Question

One of the components in executive compensation, stock compensation, is the largest percentage of executive compensation. How do you think that fares with executive motivation?

Answer 1

It has been stated that stock compensation is the largest percentage of executive compensation.

Stock compensation gives a piece of ownership of firm to the executives. Any upward trend in stock price of firm bring benefit for the executives in terms that their wealth (value of stocks) increases.

Generally, good management and profitability are two important factors that give upward push to the stock prices.

Good management and profitability depends, in part, on the performance of the executives.

So, this provides an incentive to executives to perform better as their better performance will enhance the profitability of firm and will boost the stock price which in turn will help them by increasing the value of stocks they hold.

Thus, stock compensation act as good incentive for the enhancing the performance of the executives and this is the precise reason that it is the largest percentage of the executive compensation.