Remuneration

Remuneration is the total compensation that an employee receives in exchange for the service
they perform for their employer. Typically, this consists of monetary rewards, also referred to as
wage or salary. A number of complementary benefits, however, are increasingly popular
remuneration mechanisms.

Types

Remuneration can include:

 Commission
 Compensation
o Executive compensation
o Deferred compensation
 Compensation methods (in online advertising and internet marketing)
 Employee stock option
 Fringe benefit
 Salary
 Wage

Commission (remuneration)
The payment of commission as remuneration for services rendered or products sold is
a common way to reward sales people. Payments often will be calculated on the basis of
a percentage of the goods sold. This is a way for firms to solve the principal-agent
problem, by attempting to realign employees' interests with those of the firm.

Although many types of commission schedules exist, a common form is known as On

Target Earnings, where commission rates are based on the achievement of specific
targets that have been agreed upon between management and the salesperson.
Commissions are intended to create a strong incentive for employees to invest
maximum effort into their work.

Note that often times a firm embracing a commission structure may not involve
employees, but may solely establish themselves using independent contractors. An
example of this could be a real estate agent.

Offering compensation in the form of commission alone is known as straight

commission. Compensation may also take the form of commission plus a fixed salary.
Industries where commission is commonly paid include car sales, property sales,
insurance broking and many other sales jobs.
A side effect of commissions is that in some cases, they can result to salespeople
resorting to dishonest and fraudulent business practices in order to increase their sales.

Executive pay is financial compensation received by an officer of a firm, often as a mixture of

salary, bonuses, shares of and/or call options on the company stock, etc. Over the past three
decades, executive pay has risen dramatically beyond the rising levels of an average worker's
wage.[1] Executive pay is an important part of corporate governance, and is often determined by
a company's board of directors.

Types of compensation

There are six basic tools of compensation or remuneration.

 salary
 bonuses, which provide short-term incentives
 long-term incentive plans (LTIP)
 employee benefits
 paid expenses (perquisites)
 insurance (Golden parachute)

In a modern US corporation, the CEO and other top executives are 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 and Graded Vesting. In case of Cliff Vesting, everything that is due to vest vests
at one go i.e. 100% vesting occurs either now or a later point in time at year X. In case of
graded vesting, partial vesting occurs at different times in the future. This is further
sub-classified into two types: Uniform graded vesting (eg. Same percentage i.e. 20% of
the options vest each year for 5 years) and Non-uniform graded vesting (eg. different
proportion i.e. 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 chauffered limousine, an executive jet,
interest free loans for the purchase of housing, etc.
Stock options

Supporters of stock options say they align the interests of CEOs to those of
shareholders, since options are valuable only if the stock price remains above the
option's strike price. Stock options are now counted as a corporate expense (non-cash),
which impacts a company's income statement and makes the distribution of options
more transparent to shareholders. Critics of stock options charge that they are granted
excessively and that they invite management abuses such as the options backdating of
such grants. Stock options also pose a conflict of interest in which a CEO can artificially
raise the stock price to cash in stock options at the expense of the company's long-term
health, although this is a problem for any type of incentive compensation that goes
unmonitored by directors. Indeed, "reload" stock options allow executives to exercise
options and then replace them in part (and sometimes in whole), essentially selling the
company stock short (i.e., profiting from the stock's decline). For various reasons,
including the accounting charge, concerns about dilution and negative publicity related
to stock options, companies have reduced the size of grants to executives.

Stock options also incentivize executives to engage in risk-seeking behavior. This is

because the value of a call option increases with increased volatility. (cf. options
pricing). Stock options therefore - even when used legitimately - can incentivize
excessive risk seeking behavior that can lead to catastrophic corporate failure.

In the Financial crisis of 2007-2009 in the United States, pressure mounted to use more
stock options than cash in executive pay. However, since many then-proportionally
larger 2008 bonuses were awarded in February, 2009, near the March, 2009, bottom of
the stock market, many of the bonuses in the banking industry turned out to have
doubled or more in paper value by late in 2009. The bonuses were under particular
scrutiny, including by the United States Treasury’s new special master of pay, Kenneth
R. Feinberg, because many of the firms had been rescued by government Troubled
Asset Relief Program (TARP) and other funds.

Restricted stock

Executives are also compensated with restricted stock, which is stock given to an
executive that cannot be sold until certain conditions are met and has the same value as
the market price of the stock at the time of grant. As the size of stock option grants have
been reduced, the number of companies granting restricted stock either with stock
options or instead of, has increased. Restricted stock has its detractors, too, as it has
value even when the stock price falls. As an alternative to straight time vested restricted
stock, companies have been adding performance type features to their grants. These
grants, which could be called performance shares, do not vest or are not granted until
these conditions are met. These performance conditions could be earnings per share or
internal financial targets.
Tax issues

Cash compensation is taxable to an individual at a high individual rate. If part of that

income can be converted to long-term capital gain, for example by granting stock
options instead of cash to an executive, a more advantageous tax treatment may be
obtained by the executive.

Levels of compensation

The levels of compensation in all countries has been rising dramatically over the past
decades. Not only is it rising in absolute terms, but also in relative terms.

Fortune 500 compensation

During 2003, about half of Fortune 500 CEO compensation was in cash pay and
bonuses, and the other half in vested restricted stock, and gains from exercised stock
options according to Forbes magazine.[3] Forbes magazine counted the 500 CEOs
compensation to $3.3 billion during 2003 (which makes $6.6 million a piece), a figure
that includes gains from stock call options used (the options may have been rewarded
many years before the option to buy is used).

Forbes categories of compensation

The categories that Forbes use are (1) salary (cash), (2) bonus (cash), (3) other (market
value of restricted stock received), and (4) stock gains from option exercise (the gains
being the difference between the price paid for the stock when the option was exercised
and that days market price of the stock). If you see someone "making" $100 million or
$200 million during the year, chances are 90% of that is coming from options (earned
during many years) being exercised.

Typical compensation

The typical salary in the top of the list is $1 million - $3 million. The typical top cash
bonus is $10 million - $15 million. The highest stock bonus is $20 million. The highest
option exercise have been in the range of $100 million - $200 million.

