Total Compensation Strategy

Abstract

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