Originally posted May 16, 2024. Updated September 1, 2026.
Executive compensation packages are built from five components: base salary, an annual cash incentive, long-term incentives that vest over multiple years, supplemental retirement and deferred compensation, and perquisites with severance protection. The components are close to universal. The mix is not, and the mix is what decides whether a package retains anyone.
The largest single driver of that mix is ownership structure, not industry or headcount. Long-term incentives are close to standard practice on the private side: 82 percent of private companies offer an LTI plan, according to Deloitte’s 2025 Private Company Executive Compensation Survey, which surveyed 500 companies with revenue between $500 million and $20 billion in December 2024. What differs is the vehicle, the trigger, and who participates.
Below are four sample packages with complete structures and pay mix, what each component actually does, how to choose a long-term incentive vehicle, and the six design steps that hold the package together.
What goes into an executive compensation package
Executive compensation is built from five layers. Base salary anchors the package, but it stops being the main event well before the C-suite, which surprises people who have only ever designed pay for individual contributors and managers. Most of the money moves.
| Component | What it is | Typical role in the package |
|---|---|---|
| Base salary | Fixed annual cash | Anchors benchmarking and sets the multiplier for most other elements |
| Annual incentive | Cash bonus tied to a 12-month performance period | Rewards operating results the executive controls this year |
| Long-term incentive (LTI) | Equity or cash that vests over multiple years | Retention and alignment with multi-year value creation |
| Retirement and deferred compensation | Supplemental plans above qualified plan limits | Restores benefits that IRS limits strip from high earners |
| Perquisites and severance | Car allowance, executive physical, club dues, change-in-control protection | Small dollar value, high negotiation salience |
Two of these carry most of the weight:
The annual incentive is expressed as a percentage of base salary at target, with a threshold below which nothing pays and a cap above which nothing more accrues. A CFO with a $400,000 base and a 60 percent target bonus earns $240,000 if the company hits plan. The design questions that matter are the metric mix (how much is company financial performance versus individual objectives), the payout curve between threshold and cap, and whether the committee retains discretion to adjust.
Long-term incentive, meaning equity or cash awards that vest over multiple years, is where executive pay diverges most sharply from the rest of the organization. LTI is usually granted as a percentage of base salary or as a fixed dollar value converted to units at grant-date price. It vests on a cliff schedule (nothing, then everything at once) or a graded schedule (a portion each year). It is the single largest line in most public company executive packages, and the piece most often administered outside the system of record.
The rest matters, but rarely decides anything. Perquisites are a rounding error against the total, which is why they generate a disproportionate share of negotiation friction. Executives read them as status.
What a typical pay mix actually looks like
The phrase “typical executive compensation package” hides enormous variation. The single biggest driver is not industry or company size. It’s ownership structure.
Private companies are the better documented half of that split. Deloitte’s survey of 500 private companies found that 82 percent run a long-term incentive plan, used primarily to align senior and mid-level leaders with long-term goals and to reduce turnover. Annual incentive plans are the most common short-term vehicle, but participation is typically limited to director level and above, which means the pay mix at the top of a private company looks very different from the mix two layers down.
The pattern across ownership types is directional and reliable:
- Public companies weight heavily toward long-term equity, because the proxy statement, say-on-pay votes, and proxy advisor scrutiny all push in that direction. Fixed cash makes up a modest share of what a large-cap chief executive is actually paid, and the majority of the package moves with performance over multiple years.
- Private companies shift that weight toward cash. Without a liquid market for shares, LTI is delivered through phantom equity, stock appreciation rights, or long-term cash plans, and the annual incentive carries more of the load. Adoption is high, at 82 percent per Deloitte, so the question for most private companies is which vehicle rather than whether to offer one.
- Private equity portfolio companies compress the timeline. Annual bonus opportunity is meaningful, but the real money sits in a management incentive plan that pays at exit rather than on an annual vesting calendar.
- Nonprofits operate under IRS intermediate sanctions rules, which require a documented rebuttable presumption process, so packages are cash-dominant, tightly benchmarked, and rarely include equity of any kind.