Compensation protection

Senior executives may enjoy considerable income protection unavailable to many other
employees. Often executives may receive a Golden Parachute that rewards them
substantially if the company gets taken over or they lose their jobs for other reasons.
This can create perverse incentives.
One example is that overly attractive Golden Parachutes may incentivize executives to
facilitate the sale of their company at a price that is not in their shareholders' best
interests.

It is fairly easy for a top executive to reduce the price of his/her company's stock - due
to information asymmetry. The executive can accelerate accounting of expected
expenses, delay accounting of expected revenue, engage in off balance sheet
transactions to make the company's profitability appear temporarily poorer, or simply
promote and report severely conservative (eg. pessimistic) estimates of future earnings.
Such seemingly adverse earnings news will be likely to (at least temporarily) reduce
share price. (This is again due to information asymmetries since it is more common for
top executives to do everything they can to window dress their company's earnings
forecasts).

A reduced share price makes a company an easier takeover target. When the company
gets bought out (or taken private) - at a dramatically lower price - the takeover artist
gains a windfall from the former top executive's actions to surreptitiously reduce share
price. This can represent 10s of billions of dollars (questionably) transferred from
previous shareholders to the takeover artist. The former top executive is then rewarded
with a golden handshake for presiding over the firesale that can sometimes be in the
hundreds of millions of dollars for one or two years of work. (This is nevertheless an
excellent bargain for the takeover artist, who will tend to benefit from developing a
reputation of being very generous to parting top executives).

Similar issues occur when a publicly held asset or non-profit organization undergoes
privatization. Top executives often reap tremendous monetary benefits when a
government owned, mutual or non-profit entity is sold to private hands. Just as in the
example above, they can facilitate this process by making the entity appear to be in
financial crisis - this reduces the sale price (to the profit of the purchaser), and makes
non-profits and governments more likely to sell. Ironically, it can also contribute to a
public perception that private entities are more efficiently run reinforcing the political
will to sell of public assets.

Again, due to asymmetric information, policy makers and the general public see a
government owned firm that was a financial 'disaster' - miraculously turned around by
the private sector (and typically resold) within a few years.

Regulation

There are a number of strategies that could be employed as a response to the growth of
executive compensation.

 In the United States, shareholders must approve all equity compensation plans.
Shareholders can simply vote against the issuance of any equity plans. This would
 eliminate huge windfalls that can be due to a rising stock market or years of retained
earnings.

 Independent non-executive director setting of compensation is widely practised.

Remuneration is the archetype of self dealing. An independent remuneration committee
is an attempt to have pay packages set at arms' length from the directors who are getting
paid.

 Disclosure of salaries is the first step, so that company stakeholders can know and
decide whether or not they think remuneration is fair. In the UK, the Directors'
Remuneration Report Regulations 2002[8] introduced a requirement into the old
Companies Act 1985, the requirement to release all details of pay in the annual accounts.
This is now codified in the Companies Act 2006. Similar requirements exist in most
countries, including the U.S., Germany, and Canada.

 A say on pay - a non-binding vote of the general meeting to approve director pay
packages, is practised in a growing number of countries. Some commentators have
advocated a mandatory binding vote for large amounts (e.g. over $5 million). The aim is
that the vote will be a highly influential signal to a board to not raise salaries beyond
reasonable levels. The general meeting means shareholders in most countries. In most
European countries though, with two-tier board structures, a supervisory board will
represent employees and shareholders alike. It is this supervisory board which votes on
executive compensation.

 Progressive taxation is a more general strategy that affects executive compensation, as

well as other highly paid people. There has been a recent trend to cutting the highest
bracket tax payers, a notable example being the tax cuts in the U.S. For example, the
Baltic States have a flat tax system for incomes. Executive compensation could be
checked by taxing more heavily the highest earners, for instance by taking a greater
percentage of income over $200,000.

 Maximum wage is an idea which has been enacted in early 2009 in the United States,
where they capped executive pay at $500,000 per year for companies receiving
extraordinary financial assistance from the U.S. taxpayers. The argument is to place a
cap on the amount that any person may legally make, in the same way as there is a floor
of a minimum wage so that people can not earn too little.
 Debt Like Compensation - It has been widely accepted that the risk taking motivation of
executives depends on its position in equity based compensation and risky debt. Adding
debt like instrument as part of an executive compensation may reduce the risk taking
motivation of executives. Therefore, as of 2011, there are several proposals to enforce
financial institutions to use debt like compensation.

 Indexing Operating Performance is a way to make bonus targets business cycle

independent. Indexed bonus targets move with the business cycle and are therefore
fairer and valid for a longer period of time.
Criticism

Many newspaper stories show people expressing concern that CEOs are paid too much
for the services they provide. In Searching for a Corporate Savior: The Irrational Quest for
Charismatic CEOs, Harvard Business School professor Rakesh Khurana documents the
problem of excessive CEO compensation, showing that the return on investment from
these pay packages is very poor compared to other outlays of corporate resources.

Defenders of high executive pay say that the global war for talent and the rise of private
equity firms can explain much of the increase in executive pay. For example, while in
conservative Japan a senior executive has few alternatives to his current employer, in
the United States it is acceptable and even admirable for a senior executive to jump to a
competitor, to a private equity firm, or to a private equity portfolio company. Portfolio
company executives take a pay cut but are routinely granted stock options for
ownership of ten percent of the portfolio company, contingent on a successful tenure.
Rather than signaling a conspiracy, defenders argue, the increase in executive pay is a
mere byproduct of supply and demand for executive talent. However, U.S. executives
make substantially more than their European and Asian counterparts.

Shareholders, often members of the Council of Institutional Investors or the Interfaith

Center on Corporate Responsibility have often filed shareholder resolutions in protest.
21 such resolutions were filed in 2003.[14] About a dozen were voted on in 2007, with two
coming very close to passing (at Verizon, a recount is currently in progress). The U.S.
Congress is currently debating mandating shareholder approval of executive pay
packages at publicly traded U.S. companies.[16]

The U.S. stood first in the world in 2005 with a ratio of 39:1 CEO's compensation to pay
of manufacturing production workers. Britain second with 31.8:1; Italy third with 25.9:1,
New Zealand fourth with 24.9:1.

