Corporate Governance

Motivation role of executive compensation in corporate governance

The purpose of this paper is to analyze and obverse the importance of executive compensation for organizations and how it changed from past until now.

The Level and Structure of Executive Compensation

Introduction

Employees need to be compensated for their efforts based on volume of predication. Compensation is the financial rewards which are given to employees in different types. It appears because of their employment. It has a very important place in business life both for employees and employers because it’s a very serious cost. The disgusts because of compensation induce to absenteeism, turnover, job dissatisfaction, performance decrease, strikes and unjust treatment.

Compensation refers to the exogenous that employees receive in exchange for their work and also consisting of the base wage, salary, incentives or bonuses and benefit.

Nowadays in business life, the most important thing for employers is to have the best employees in their companies and systems. In this chart, compensation has an important role in engaging and having the best employees and procuring that the company has the competitive advantage in competitive world. The compensation management and its components helps to discriminate between the remuneration strategies and those of competitors while still allowing flexibility, control and cost effectiveness. It plays an important role for strategic planning that effects the organization culture and strategies, and it entitle managers within a flexible budget control. And also it allows to control expenses and competitive and motivating remuneration, by making it with variable pays, stock options, fixed pays and promotions.

Types of Compensation

As we can see from the figure, there are two main compensations, direct and indirect.

Direct Compensation is equal to exchange of employee’s labor and services to provide them to employ. It’s called direct because...