Determine a CEO’s Salary in the United States

The spotlight on executive pay continues to grow thanks to a combination of headline-grabbing media coverage and lack of expertise on very complex issues. But before critique can be developed of a CEO’s compensation, one must first ensure they understand how salaries CEOs are actually set and what goes into deciding what an executive should be paid?

Steps

  1. Research executive compensation government regulations. The U.S. government regulates executive compensation through several agencies each of which carry out a distinct purpose. Each entity regulates executive compensation utilizing distinct methods. These methods include requiring executive compensation disclosures, regulating the tax treatment of executive compensation, and Government Contractor Pay Limits and Disclosures. Compensation regulation agencies:
    • Department of Labor & ERISA
    • Department of the Treasury
    • Internal Revenue Service
    • Securities and Exchange Commission
    • Global Regulation of Executive Compensation
    • State Regulation of Executive Compensation
  2. Determine how the CEO will be compensated. The pay-for-performance salary model is the most widely accepted form of pay for CEOs. It is thought to incent the CEO to make the company perform well while also increasing their personal wealth. The pay-for-performance salary model is the most widely accepted form of pay for CEOs. This model has the clearest alignment to company performance. It is thought to incent the CEO to make the company perform well while also increasing their personal wealth. Forms of compensation:
    • Salary
    • Short-Term Incentives (STIs), also known as bonuses
    • Long-Term Incentive Plans (LTIP's)
    • Employee Benefits
    • Perquisites
    • Insurance
  3. Determine range of reasonableness. What is the most and least you are willing to pay for this executive? An appropriate range of reasonableness for total direct compensation is determined by using salary comparison tools, researching current compensation for CEOs in similar industries and adhering any legal regulations.

References

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