United States

The U.S. Securities and Exchange Commission (SEC) has asked publicly traded
companies to disclose more information explaining how their executives' compensation
amounts are determined. The SEC has also posted compensation amounts on its
website to make it easier for investors to compare compensation amounts paid by
different companies. It is interesting to juxtapose SEC regulations related to executive
compensation with Congressional efforts to address such compensation.

In 2005, the issue of executive compensation at American companies has been harshly
criticized by columnist and Pulitzer Prize winner Gretchen Morgenson in her Market
Watch column for the Sunday "Money & Business" section of the New York Times
newspaper.
A February 2009 report, published by the Institute for Policy Studies notes the impact
excessive executive compensation has on taxpayers:

U.S. taxpayers subsidize excessive executive compensation — by more than $20 billion
per year — via a variety of tax and accounting loopholes. For example, there are no
meaningful limits on how much companies can deduct from their taxes for the expense
of executive compensation. The more they pay their CEO, the more they can deduct. A
proposed reform to cap tax deductibility at no more than 25 times the pay of the lowest-
paid worker could generate more than $5 billion in extra federal revenues per year.
Although a proposal such as this one would tighten controls on pay to executives, this
study does take into consideration (or at least does not address) the tax obligations of
the individual (CEO) that receives this compensation. Every dollar that is deducted
from the firm's income is subject to the personal tax of the individual receiving such
pay.

Unions have been very vocal in their opposition to high executive compensation. The
AFL-CIO sponsors a website called Executive Paywatch which allows users to compare
their salaries to the CEOs of the companies where they work.

In 2007, CEOs in the S&P 500, averaged $10.5 million annually, 344 times the pay of
typical American workers. This was a drop in ratio from 2000, when they averaged 525
times the average pay.

To work around the restrictions and the political outrage concerning executive pay
practices, banks in particular turned to using life insurance policies to fund bonuses,
deferred pay and pensions owed to its executives. Under this scenario, a bank insures
thousands of its employees under the life insurance policy, naming itself as the
beneficiary of the policy. Bank undertake this practice often without the knowledge or
consent of the employee and sometimes with the employee misunderstanding the scope
of the coverage or the ability to maintain employee coverage after leaving the company.
In recent times, a number of families became outraged by the practice and complained
that banks should not profit from the death of the deceased employees. In one case, a
family of a former employee filed a lawsuit against the bank after the family questioned
the practices of the bank in its coverage of the employee. The insurance company
accidentally sent the widow of the deceased employee a check for a $1.6 million that
was payable to the bank after the former employee died in 2008. In that case, bank
allegedly told the employee in 2001 that the employee was eligible for a $150,000
supplemental life insurance benefit if the employee signed a consent form to allow the
bank to add the employee to the bank's life insurance policy. The bank fired the
employee four months after the employee consented to the arrangement. After that
employee's death, the family collect no benefits from the employee life insurance
policies provided by the bank, since the bank had canceled the employee's benefit after
the firing. The family claimed that the former employee was "cognitively disabled"
because of brain surgery and medical treatments at the time of signing the consent form
to understand fully the scope of insurance coverage under the bank's master insurance
benefit plan.

The practice of financing executive compensation using corporate-owned life insurance

policies remain controversial. On the one hand, observers in the insurance industry note
that "businesses enjoy tax-deferred growth of the inside buildup of the [life insurance]
policy’s cash value, tax-free withdrawals and loans, and income tax-free death benefits
to [corporate] beneficiaries." On the other hand, critics frowned upon the use of
"janitor's insurance" to collect tax-free death benefits from insurance policies covering
retirees and current and former non-key employees that companies rely on as informal
pension funds for company executives. To thwart the abuse and reduce the
attractiveness of corporate-owned life insurance policies, changes in tax treatment of
corporate-owned insurance life insurance policies are under consideration for non-key
personnel. These changes would repeal "the exception from the pro rata interest
expense disallowance rule for [life insurance] contracts covering employees, officers or
directors, other than 20% owners of a business that is the owner or beneficiary of the
contracts."

A study by University of Florida researchers found that highly paid CEOs improve
company profitability as opposed to executives making less for similar jobs.

On the other hand, a study by Professors Lynne M. Andersson and Thomas S.

Batemann published in the Journal of Organizational Behavior found that highly paid
executives are more likely to behave cynically and therefore show tendencies of
unethical performance.

Australia

In Australia, shareholders can vote against the pay rises of board members, but the vote
is non-binding. Instead the shareholders can sack some or all of the board members.

Trends in executive compensation

There are some examples of exceptionally high chief executive officer pay in the early
twentieth century. When the United States government took control of the railroad
industry during the 1910s, they discovered enormous salaries for the railroad bosses.
After the Securities and Exchanges Commission was set up in the 1930s, it was
concerned enough about excessive executive compensation that it began requiring
yearly reporting of company earnings to help reign in abuse. These examples show that
exceptionally high CEO pay is not a new phenomenon, just perhaps not as common as
today.

Anecdotal evidence for the General Electric corporation suggest that after examples of
excess early last century and the Great Depression, following World War II executive
pay remained fairly constant at GE for almost three decades. This may have been in part
due to high income taxes on the wealthy. To get around this, companies like General
Electric began to offer stock options in the late 1950s. The United States government
eventually pared down the income taxes on the wealthy – from 91% in the 1950s, to 28%
in the 1980s. Thus the level of pay for GE’s top three managers increased at a slow rate
of about two percent per year from the 1940s to the 1960s but this period of little growth
was followed by a rapid acceleration in top management pay. Mostly encouraged by
the increasing use of stock options since the 1980s and of restricted stock since the
1990s. From the 1970s to the present, the compensation of the three highest-paid officers
at GE has grew at the significantly higher annual rate of eight percent yearly.

The years 1993 -2003 saw executive pay increase sharply with the aggregate
compensation to the top five executives of each of the S&P 1500 firms compensation
doubling as a percentage of the aggregate earnings of those firms - from 5 per cent in
1993–5 to about 10 per cent in 2001–3.

