Introduction About the Executive Incentive Compensation Plan Agreement
The executive is a higher management position in any company, and this agreement helps in providing motivation to all the executives at higher management positions so that they can remain loyal to the company. There are different tools used with regard to the compensation of an executive, which should know about. This contract is generally a mix of all the bonuses, salary, shares, and other different benefits that the executive gets from the company.
Who Takes the Executive Incentive Compensation Plan Agreement?
This agreement is signed between the executive and the organization. After listing out all the essential details regarding the compensation and incentives, the company settles on a suitable deal.
Why Do You Need an Executive Incentive Compensation Plan Agreement?
It is essential to organize an executive incentive compensation plan so that all the executives at the management position of the company can remain loyal to the organization. By providing them different types of awards, bonuses, shares, stocks, and many other benefits, the company can gain the trust of all their partners involved.
Contents of the Executive Incentive Compensation Plan Agreement
There are different types of information and clauses mentioned in the agreement, these include
- Base salary
- Performance-based annual incentive (bonuses)
- Performance-based long term incentive
- Executive perquisites
- Contingent payments
- Benefits
These help in providing more detailed information about the salary and incentives of an executive-level employee. It proves helpful in settling over the salary, incentives, bonuses, stocks, and various other job benefits of an executive-level employee.
How to Draft the Executive Incentive Compensation Plan Agreement?
How to create a compensation plan? Well, the drafting of the agreement is quite different. It is based on different factors and includes all the negotiated points.
- The first step toward drafting an Execuive Incentive Compensation Plan Agreement is identifying the objectives, this will include
- Attracting and hiring executives
- Rewarding executives
- Retaining executives
- Minimizing the after-tax costs
- Drafting a well-defined compensation package, which is ideally done considering
- Base salary
- Short-term incentive (bonuses)
- Long-term incentive
- Other benefits
- Increasing the base salary based on competitiveness.
- Structuring an employee compensation program should include short-term incentives such as annual bonuses. This however depends on the type of maturity of your business, market conditions and so on.
- A long-term incentives plan that provides long term compensation incentives usually ranging up to three to five years. This strategy could either involve a cash-based or equity-based long-term incentive.
- Other benefits and perquisites that include “perks”, or any form of indirect pay or non-cash privileges.
The above-mentioned pointers set a good compensation plan example and an employee compensation plan should mandatorily include these.
The negotiation strategy for an executive will be done on the basis of different factors. An experienced executive will always settle on bigger deals. A company also knows the importance of every executive as they have control over the shareholders of the company, and can negotiate accordingly.
Benefits and Drawbacks of the Executive Incentive Compensation Plan Agreement
Employee compensation programs help the company establish clear objectives which aligns with company goals. However, depending upon your organization’s life cycle and the level and tenure of various executives, your objectives may be different. It also helps an executive-level employee in receiving job benefits.
The only major drawback of this contract is that some executive-level employees have a higher salary than others.
What Happens in Case of Violation?
In case of a violation of the agreement, the party has to come to an agreement, else, the court will decide upon it. If a party is found guilty, then it has to pay a specific amount of money to the other party.
The Executive Incentive Compensation Plan is essential to protect the benefits of an executive-level employee. It also helps the company in gaining the trust of all its employees and ensure that they remain loyal to the company.
Download a Detailed Executive Incentive Compensation Plan Agreement Template here!
Sample for Executive Incentive Compensation Plan Agreement
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