Info 1: compensation plan definition
Info 2: how the compensation plan works
Info 3: compensation plan vs stock option plan
Info 4: example of compensation plan
Matter:
Mr.Luke had an offer for 122 million dollars from his own company as a compensation plan.
Apart from the salary any of the payments made to their employees for their risk and effort as a package are known to be a compensation plan.
Are compensation and stock options are same thing
Opening information:
The compensation plan sentence breaks into two words compensation and plan, compensation means payment of one thing for taking a risk, and plan means the idea of aiming. compensation plan means the idea of providing benefits for taking risks.
So now let’s have a look at what is a compensation plan, how the compensation plan works in the public market, and what is the difference between the compensation plan and stock option plan, finally one clear example about the compensation plan.
Info 1: compensation plan definition
Mr.Luke is a business person who is the CEO of the auto Mobile production company, and he holds about 13 percent of the Industry shares. Over the past five years, Luke has received a salary of 1.2 million dollars for his work.
Before the 3 years, the management of directors had decided that if Mr.luke had crossed the average sales of more than 60 percent he would be rewarded for his effort and risk about 120 million dollars total.
At the same time, he also needs to receive the dividends from his holding of shares as Shares holders for 13 percent of the company.
Here the package of 122 million dollars which is a reward for Mr.Luke effort and risk as repayment based on the average growth of 60 Percent in three years is named as the compensation plan.
When any of the companies offer their employees any kind of payment package apart from the regular salary for the risk and effort they made for their business is called a compensation plan.
This same concept would be applied to all public Corporations, so let’s dive into how the compensation plan and works are involved in the public market.
Info 2: how the compensation plan works
Compensation plans don’t represent any of the specific things or objects, instead, they are plans that are used to benefit the CEO or other employees of one Industry.
Any compensation plan is completely created based on how much risk certain employees going to take to achieve such kind of great results for the business.
Supposed if the plan or package for
benefits the employee is not based on the risk they take, then such a package wouldn’t be known to be a compensation plan or package.
If any of the companies or businesses faced huge losses in sales amount over the past three years, to increase the losses in sales over the coming years the employee gets a credit of 2 million dollars plus a standard salary is what is called a 2 million dollar compensation plan.
Next, the company had a huge future project, in the owner’s view it seems impossible for all the stakeholders because it’s occupied huge risk to do so, the CEO of the company takes such action and risk for the future purposes of the company.
For the risk of the CEO’s work, the company offered 100 thousand shares for his work, which this offered shares are coming in a compensation plan, but the ordinary standard income of the CEO is named and considered in a compensation plan.
At the same time, if the same company offered a hundred thousand shares, for not taking a risk for the company but as a bonus without any kind of risk as an employee, it’s not illustrated as a compensation plan.
So any of the employees in the company, who benefit in the manner of taking risks apart from their salary, their risk benefits package is what elaborate as a compensation plan.
Most people are confused about the compensation plan and stock option plan, so let’s jump into the key difference anyway.
Info 3: compensation plan vs stock option plan
The difference between the compensation plan and stock option plan is, that the compensation plan is the one which refers to the package of benefits to the employee for the risks that are taken by them.
On the other side, the stock option plan is the choice for an employee to choose the business ownership shares as wages for the working services.
So the key difference between the compensation plan and stock options plan is stock option plans are part of the compensation plan. To make you more clear about the compensation plan let’s look into one brief example.
Info 4: example of compensation plan
Say company G offers the two packages of stock issue offer and risk tolerance of offer by providing 34 million dollars for the CEO of Company G.
Here the 34 million dollars in wages and stock issue offer are considered as a compensation plan, but the stock issue offer alone is named as a stock option plan.