The issue of executive compensation has become increasingly controversial in the past years, not just in the Unites States but throughout the world. This chapter is an attempt to introduce the reader to the “basics” of executive compensation, including main elements of executive compensation used by many companies and an overview of some current pay levels and the “mix” of pay for executives in the United States. The chapter then goes on to provide an example of why you shouldn't believe everything you read in the newspaper – which is a simple account of how and why it is often the case that seemingly simple issues are actually relatively complicated once they are examined more closely. The chapter then goes on to, in simple terms, discuss whether there is a link between pay and performance for executives and the topic of risk and executive compensation. Whether CEOs and other executives are overpaid is then discussed, in the context of other kinds of “superstar” compensation, for example athletes and entertainers. The chapter concludes with a section on what is on the horizon for executive pay.

Ways Executives are Paid

To begin, it is useful to consider the ways that executives are paid in the United States today. A large majority of executives are paid through one of seven different elements: salary, bonus, non-equity incentive, stock, stock options, change in pension and nonqualified deferred earnings, and other compensation.