The Financial Crisis has had a relatively small net effect on executive pay. According to
the independent research firm Equilar, median S&P 500 CEO compensation fell
significantly for the first time since 2002. From 2007 to 2008, median total compensation
declined by 7.5 percent. A sharp decline in bonus payouts contributed most to declines
in total pay, with median annual bonus payouts for S&P 500 CEOs dropping to $1.2
million in 2008, down 24.5 percent from the 2007 median of $1.6 million. Additionally,
20.6 percent of CEOs received no bonus payout at all for 2008.

On the other hand, equity compensation changed little from 2007 to 2008, despite the
market turmoil. The median value of option awards and stock awards rose by 3.5
percent and 1.4 percent, respectively. Options maintained its place as the most
prevalent equity award vehicle, with 72.2 percent of CEOs receiving option awards. In
2008, nearly two-thirds of total CEO compensation was delivered in the form of stock or
options.

Deferred compensation
Deferred compensation is an arrangement in which a portion of an employee's income
is paid out at a date after which that income is actually earned. Examples of deferred
compensation include pensions, retirement plans, and stock options. The primary
benefit of most deferred compensation is the deferral of tax to the date(s) at which the
employee actually receives the income.

USA

In the US, Section 409A now imposes fairly detailed requirements on the timing of
deferral elections and of distributions with the cudgel of imposing additional tax on the
taxpayer prior to actual receipt of the deferred income if these requirements are not
complied with.

This is not tax or legal advice. Any questions relating to a specific situation should be
referred to qualified counsel. While technically deferred compensation is any
arrangement where an employee receives wages after they have earned them, the more
common use of the phrase refers to a specific part of the tax code that provides a special
benefit to corporate executives and other highly compensated corporate employees.

What is deferred compensation? Deferred compensation is a written agreement

between an employer and an employee where the employee voluntarily agrees to have
part of their compensation withheld by the company, invested on their behalf, and
given to them at some pre-specified point in the future. Deferred compensation is also
sometimes referred to as deferred comp, DC, non-qualified deferred comp, NQDC or
golden handcuffs.

Who gets deferred comp? Deferred comp is only available to senior management and
other highly compensated employees of companies. Although DC isn't restricted to
public companies, there must be a serious risk that a key employee could leave for a
competitor and deferred comp is a "sweetener" to try and entice them to stay. If a
company is closely held (i.e. owned by a family, or a small group of related people), the
IRS will look much more closely at the potential risk to the company. A top producing
salesman for a pharmaceutical company could easily find work at a number of good
competitors. A parent who jointly owns a business with their children is highly unlikely
to leave to go to a competitor. There must be a "substantial risk of forfeiture," or a strong
possibility that the employee might leave, for the plan to be tax-deferred. Among other
things, the IRS may want to see an independent (unrelated) Board of Directors'
evaluation of the arrangement.

When is deferred comp used? ERISA, the Employee Retirement Income Security Act of
1974, created qualified plans. (They "qualify" to be considered part of ERISA). ERISA,
which is too complicated to get into in this article, has a few important points that need
to be mentioned, because what a non-qualified deferred comp plan is partially defined
by what it's not - an ERISA plan. 1) Assets in plans that fall under ERISA (for example, a
401(k) plan) must be put in a trust for a sole benefit of its employees. If a company goes
bankrupt, creditors aren't allowed to get assets inside the company's ERISA plan.
Deferred comp, because it doesn't fall under ERISA, is a general asset of the
corporation. While the corporation may choose to not invade those assets as a courtesy,
legally they're allowed to and may be forced to give deferred compensation assets to
creditors in the case of a bankruptcy. A special kind of trust called a rabbi trust (because
it was first used in the compensation plan for a rabbi) may be used. A rabbi trust puts a
"fence" around the money inside the corporation and protects it from being raided for
most uses other than the corporation's bankruptcy/insolvency. However, plan
participants may not receive a guarantee that they'll be paid prior to creditors being
paid in case of insolvency. 2) ERISA plans may not discriminate in favor of highly
compensated employees on a percentage basis. If the president of the company is
making $1,000,000/year and a clerk is making $30,000, and the company declares a 25%
profit sharing contribution, the president of the company gets to count the first $230,000
only (2008 limit) and put $57,500 into his account and $7,500 into the clerk's account. For
the president, $57,500 represents only 5.75% of total income that grows tax deferred,
and if the company wants to provide an additional tax incentive, DC may be an option.
3) Federal income tax rates change on a regular basis. If an executive is assuming tax
rates will be higher at the time they retire, they should calculate whether or not deferred
comp is appropriate. The top federal tax rate in 1975 was 70%. In 2008, it was 35%. If an
executive defers compensation at 35% and ends up paying 70%, that was a bad idea. If
the reverse is true, it was brilliant. Unfortunately, only time will tell, but the decision to
pay the taxes once the rates have changed is irreversible so careful consideration must
be given.

Where are deferred comp agreements made? Plans are usually put in place either at the
request of executives or as an incentive by the Board of Directors. They're drafted by
lawyers, recorded in the Board minutes with parameters defined. There's a doctrine
called constructive receipt, which means an executive can't have control of the
investment choices or the option to receive the money whenever he wants. If he's
allowed to do either of those 2 things or both, he often has to pay taxes on it right away.
For example: if an executive says "With my deferred comp money, buy 1,000 shares of
Microsoft stock" that's usually too specific to be allowed. If he says "Put 25% of my
money in large cap stocks" that's a much broader parameter. Again, ask legal counsel
for specific requirements.

How do the taxes work? In an ERISA-qualified plan (like a 401(k) plan), the company's
contribution to the plan is deductiable to the plan as soon as it's made, but not taxable to
the participants until it's withdrawn. So if a company puts $1,000,000 into a 401(k) plan
for employees, it writes off $1,000,000 that year. If the company is in the 25% bracket,
the contribution actually $750,000 (because they didn't pay $250,000 in taxes - 25% of
1M). In a deferred comp plan, the company doesn't get to deduct the taxes in the year
the contribution is made, they deduct them the year the contribution becomes non-
forfeitable. For example, if ABC company allows SVP John Smith to defer $200,000 of
his compensation in 1990, which he will have the right to withdraw for the first time in
the year 2000, ABC puts the money away for John in 1990, John pays taxes on it in 2000.
If John keeps working there after 2000, it doesn't matter because he was allowed to
receive it (or "constructively received") the money in 2000.

