What Is an Executive Compensation Proposal?

First of all, what is executive compensation? By definition, this refers to pay packages established specifically for a company’s business executives, senior management, and executive-level personnel. It is often a combination of a fixed wage, adjustable performance-based incentives such as money, shares, bonuses, and any other perquisites, all of which are optimally set to take into consideration government rules, tax law, and the executive’s and the organization’s preferences. Having a proper compensation proposal also weighs heavily on company shareholders, since executives who are inappropriately rewarded may lack the motivation to work in the best interests of shareholders, which can be detrimental for those shareholders.

An executive compensation proposal is a business document that is sent by executive staff to their employers when they want to negotiate a higher or new salary. This paper is critical in pay negotiations since it is the first step in seeking a higher wage. This form of documentation is usually preferred over approaching your employer in person since it allows him or her time to assess the request without putting him or her on the spot. If the proposal is approved, the executive in question would earn increased executive compensation, which may inspire them to work more and make better judgments for the future of the company.

What Is Typically Included in an Executive Compensation Package?

Here are the typical elements that you see in an executive compensation package (or any type of compensation package, for that matter):

Organizational Goals. This is the first major part of a typical compensation package. This part usually talks all about the goals of the company with regards to how their compensation system works, which typically focuses on ensuring to pay the employees for their individual performances as well as rewarding them for their efforts which support the business goals of the company.Pay Rate. This is usually the next important part of the compensation package. When most individuals think of salary, they think of the money they get for the job they do for their company. Companies can provide many types of direct payments to their employees through the use of pay rates, such as an hourly rate, a regular wage, or a sales commission. Employees can also receive overtime, time-and-a-half, or double pay if they work longer hours than scheduled, depending on their exemption status. Understanding the implications of various compensation packages and hourly expectations will help you better comprehend your own overall compensation.Bonuses. Employers might provide extra financial payment in the form of bonuses or cash prizes for a variety of reasons. Some firms do not provide any incentives at all, but others offer many bonuses throughout the year. Bonuses are frequently used as a considerable majority of an employee’s overall pay in commission-based employment, whereas bonuses are used as a minor incentive rather than as a fundamental component of the compensation package in other occupations.Insurances. One of the most important perks that employees anticipate from their employers is health insurance. Because healthcare may be quite expensive, employer-provided medical insurance can be a big financial advantage for employees. While businesses are required to provide health coverage to full-time employees, they can also choose to provide benefits to part-time employees. Employers can totally finance employee health insurance or leverage their size to provide employees a deal on the plan they pick, depending on their resources. Employee insurance benefits commonly include health savings accounts, basic insurance, dental, and vision coverage.Savings Plan. This is another important element of a compensation package. By including this in a salary package, employers can provide their employees with pension and lengthy financial planning advantages. Some businesses open an account and require their employees to contribute only to it, whereas others match pension contributions or make their own donations. Employees can save money through retirement account tax breaks and build their retirement funds by passively investing in these programs. Businesses that wish to leverage company equity to pay employees might incorporate stock options and profit-sharing into their workplace savings programs.Employee Support Services. Apart from the standard wages and bonuses, various employers can also reward their employees by offering them free or subsidized access to a variety of services. These might range from on-site game areas, lounges, and food, to on-site daycare and free counseling. Some businesses can even collaborate with other local businesses to offer discounts on their products and services. Employee support services reward employees by offering a low-cost way for them to maintain their standard of living.Scheduling. Scheduling can be an important part of an employee’s compensation package. This comes in a variety of options, such as paid time off, different options for telecommuting, and flexible options for scheduling. Employers compensate workers for taking time off in order to promote their work-life balance and productivity while at work. Some firms may also provide a large amount of paid time off that staff may use for whatever they choose, whilst others divide the workload into holidays, personal time, and sick time. Additional paid or unpaid time off for jury service, bereavement, and life events might also be included as part of the compensation package.

Types of Compensation Package

Now that the components of an executive compensation package have been discussed, it’s time to elaborate on some of the different types of compensation packages:

Hourly Compensation. This is usually the first known type of compensation and it also falls under the direct compensation category. Hourly wages are common forms of pay given to inexperienced, semi-skilled, temporary, part-time, or contract employees in exchange for their time and effort. Overtime compensation is frequently available to employees who are paid on an hourly basis. This remuneration is made up of any extra hours performed outside the scope of their contract.Salary. Another type of compensation package that falls under direct compensation is salary. Annual wages are kinds of remuneration that are often granted to the majority of full-time or skilled employees, as well as those in management roles. A pay frequently signifies that the business has made a long-term investment in this individual. Teachers, accountants, physicians, and retail and hospitality management are examples of salaried employees.Bonuses. Companies frequently award bonuses to employees depending on year-end company success or the individual’s achievement of predetermined goals. The choice is sometimes left to the manager’s discretion. This form of payment might be provided yearly, quarterly, or after each job is completed. They can also be given without an employee accomplishing a specific goal. When a company has a successful year and wants to thank everyone, bonuses can be given out, which are categorized as variable compensation.Stocks. Stocks fall under the category of indirect compensation. This type of pay permits workers to acquire a predetermined amount of stocks at a predetermined price after a specified length of time. This differs from an equity package in that the employee will not own any stock in the firm. Many stock options require individuals to work three to five years before they are eligible for this type of compensation.Equity Package. This is another form of compensation that falls under the indirect category. Equity as part of a remuneration package generally implies that the employee is given equity (also known as ownership) in the firm, either through stock shares or the opportunity to purchase such shares. An equity package is typical in start-ups. These companies may be short on cash or capital and require additional incentives to recruit and retain personnel.

