CEO pay at the crossroads of Wall Street and Main: Toward the strategic design of executive compensation.
an example.
The firm strategy must be considered especially when the long terms and well-being are part of the company’s strategy.
A combination of these 3 schemes might be used but the most important thing to do is to identify the company’s strategy.
2) My local view
The models explained above are somehow limited locally due to existing law. Basically a major share holder cant received a salary (fixed or variable income) if he is working as an executive or manager of the company regardless the time dedicated to the job (full time or partial). The law clearly states that he can make anticipated withdrawals against profit but no salary is allowed.
In some cases this can be solved by legal structures that can only be agreed when the concentration of the ownership of the company is limited to a close circle. Also there are some cases where there are preferred shares that allow to control.
It is also not allowed under the existing law to give shares to someone and after they leave the company to return the shares.
A combination of accounting ands stock based compensation in line with the company’s objectives is used manly in international companies or big ones. In the medium to small ones what is normally found is a fix salary with a bonus linked to accounting results.
The above is also related with the local culture that is clearly adverse to risk, so they prefer to have a fixed salary and be certain that it will be paid monthly and that the goals are clearly set.
Also restrictions imposed by law, the rigidity of the labour law (where a big effort in order to make it more flexible is being done) play against variable structures (the indemnity of firing someone will be calculated on the past 3 months salaries).
3) My experience
In our office (a reinsurance broker) we have people of different educational levels and cultures working.
Being a small office with 8 people working income and production is in everyone’s mind so a good year is know by all of the office member as well as bad one.
There are no secrets regarding income as well as the offices profit.
Regarding salaries for the admin’s we pay high above market (more than 50%) with lots of additional benefits and we did include a variable part (that was not asked by them) in order to compensate them for the good company’s result.
Our general manager (also the local owner) has a small fixed salary (10% of his income) and his major income is out of the company’s results. Due to the nature of the business the income is deferred in some cases in a year so a long term view is necessary.
As a result of that we are one of the few brokers with a stable base of client and our growth has been consistent over time increasing the owners profit with a stable and steady growth.