Other circumstances around deferred comp. Most of the provisions around deferred
comp are related to circumstances the employee's control (such as voluntary
termination), however deferred comp often has a clause that says in the case of the
employee's death or permanent disability, the plan will immediately vest and the
employee (or estate) can get the money
Compensation methods
Compensation methods (Remuneration), Pricing models and business models used for
the different types of internet marketing, including affiliate marketing, contextual
advertising, search engine marketing (including vertical comparison shopping search
engines and local search engines) and display advertising.

Contents

 1 Predominant compensation methods in affiliate marketing

 2 Pricing models in search engine marketing
 3 Pricing modes in display advertising
 4 Compensation methods in contextual advertising
 5 Compensation methods grid

Predominant compensation methods in affiliate marketing

The following models are also referred to as performance based pricing/compensation

model, because they only pay if a visitor performs an action that is desired by the
advertisers or completes a purchase. Advertisers and publishers share the risk of a
visitor that does not convert.

Pay-per-sale (PPS) - (revenue share)

Cost-per-sale (CPS). Advertiser pays the publisher a percentage of the order amount
(sale) that was created by a customer who was referred by the publisher. This form of
compensation is also referred to as revenue sharing.

Pay-per-lead (PPL)/pay-per-action (PPA)

Cost-per-action or cost-per-acquisition (CPA), cost per lead (CPL). Advertiser pays

publisher a commission for every visitor referred by the publisher to the advertiser
(web site) and performs a desired action, such as filling out a form, creating an account
or signing up for a newsletter. This compensation model is very popular with online
services from internet service providers, cell phone providers, banks (loans, mortgages,
credit cards) and subscription services.
Special CPA compensation models

Pay-per-call

Similar to pay per click, pay per call is a business model for ad listings in search engines
and directories that allows publishers to charge local advertisers on a per-call basis for
each lead (call) they generate (CPA). Advertiser pays publisher a commission for phone
calls received from potential prospects as response to a specific publisher ad.

The term "pay per call" is sometimes confused with click-to-call, the technology that
enables the “pay-per-call” business model. Call-tracking technology allows to create a
bridge between online and offline advertising. Click-to-call is a service which lets users
click a button or link and immediately speak with a customer service representative.
The call can either be carried over VoIP, or the customer may request an immediate call
back by entering their phone number. One significant benefit to click-to-call providers is
that it allows companies to monitor when online visitors change from the website to a
phone sales channel.

Pay-per-call is not just restricted to local advertisers. Many of the pay-per-call search
engines allows advertisers with a national presence to create ads with local telephone
numbers. Pay-per-call advertising is still new and in its infancy, but according to the
Kelsey Group, the pay-per-phone-call market is expected to reach US$3.7 billion by
2010.

Pay-per-install (PPI)

Advertiser pays publisher a commission for every install by a user of usually free
applications bundled with adware applications. Users are prompted first if they really
want to download and install this software. Pay per install is included in the definition
for pay per action (like cost-per-acquisition), but its relationship to how adware is
distributed made the use of this term versus pay per action more popular to distinguish
it from other CPA offers that pay for software downloads. The term pay per install is
being used beyond the download of adware.

Some botnets are known to operate PPI scams to generate money for their operators.
Essentially, the compromised computer with the bot agent is instructed to install the
software package from a registered PPI source via the bots command and control
system. The bot operator then receives payment from the PPI agency and, after a short
period of time, uninstalls the software package and installs a new one.
Pricing models in search engine marketing

Pay-per-click (PPC)

Cost-per-click (CPC). Advertiser pays publisher a commission every time a visitor clicks
on the advertiser's ad. It is irrelevant (for the compensation) how often an ad is
displayed. commission is only due when the ad is clicked.

Pay per action (PPA)

Cost-per-action (CPA). Search engines started to experiment with this compensation

method in spring 2007.

Pricing modes in display advertising

Pay-per-impression (PPI)

Cost-per-mil (mil/mille/M = Latin/Roman numeral for thousand) impressions.

Publisher earns a commission for every 1,000 impressions (page views/displays) of text,
banner image or rich media ads.

Pay per action (PPA) or cost per action (CPA)

Cost-per-action (CPA). Used by display advertising as pricing mode as early as 1998. By

mid-2007 the CPA/Performance pricing mode (50%) superseded the CPM pricing mode
(45%) and became the dominant pricing mode for display advertising.

Shared CPM

Shared Cost-per-mil (CPM) is a pricing model in which two or more advertisers share
the same ad space for the duration of a single impression (or page view) in order to save
CPM costs. Publishers offering a shared CPM pricing model generally offer a discount
to compensate for the reduced exposure received by the advertisers that opt to share
online ad space in this way. Inspired by the rotating billboards of outdoor advertising,
the shared CPM pricing model can be implemented with either refresh scripts (client-
side JavaScript) or specialized rich media ad units. Publishers that opt to offer a shared
CPM pricing model with their existing ad management platforms must employ
additional tracking methods to ensure accurate impression counting and separate click-
through tracking for each advertiser that opts to share a particular ad space with one or
more other advertisers.
Compensation methods in contextual advertising

Pay-per-click (PPC)

PPC/CPC in Search engine marketing.

Pay-per-impression (PPI)

PPI/CPM in Display Advertising

Google AdSense offers this compensation method for its "Advertise on this site" feature
that allows advertisers to target specific publisher sites within the Google content
network.

Employee stock option

An employee stock option is a call option on the common stock of a company, issued
as a form of non-cash compensation. Restrictions on the option (such as vesting and
limited transferability) attempt to align the holder's interest with those of the business'
shareholders. If the company's stock rises, holders of options generally experience a
direct financial benefit. This gives employees an incentive to behave in ways that will
boost the company's stock price.