How to Develop an Executive Compensation Proposal

Now that we’ve discussed what’s inside a compensation proposal and its different types, it’s time to learn the steps on how to develop this proposal. It may be a lengthy and complex process but by following these steps, you can be sure that you’ve done it right.

1. Define Its Purpose

The first major step in creating an executive compensation proposal (apart from introducing yourself) is to define the purpose of this document. In properly defining the purpose of the proposal, you may start with a cordial introduction and be polite in your writing. You should also mention everything that you’ve accomplished so far which serves to demonstrate that you, as an executive employee, deserve an increase in compensation. Additionally, make your employers aware of the research you’ve done concerning industry standards on compensation. The research you’ve done must include the typical market conditions similar to your position and the compensation that they’re getting at your level.

2. State Your Expectations

After writing the introductory part of your proposal, proceed to this step. Describe your expectations from the company. In this step, you may declare that you desire an improvement in your compensation package, an increase in your yearly performance bonus, additional perks, and a bigger sales commission. The main thing to remember here is to communicate explicitly what you expect from the organization. In a nutshell, you must be direct. If your proposal explicitly states what you want, such as a raise in pay, it will have a greater impact than writing extensive dissertations in the letter.

3. State What You Need

After stating what you expect from the company with regards to your compensation package, proceed to this step. Simply citing the rise in sales will not help you. You must state explicitly in this step of developing the proposal what your specific amount for the wage increase is. If there is a percentage increase in compensation, make it apparent by comparing it to the gain in the value of the industry you work in. You must also write in a professional manner that your performance in the company justifies the outcomes that are being witnessed, and that you desire and deserve a rise of a particular percentage in your annual income.

4. Set Some Alternatives

During the negotiation phase, sometimes it can get difficult for the company to cater to exactly what you need, so this step is important. Sometimes it is impossible for the corporation to accommodate your expectations, therefore you will have to give alternatives such as a rise in all the other additional benefits and so on. If you do not want to withdraw totally from the discussions, you might demand an increase in alternative forms of compensation other than your basic salary, such as additional perks, and so on. Aside from that, it may include education perks, daycare, pension plans, health insurance, and sick days, among other things.

5. Negotiate and Present the Proposal

After stating explicitly the percentage of salary increase that you need and deserve and setting some alternative options, it’s time to negotiate this with your employer. Negotiating wages entails not only stating your beginning salary range from where you began, but also including certain other important information such as job requirements, qualifications, years of experience, location and in which company you worked, and so on. Furthermore, you should begin by stating figures from the lowest to the greatest number. If you include any numerical figures, make sure they are right otherwise you may get in trouble. If the statistics given are incorrect and things go awry in this process, it will have an impact on the reputation that you have in your company.

6. Submit on the Right Time

One thing to keep in mind is that it is also important to submit your proposal at the right time. Timing must also be taken into account when developing a compensation plan. This is due to the fact that you will never know what the corporation is going through. Perhaps the firm is experiencing a financial imbalance and is unable to give you the additional raise in compensation, or perhaps it is the busiest time of the year and the manager is too busy to refer to your proposal and evaluate your request for an increase.


What is direct compensation?

Direct compensation is money that is paid directly to employees in return for their labor. Wages, salaries, bonuses, gratuities, and commissions are examples of direct remuneration. It is often the most well-known form of compensation, and it is likely the first sort of compensation requested by the majority of workers.

What is the importance of executive compensation?

A remuneration plan for executives may inspire them to work hard and make the greatest business choices for the future of the company. They may be encouraged to do so because, in order to keep earning remuneration, the company must operate at peak efficiency. Company success may imply that it earns more money than the preceding year or outperforms its competitors. Appropriate CEO remuneration may also boost a firm’s long-term performance, profitable expansion, and other specific corporate goals.

What is indirect compensation?

Indirect financial compensation is compensation provided to an employee that has monetary worth but is not paid directly. It is also known as a non-cash benefit. They are also referred to as employee incentives or employee perks. In certain cases, these indirect compensations may prove to be more beneficial to an employee than a higher pay or income.

Company executives usually make the heaviest and the most impactful decisions that can decide the fate of the company that they work for, so it is only rightful that they deserve a very decent compensation package to reward them for their troubles and sacrifices. And having an equally competent compensation proposal for these executives is also important. When creating this document, it is only natural to run into some difficulties since this document can be really complex to make. In this article, there are plenty of sample templates for you to have a look at in case you find yourself in a difficult position when making this document.