Below the CEO, the pay mix flattens. A division president or CFO carries a smaller LTI percentage and a larger base proportion than the chief executive at the same company.
Four sample executive compensation packages
The packages below are built to show realistic structure and internal consistency. They are not real offers, and the dollar figures should be tested against current survey data for your industry, revenue band, and geography before you use them as a starting point.
Example 1: CFO at a privately held manufacturer, $75 million revenue
| Element | Value | Notes |
|---|---|---|
| Base salary | $285,000 | Benchmarked to the median for revenue band |
| Annual incentive target | 40% of base ($114,000) | 70% company EBITDA, 30% individual objectives |
| Threshold / cap | 50% / 150% of target | No payout below 90% of EBITDA plan |
| Long-term incentive | Long-term cash plan, $85,000 annual award | Three-year cliff vest, forfeited on voluntary exit |
| Retirement | 401(k) match plus nonqualified deferred compensation plan | Deferral restores contributions lost to IRS limits |
| Perquisites | $9,000 car allowance, executive physical | |
| Severance | 12 months base plus prorated bonus | Double-trigger on change in control |
| Total target direct compensation | $484,000 | Base 59%, annual incentive 24%, LTI 17% |
This company has no equity to grant without diluting a family ownership group, so retention runs through a three-year cash cliff. It works, but it creates a cliff-edge retention risk in year four that the committee needs to plan for with rolling grants.
Example 2: CEO at a public mid-cap, $1.2 billion revenue
| Element | Value | Notes |
|---|---|---|
| Base salary | $850,000 | |
| Annual incentive target | 110% of base ($935,000) | Revenue, adjusted EBITDA, and free cash flow |
| Long-term incentive | $2,800,000 grant value | 50% performance share units, 50% time-vested RSUs |
| PSU terms | 3-year performance period, relative TSR versus proxy peer group | 0% to 200% payout, capped at target if absolute TSR is negative |
| RSU terms | 4-year graded vest, 25% annually | |
| Retirement | 401(k) plus supplemental executive retirement plan | |
| Stock ownership guideline | 6x base salary, 5 years to comply | |
| Clawback | Compensation recovery policy per SEC Rule 10D-1 | Listed issuers were required to adopt a policy by December 1, 2023 |
| Total target direct compensation | $4,585,000 | Base 19%, annual incentive 20%, LTI 61% |
This is the structure a compensation committee and a proxy advisor both expect to see. The relative total shareholder return modifier on the performance share units is what say-on-pay voters look for, and the negative-TSR cap is the governance feature that prevents a payout when peers fell further than you did.
Example 3: COO at a private equity portfolio company, pre-exit
| Element | Value | Notes |
|---|---|---|
| Base salary | $425,000 | |
| Annual incentive target | 60% of base ($255,000) | Almost entirely EBITDA against the sponsor’s operating plan |
| Management incentive plan | 1.5% of the MIP pool | Vests 50% time, 50% performance |
| Time-vesting portion | 5-year graded, accelerates on sale | |
| Performance-vesting portion | Pays on sponsor achieving a 2.5x multiple of invested capital | Tiered above that threshold |
| Co-investment | Optional, up to $250,000 personal investment | Same terms as sponsor equity |
| Severance | 12 months base, 18 months on change in control | |
| Total annual cash compensation | $680,000 | Equity value is exit-dependent and not annualized |
Portfolio company packages are the ones that break spreadsheets. The MIP interest has no annual grant value, the waterfall determines what each participant receives, and the number changes every time the sponsor’s return model is updated. Executives ask what their stake is worth constantly, and the answer requires modeling, not a lookup.
