspaper stories show people expressing concern that CEOs are paid too much for the services they provide. In Searching for a Corporate Savior: The Irrational Quest for Charismatic CEOs, Harvard Business School professor Rakesh Khurana documents the problem of excessive CEO compensation, showing that the return on investment from these pay packages is very poor compared to other outlays of corporate resources.
Defenders of high executive pay say that the global war for talent and the rise of private equity firms can explain much of the increase in executive pay. In Finance, private equity is an Asset class consisting of equity Securities in operating companies that are not Publicly traded on For example, while in conservative Japan a senior executive has few alternatives to his current employer, in the United States it is acceptable and even admirable for a senior executive to jump to a competitor, to a private equity firm, or to a private equity portfolio company. A portfolio company is a company or entity in which a Venture capital firm or buyout firm invests All of the companies currently backed by a Private Portfolio company executives take a pay cut but are routinely granted stock options for ownership of ten percent of the portfolio company, contingent on a successful tenure. Rather than signaling a conspiracy, defenders argue, the increase in executive pay is a mere byproduct of supply and demand for executive talent. However, U. S. executives make substantially more than their European and Asian counterparts. 
In 2005, the issue of executive compensation at American companies has been harshly criticized by columnist and Pulitzer Prize winner Gretchen Morgenson in her Market Watch column for the Sunday "Money & Business" section of the New York Times newspaper. The Pulitzer Prize, ˈpʊlɨtsɚ PULL-it-sər is an American award regarded as the highest national honor in Newspaper journalism, Gretchen C Morgenson (born January 2, 1956 in State College, Pennsylvania) is a Pulitzer Prize -winning
Unions have been very vocal in their opposition to high executive compensation. The AFL-CIO sponsors a website called Executive Paywatch   which allows users to compare their salaries to the CEOs of the companies where they work. American Federation of Labor and Congress of Industrial Organizations, commonly AFL-CIO, is a National trade union center, the largest federation of
Shareholders, often members of the Council of Institutional Investors or the Interfaith Center on Corporate Responsibility have often filed shareholder resolutions in protest. The Interfaith Center on Corporate Responsibility (ICCR is a coalition of 275 faith-based institutional investors 21 such resolutions were filed in 2003.  About a dozen were voted on in 2007, with two coming very close to passing (at Verizon, a recount is currently going on).  The U. S. Congress is currently debating mandating shareholder approval of executive pay packages at publicly traded U. S. companies. 
The U. S. Securities and Exchange Commission has asked publicly traded companies to disclose more information explaining how their executives' compensation amounts are determined. The SEC has also posted compensation amounts on its website to make it easier for investors to compare compensation amounts paid by different companies. It is interesting to juxtapose SEC regulations related to executive compensation with Congressional efforts to address such compensation.