Trends in Executive Compensation | KPMG | NG

Trends in Executive Compensation

Trends in Executive Compensation

The trends in executive compensation indicate the increasing attempt by businesses, shareholders, regulators, and other relevant stakeholders to strengthen the link between performance and rewards, ensure better alignment of interests and corporate governance, amongst others.

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Trends in Executive Compensation

Executive compensation plan, no doubt, is an enabler for driving corporate objectives and ensuring alignment of interests. However, there are intricacies involved in their design and management that, if not properly addressed, can undermine their effectiveness in achieving desired objectives. The issues that those responsible for executive compensation [Human Resources (HR) and Board Remuneration Committees (RemCo)] must contend with are complex and diverse. These issues are constantly shaping the executive compensation landscape, and keeping pace with them, in today’s fast changing world, can be quite demanding. The trends in executive compensation indicate the increasing attempt by businesses, shareholders, regulators, and other relevant stakeholders to strengthen the link between performance and rewards, ensure better alignment of interests and corporate governance, amongst others.

Over the past five (5) years, total CEO pay continues to grow, with larger companies paying significantly more than smaller ones. At the heart of executive compensation design is getting the pay mix right. Given their strong line of sight on business results, an increasingly higher proportion of executive pay is being made contingent on performance. The performance-sensitive portion can range between 50% and 75% of the total package, which typically comprises base pay, short term incentives (STIs), long term incentives (LTIs), benefits and perquisites. Stock Awards, ranging between 35% and 40% of the total package, are the singular largest component, while guaranteed salary and stock options are reducing. In addition, companies are beginning to adopt a combination of LTI plans, rather than a single model, for incentivizing their executives.

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