Example 4: Executive director at a nonprofit health system
| Element | Value | Notes |
|---|---|---|
| Base salary | $340,000 | Set through a documented rebuttable presumption process |
| Annual incentive target | 25% of base ($85,000) | Quality metrics, patient satisfaction, operating margin |
| Long-term incentive | 3-year cash plan, $60,000 annual award | Tied to strategic plan milestones |
| Retirement | 403(b) plus 457(b) deferred compensation | 457(f) plans carry substantial risk of forfeiture requirements |
| Perquisites | Continuing education allowance, professional dues | |
| Total target direct compensation | $485,000 | Base 70%, annual incentive 18%, LTI 12% |
Nonprofit executive pay is governed by IRS intermediate sanctions, which means an independent body must approve the compensation using appropriate comparability data and must document the basis contemporaneously. The documentation requirement is not a formality. It’s the defense if the arrangement is later challenged. HRSoft doesn’t provide legal or tax advice on these arrangements, and neither should your comp team without counsel.
Choosing a long-term incentive vehicle
Most of the design argument in an executive package happens here. Each vehicle solves a different problem and creates a different administrative burden.
| Vehicle | How the executive gains | Best suited to | Administrative reality |
|---|---|---|---|
| Stock options | Share price rises above the strike price | Growth companies expecting appreciation | Track grant, strike, vest, exercise, and expiration per tranche |
| Restricted stock units | Shares delivered at vest, value at delivery | Public companies wanting reliable retention | Vest-date tax withholding and share-count reconciliation |
| Performance share units | Shares delivered based on goal achievement | Public companies under proxy advisor scrutiny | Requires ongoing accrual estimates and payout modeling |
| Phantom equity / SARs | Cash tracking share value or appreciation | Private companies avoiding dilution | Requires a defensible periodic valuation |
| Long-term cash | Fixed award vesting on a schedule | Private and nonprofit organizations | Simplest to administer, weakest upside alignment |
| Carried interest | Share of fund profits through a waterfall | Investment management and private equity firms | Distribution waterfalls, clawbacks, and multi-vehicle tracking |
A practical rule: pick the vehicle that matches your liquidity, then decide the vesting schedule based on the retention problem you actually have. Cliff vesting concentrates retention at a single date and creates a visible flight risk when it passes. Graded vesting smooths that out and costs more in forfeiture complexity.
How to design the package, step by step
- Write the compensation philosophy first. Decide where you target against market (median, 60th percentile, 75th percentile) and for which elements. A company that targets median base and 75th percentile LTI is making a deliberate statement about risk sharing. A company that has never written it down is making an accidental one.
- Benchmark against the right peer group. Revenue band, industry, and geography, in that order of importance for most roles. Proxy peers for public companies, survey data for private. Size the peer group so your company sits near the middle rather than at an extreme.
- Set the pay mix before you set the numbers. Decide what percentage of total direct compensation should be at risk, then work backward into base, target bonus, and LTI values. Doing it in the other order produces packages that don’t hold together.
- Choose metrics the executive can move. A division president measured entirely on consolidated earnings per share has a lottery ticket, not an incentive. Weight the metrics toward the results within their control, and keep the total number of metrics to three or fewer. Financial measures like profit and revenue remain the most common choice, but Deloitte found private companies increasingly adding non-financial metrics such as customer satisfaction and talent benchmarks to drive engagement. Add them only where you can measure them defensibly, since a soft metric with a fuzzy definition becomes a discretion argument at payout time.
- Model the outcomes before you approve them. Run the package at threshold, target, and maximum. Run it against last year’s actual results. Run the aggregate cost across every executive at each level. The number that surprises a compensation committee is almost always the maximum-payout scenario in a strong year.
- Document the approval and set a review cadence. Record who approved what, on what data, and when. Review annually against fresh market data, and review the plan design itself every two to three years.
Where these packages break down
Design is the part everyone talks about, but often, administration is the part that fails.
The failure looks the same across organizations. Base salaries live in the HRIS. Bonus targets live in a planning spreadsheet. LTI grants live in a second spreadsheet maintained by one person in finance. Deferred compensation lives with a third-party administrator. When an executive asks what their unvested equity is worth, or when the CFO asks for total executive compensation expense by scenario, somebody spends two days assembling an answer from four sources, and nobody can fully audit it afterward.