Employee stock options are mostly offered to management as part of their executive
compensation package. They may also be offered to non-executive level staff, especially
by businesses that are not yet profitable, insofar as they may have few other means of
compensation. Alternatively, employee-type stock options can be offered to non-
employees: suppliers, consultants, lawyers and promoters for services rendered.
Employee stock options are similar to warrants, which are call options issued by a
company with respect to its own stock.

Stock option expensing became a controversy in the early 2000s, and it was eventually
determined that by the Financial Accounting Standards Board that the options should
be expensed at their fair value as of the grant date.
Contents

 1 Overview
o 1.1 Contract differences
 2 Valuation
 3 Employee stock options in the United States
o 3.1 GAAP
o 3.2 Types of employee stock options
o 3.3 Taxation of employee stock options in the United States
 4 Financial accounting solutions for employee stock options
 5 Criticism

Overview

Employee stock options (ESOs) are non-standardized calls that are issued as a private
contract between the employer and employee. Over the course of employment, a
company generally issues ESOs to an employee which can be exercised at a particular
price set on the grant day, generally the company's current stock price. Depending on
the vesting schedule and the maturity of the options, the employee may elect to exercise
the options at some point, obligating the company to sell the employee its stock at
whatever stock price was used as the exercise price. At that point, the employee may
either sell the stock, or hold on to it in the hope of further price appreciation or hedge
the stock position with listed calls and puts. The employee may also hedge the
employee stock options prior to exercise with exchange traded calls and puts and avoid
forfeiture of a major part of the options value back to the company thereby reducing
risks and delaying taxes.

Contract differences

Employee stock options have the following differences from standardized, exchange-
traded options:

 Exercise price: The exercise price is non-standardized and is often the current price of
the company stock at the time of issue. Alternatively, a formula may be used, such as
sampling the lowest closing price over a 30-day window on either side of the grant date.
On the other hand, choosing an exercise at grant date equal to the average price for the
next sixty days after the grant would eliminate the chance of back dating and spring
loading. Often, an employee may have ESOs exercisable at different times and different
exercise prices.
 Quantity: Standardized stock options typically have 100 shares per contract. ESOs
usually have some non-standardized amount.
 Vesting: Often the number of shares available to be exercised at the strike price will
increase as time passes according to some vesting schedule.
  Duration (Expiration): ESOs often have a maximum maturity that far exceeds the
maturity of standardized options. It is not unusual for ESOs to have a maximum
maturity of 10 years from date of issue, while standardized options usually have a
maximum maturity of about 30 months.
 Non-transferable: With few exceptions, ESOs are generally not transferable and must
either be exercised or allowed to expire worthless on expiration day. There is a
substantial risk that when the ESOs are granted (perhaps 50%) that the options will be
worthless at expiration. This should encourage the holders to reduce risk by hedging
with listed options.
 Over the counter: Unlike exchange traded options, ESOs are considered a private
contract between the employer and employee. As such, those two parties are responsible
for arranging the clearing and settlement of any transactions that result from the
contract. In addition, the employee is subjected to the credit risk of the company. If for
any reason the company is unable to deliver the stock against the option contract upon
exercise, the employee may have limited recourse. For exchange-trade options, the
fulfillment of the option contract is guaranteed by the Options Clearing Corp.
 Tax issues: There are a variety of differences in the tax treatment of ESOs having to do
with their use as compensation. These vary by country of issue but in general, ESOs are
tax-advantaged with respect to standardized options.

Valuation

The value of an ESO follows the valuation techniques used for standardized options.
The same models used in valuing standardized options, such as Black-Scholes and the
binomial model, are also used for ESOs. Often, the only inputs to the pricing model that
cannot be readily determined is the estimate of future volatility of the stock, and the
appropriate expected time to expiration to use. However, there are a variety of services
that are now offered to help determine appropriate values.

As of 2006, the International Accounting Standards Board (IASB) and the Financial
Accounting Standards Board (FASB) agree that the fair value at the grant date should be
estimated at the grant date using an option pricing model. The majority of public and
private companies apply the Black-Scholes model, however, through September 2006,
over 350 companies have publicly disclosed the use of a binomial model in SEC filings.

Employee stock options in the United States

GAAP

FAS 123 Revised, does not state a preference in valuation model. However, it does state
that "a lattice model can be designed to accommodate dynamic assumptions of expected
volatility and dividends over the option’s contractual term, and estimates of expected
option exercise patterns during the option’s contractual term, including the effect of
blackout periods. Therefore, the design of a lattice model more fully reflects the
substantive characteristics of a particular employee share option or similar instrument.
Nevertheless, both a lattice model and the Black-Scholes-Merton formula, as well as
other valuation techniques that meet the requirements in paragraph A8, can provide a
fair value estimate that is consistent with the measurement objective and fair-value-
based method of this Statement." The simplest and most common form of a lattice
model is a binomial model.

According to US generally accepted accounting principles in effect before June 2005,

stock options granted to employees did not need to be recognized as an expense on the
income statement when granted, although the cost was disclosed in the notes to the
financial statements. This allows a potentially large form of employee compensation to
not show up as an expense in the current year, and therefore, currently overstate
income. Many assert that over-reporting of income by methods such as this by
American corporations was one contributing factor in the Stock Market Downturn of
2002.

Employee stock options have to be expensed under US GAAP in the US. Each company
must begin expensing stock options no later than the first reporting period of a fiscal
year beginning after June 15, 2005. As most companies have fiscal years that are
calendars, for most companies this means beginning with the first quarter of 2006. As a
result, companies that have not voluntarily started expensing options will only see an
income statement effect in fiscal year 2006. Companies will be allowed, but not
required, to restate prior-period results after the effective date. This will be quite a
change versus before, since options did not have to be expensed in case the exercise
price was at or above the stock price (intrinsic value based method APB 25). Only a
disclosure in the footnotes was required. Intentions from the international accounting
body IASB indicate that similar treatment will follow internationally.

Method of option expensing: SAB 107, issued by the SEC, does not specify a preferred
valuation model, but 3 criteria must be met when selecting a valuation model: The
model 1) is applied in a manner consistent with the fair value measurement objective
and other requirements of FAS123R; 2) is based on established financial economic
theory and generally applied in the field; and 3) reflects all substantive characteristics of
the instrument (i.e. assumptions on volatility, interest rate, dividend yield, etc.) need to
be specified...

