Total Compensation Strategy
Bureau of Labor Statistics
Journal of Applied Corporate Finance, Vol. 8, No. 2, Summer 1995
In Total Compensation Strategy," Steven O'Byrne argues that the typical corporate compensation plan is flawed. Even though a large proportion of the current year's compensation may be "at risk," the commitment to maintaining competitive levels of compensation in all future years effectively ensures that a large proportion of the executive's wealth is not at risk. To create a total wealth incentive that approaches entrepreneurial incentives, the author argues, total compensation strategy must be based on policies that make a substantial proportion of management wealth sensitive to current performance. These policies include front-loaded option grants, fixed-share option grant guidelines, and formula-based rather than negotiated bonus plans.
JEL Classification: G30
Date posted: May 25, 1998
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