<Li> long - term incentive plans (LTIPs) </Li> <Li> paid expenses (perquisites) </Li> <P> In a modern corporation, the CEO and other top executives are often paid salary plus short - term incentives or bonuses . This combination is referred to as Total Cash Compensation (TCC). Short - term incentives usually are formula - driven and have some performance criteria attached depending on the role of the executive . For example, the Sales Director's performance related bonus may be based on incremental revenue growth turnover; a CEO's could be based on incremental profitability and revenue growth . Bonuses are after - the - fact (not formula driven) and often discretionary . Executives may also be compensated with a mixture of cash and shares of the company which are almost always subject to vesting restrictions (a long - term incentive). To be considered a long - term incentive the measurement period must be in excess of one year (3--5 years is common). The vesting term refers to the period of time before the recipient has the right to transfer shares and realize value . Vesting can be based on time, performance or both . For example, a CEO might get 1 million in cash, and 1 million in company shares (and share buy options used). Vesting can occur in two ways: "cliff vesting" (vesting occurring on one date), and "graded vesting" (which occurs over a period of time) and which maybe "uniform" (e.g., 20% of the options vest each year for 5 years) or "non-uniform" (e.g., 20%, 30% and 50% of the options vest each year for the next three years). Other components of an executive compensation package may include such perks as generous retirement plans, health insurance, a chauffeured limousine, an executive jet, and interest - free loans for the purchase of housing . </P> <P> Executive stock option pay rose dramatically in the United States after scholarly support from University of Chicago educated Professors Michael C. Jensen and Kevin J. Murphy . Due to their publications in the Harvard Business Review 1990 and support from Wall Street and institutional investors, Congress passed a law making it cost effective to pay executives in equity . </P>

The amounts of executive compensation and bonuses are often determined by
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