Types of employee stock options

In the U.S., stock options granted to employees are of two forms, that differ primarily in
their tax treatment. They may be either:

 Incentive stock options (ISOs)

 Put options (POs)
 Non-qualified stock options (NQSOs or NSOs)
Taxation of employee stock options in the United States

Because most employee stock options are non-transferable, are not immediately
exercisable although they can be readily hedged to reduce risk, the IRS considers that
their "fair market value" cannot be "readily determined", and therefore "no taxable
event" occurs when an employee receives an option grant. Depending on the type of
option granted, the employee may or may not be taxed upon exercise. Non-qualified
stock options (those most often granted to employees) are taxed upon exercise.
Incentive stock options (ISO) are not, assuming that the employee complies with certain
additional tax code requirements. Most importantly, shares acquired upon exercise of
ISOs must be held for at least one year after the date of exercise if the favorable capital
gains tax are to be achieved.

However, taxes can be delayed or reduced by avoiding premature exercises and

holding them until near expiration day and hedging along the way. The taxes applied
when hedging are friendly to the employee/optionee.

Financial accounting solutions for employee stock options

 EASi (Operated by Equity Administration Solutions, Inc.) - Helps companies with the
complexity and risk of managing and reporting on equity compensation plans.
 eProsper (Operated by SVB Financial Group) - Helps manage all the components of a
company's equity structure, allowing users to access, record and manage option plans
and grants online.
 Equity Edge (Operated by E-Trade) - A stock plan management and reporting software
that provides control over a company's equity compensation program. The first
administrative solution for stock based compensation since 1985.[2]
 MyLeo (Operated by ING Bank N.V.) - is a user-friendly internet application which
handles the offering, registration, order handling and settlement of all types of Long
Term Incentive Plans. MyLeo is part of the ING group which means that MyLeo meets
all ING’s security, reliability, integrity and compliance standards.
 Norse Options (Operated by Norse Solutions AS) - A software as a service (SaaS) that
provides all the functionality and reports necessary for administration of corporate
finance, accounting, company tax and investor relations purposes related to share-based
compensation.
 OptionEase (Operated by OptionEase Inc.) - A software as a service (SaaS) equity
administration, valuation, and compliance solution.
 OPTRACK (Operated by SyncBASE Inc.) - A software as a service (SaaS) that handles
option activities including administration, valuation, expensing, reporting, tax, and
share dilution. The first accounting solution for stock based compensation since 2004. [3]
 Shareworks (Operated by Solium Capital) - A fully integrated solution for the
recordkeeping, real time trade execution, administration and reporting of stock plans.
 tOption (Operated by http://www.monidee.com) - Monidee provides professional reward
plan administration services and compliance solutions tailored to meet each client’s
specific needs. The Software as a Service Platform offers a suitable, efficient and cost-
effective solution to administer complex reward plans that can meet the individual
 needs of both public and privately held domestic, national or multi-national companies
of any size.
 Transcentive (Operated by Solium Capital) - Provides a centralized repository for plan
information to manage the administrative and financial reporting requirements for
equity compensation plans.
 " Truth In Options" (www.optionsforemployees.com) offers services to communicate
the nature of, the value of, and the proper management of an employee's stock options
to minimize risk, and maximize gains while delaying and reducing taxes from employee
stock options.

Criticism

Charlie Munger, vice-chairman of Berkshire Hathaway and chairman of Wesco

Financial and the Daily Journal Corporation, has criticized stock options for company
management for the following reasons:

 "[A] stock option plan is capricious, as employees awarded options in a particular year
would ultimately receive too much or too little compensation for reasons unrelated to
employee performance. Such variations could cause undesirable effects, as employees
receive different results for options awarded in different years."
 "[A] conventional stock option plan would fail to properly weigh the disadvantage to
shareholders through dilution."

Instead of stock options, Munger prefers a profit-sharing plan.

Employee benefit
Employee benefits and (especially in British English) benefits in kind (also called
fringe benefits, perquisites, perqs or perks) are various non-wage compensations
provided to employees in addition to their normal wages or salaries. Where an
employee exchanges (cash) wages for some other form of benefit, this is generally
referred to as a 'salary sacrifice' or 'salary exchange' arrangement. In most countries,
most kinds of employee benefits are taxable to at least some degree.

Some of these benefits are: housing (employer-provided or employer-paid), group

insurance (health, dental, life etc.), disability income protection, retirement benefits,
daycare, tuition reimbursement, sick leave, vacation (paid and non-paid), social
security, profit sharing, funding of education, and other specialized benefits.

The purpose of the benefits is to increase the economic security of employees.

The term perqs (also perks) is often used colloquially to refer to those benefits of a more
discretionary nature. Often, perks are given to employees who are doing notably well
and/or have seniority. Common perks are take-home vehicles, hotel stays, free
refreshments, leisure activities on work time (golf, etc.), stationery, allowances for
lunch, and—when multiple choices exist—first choice of such things as job assignments
and vacation scheduling. They may also be given first chance at job promotions when
vacancies exist.

Contents

 1 Canada
 2 United States
 3 United Kingdom
 4 Fringe Benefits Tax
 5 Disadvantages of employee benefits
o 5.1 Employee disadvantage

Canada

Employee benefits in Canada might include additional health coverage that are not
included in the provincial plan such as (medical, prescription, vision and dental plans);
Group Disability (STD/LTD), Employee Assistance Plans (EAP), Group Term Life &
Accidental Death & Dismemberment, health and dependent care; retirement benefit
plans (addition to Canada Pension Plan (CPP); and long term care insurance plans; legal
assistance plans; transportation benefits; and possibly other miscellaneous employee
discounts wellness programs, discounted shopping, hotels and resorts, and so on.

United States

Employee benefits in the United States might include relocation assistance; medical,
prescription, vision and dental plans; health and dependent care flexible spending
accounts; retirement benefit plans (pension, 401(k), 403(b)); group-term life and long
term care insurance plans; legal assistance plans; adoption assistance; child care
benefits; transportation benefits; and possibly other miscellaneous employee discounts
(e.g., movies and theme park tickets, wellness programs, discounted shopping, hotels
and resorts, and so on).