The cost shows up in three places: reconciliation time, restatement risk, and executive trust. Executives who receive a total rewards statement they don’t believe stop treating the LTI as compensation, which quietly destroys the retention value you paid for.
This is the problem HRSoft was built for. HRSoft is the unified, purpose-built platform for the entire compensation lifecycle, with the depth to handle complex pay that generalist HR suites can’t:
- Long-Term Incentive Management tracks an award from grant through vesting, forfeiture, and payout, including cliff and graded schedules, without exporting to a side spreadsheet at each stage.
- Modeling and Calibration lets you run threshold, target, and maximum scenarios before a committee meeting rather than after.
- Total Rewards Communication delivers a statement that shows the executive exactly what they hold and when it vests.
- For investment management firms, Carried Interest handles distribution waterfalls and clawbacks in the same system.
Frequently asked questions
What are the components of a typical executive compensation package? Base salary, an annual cash incentive tied to 12-month performance, long-term incentives that vest over multiple years, supplemental retirement and deferred compensation, and perquisites with severance protection. At the CEO level in a public company, long-term incentives typically represent the largest share of total direct compensation, and base salary the smallest.
What is executive compensation? Executive compensation is the total package of cash, equity, benefits, and perquisites paid to senior leaders. It differs from broad-based employee pay in three ways: a much larger share is contingent on performance, a much larger share vests over multiple years, and public company arrangements are disclosed in the proxy statement and subject to shareholder advisory votes.
How do you determine executive compensation? Start with a written compensation philosophy that states where you target against market. Benchmark to a defensible peer group matched on revenue, industry, and geography. Set the pay mix, meaning the split between fixed and at-risk pay, before setting individual dollar values. Model outcomes at threshold, target, and maximum. Have an independent body approve and document the decision.
What is a typical executive bonus percentage? Annual incentive targets are expressed as a percentage of base salary and scale with the scope of the role. A functional leader carries a lower target than a C-suite executive, who carries a lower target than the chief executive, and targets at every level run higher at larger companies and at public companies than at smaller private ones. There’s no single number that holds across industries, so benchmark your own targets against survey data matched on revenue band, industry, and geography rather than against a general range. What matters more than the target itself is the payout curve around it: where the threshold sits, where the cap sits, and how steeply the payout moves between them.
How is executive compensation different at a private company? Private companies shift weight from equity toward cash because there’s no liquid market for shares. Long-term incentives are usually delivered as phantom equity, stock appreciation rights, or long-term cash, and they’re widespread: Deloitte’s survey of 500 private companies with $500 million to $20 billion in revenue found 82 percent offer an LTI plan, mainly to align leadership with long-term goals and reduce turnover. Annual incentive participation is typically limited to director level and above. Private equity portfolio companies are a distinct case, where the majority of executive wealth creation sits in a management incentive plan that pays at exit rather than on an annual vesting schedule.
What is the difference between a stock option and an RSU? A stock option gives the executive the right to buy shares at a fixed strike price, so it only has value if the share price rises above that strike. A restricted stock unit delivers shares at vest and retains value even if the price falls. Options offer more upside and more risk of ending up worthless. RSUs offer more reliable retention.
Before your next compensation committee meeting
Executive packages fail for one of two reasons. The design doesn’t match the retention problem, or the administration can’t prove what the design promised.
Fix the first by writing the philosophy down, benchmarking honestly, and setting the pay mix before the dollar figures. Fix the second by getting every element into one system before someone asks a question you can’t answer in the room.
Book a demo to see how HRSoft tracks LTI from grant through payout.
A 20-year seasoned HCM and SaaS executive with a track record of scaling PE backed companies, Joe Poxson is the Chief Executive Officer of HRSoft and is responsible for strategic direction, culture and growth of the company. His leadership steers the company as it becomes the preferred solution for the Fortune 500 to retain their top employees through a suite of HR Solutions tailored towards compensation management, pay equity and total rewards.
