Compensation for Financial Performance

Abstract

In order for a firm to have a fair, optimal, and the best-suited compensation structure, the first factor that has to be taken into account is “compensation for financial performance”. It means analysing the CEO’s performance by comparing it with the value creation for the shareholders of the firm. If we consider that the shareholders are the owners of the company and one of the salient parties in the stakeholder group, then it makes sense to align the CEO compensation with a firm’s financial performance (pay-for-performance).