Executive Financial Compensation Strategy In Manufacturing Enterprises

According to corporate lifecycle theory, compensation strategy depends on those contingencies facing the organization at any given time. Financial compensation strategy includes compensation level, compensation structure, incentive and performance based compensation. In this article, corporate lifecycle is divided into four stages. They are initial, growth, maturity and decline. At initial stage, cash flow is seriously short. Paying lower than market and giving executives stock can be an effective strategy. Setting pay rates higher than market will usually enhance a firm's ability to attract executives in Growing firms, they are associated with a lower base salary relative to the market. These firms had greater long-term incentives (mostly is stock option) in the pay mix in order to minimize fixed costs incurred at this stage of growth. At maturity stage, paying relative to market can retain elites and bonus reservoir can restrict executive behavior. At decline stage, firms may choose strategy to take back cash as quickly as possible, or choose turnaround. Executive financial compensation strategies are absolutely different in two situations. Besides, companies need to emphasize different types of measures to reflect the demands of different stages.