Some fringe benefits (for example, accident and health plans, and group-term life
insurance coverage up to US$50,000) may be excluded from the employee's gross
income and, therefore, are not subject to federal income tax in the United States. Some
function as tax shelters (for example, flexible spending accounts, 401(k)'s, 403(b)'s).
Fringe benefits are also thought of as the costs of keeping employees other than salary.
These benefit rates are typically calculated using fixed percentages that vary depending
on the employee’s classification and often change from year to year.

Normally, employer provided benefits are tax-deductible to the employer and non-
taxable to the employee. The exception to the general rule includes certain executive
benefits (e.g. golden handshake and golden parachute plans).

American corporations may also offer cafeteria plans to their employees. These plans
would offer a menu and level of benefits for employees to choose from. In most
instances, these plans are funded by both the employees and by the employer(s). The
portion paid by the employees are deducted from their gross pay before federal and
state taxes are applied. Some benefits would still be subject to the FICA tax, such as
401(k)[2] and 403(b) contributions; however, health premiums, some life premiums, and
contributions to flexible spending accounts are exempt from FICA.

If certain conditions are met, employer provided meals and lodging may be excluded
from an employee's gross income. If meals are furnished (1) by the employer; (2) for the
employer's convenience; and (3) provided on the business premises of the employer
they may be excluded from the employee's gross income per Section 119(a). In addition,
lodging furnished by the employer for its convenience on the business premise of the
employer (which the employee is required to accept as a condition of employment) is
also excluded from gross income. Importantly, section 119(a) only applies to meals or
lodging furnished "in kind." Therefore, cash allowances for meals or lodging received
by an employee are included in gross income .
The term "fringe benefits" was coined by the War Labor Board during World War II to
describe the various indirect benefits which industry had devised to attract and retain
labor when direct wage increases were prohibited.

Employee benefits provided through ERISA are not subject to state-level insurance
regulation like most insurance contracts, but employee benefit products provided
through insurance contracts are regulated at the state level. However, ERISA does not
generally apply to plans by governmental entities, churches for their employees, and
some other situations.

United Kingdom

In the UK, Employee Benefits are categorised by three terms: Flexible Benefits (Flex)
and Flexible Benefits Packages, Voluntary Benefits and Core Benefits.

Flexible Benefits, usually called a "Flex Scheme", is where employees are allowed to
choose how a proportion of their remuneration is paid. Currently around a quarter of
UK employers operate such a scheme. This is normally delivered by allowing
employees to sacrifice part of their pre-tax pay in exchange for a car, additional holiday,
a shorter working week or other similar benefits, or give up benefits for additional cash
remuneration. A number of external consultancies exist that enable organizations to
manage Flex packages and they centre around the provision of an Intranet or Extranet
website where employees can view their current flexible benefit status and make
changes to their package. Adoption of flexible benefits has grown considerably over the
five years to 2008, with The Chartered Institute of Personnel and Development
additionally anticipating a further 12% rise in adoption within 2008/9. This has
coincided with increased employee access to the internet and studies suggesting that
employee engagement can be boosted by their successful adoption.

Voluntary Benefits is the name given to a collection of benefits that employees choose to
opt-in for and pay for personally. These tend to be schemes such as the government-
backed (and therefore tax-efficient) Bike2Work and Childcare Vouchers (Accor Services,
Busybees, Sodexho, Fideliti, KiddiVouchers, Imagine, Early Years Vouchers Ltd) and
also specially arranged discount schemes for employees such as group ISAs. Employee
Discount schemes are often setup by employers as a perk of working at the
organization. They can be run inhouse or arranged by an external employee benefits
consultant.

Core Benefits is the term given to benefits which all staff enjoy, such as holiday, sick
pay and sometimes flexible hours.

In recent years many UK companies have used the tax and national insurance savings
gained through the implementation of salary sacrifice benefits to fund the
implementation of flexible benefits. In a salary sacrifice arrangement an employee gives
up the right to part of the cash remuneration due under their contract of employment.
Usually the sacrifice is made in return for the employer's agreement to provide them
with some form of non-cash benefit. The most popular types of salary sacrifice benefits
include childcare vouchers and pensions.

Fringe Benefits Tax

In a number of countries (e.g., Australia, New Zealand, Pakistan and India) the 'fringe
benefits' are subject to the Fringe Benefits Tax (FBT), which applies to most, although
not all, fringe benefits.

In the United States, employer-sponsored health insurance was considered taxable

income until 1954.

Disadvantages of employee benefits

Employee disadvantage

In the UK these benefits are often taxed at the individuals normal tax rate, which can
prove expensive if there is no financial advantage to the individual from the benefit.
The UK system of state pension provision is dependant upon the payment of National
Insurance Contributions (NIC). Salary exchange schemes will result in reduced NIC
payments and so are also liable to reduce the state benefits, most notably the state
second pension.

Salary
A salary is a form of periodic payment from an employer to an employee, which may
be specified in an employment contract. It is contrasted with piece wages, where each
job, hour or other unit is paid separately, rather than on a periodic basis.

From the point of a business, salary can also be viewed as the cost of acquiring human
resources for running operations, and is then termed personnel expense or salary
expense. In accounting, salaries are recorded in payroll accounts.

Contents

 1 History
o 1.1 First paid salary
o 1.2 The Roman word salarium
o 1.3 Payment in the Roman empire and medieval and pre-industrial Europe
o 1.4 Payment during the Commercial Revolution
o 1.5 Share in earnings as payment
o 1.6 The Second Industrial Revolution and salaried payment
o 1.7 Salaried employment in the 20th century
o 1.8 Salary and other forms of payment today
 2 Salaries in the U.S.
 3 Salaries in Japan
 4 Salaries in India

History

First paid salary

While there is no first pay stub for the first work-for-pay exchange, the first salaried
work would have required a human society advanced enough to have a barter system
to allow work to be exchanged for goods or other work. More significantly, it
presupposes the existence of organized employers—perhaps a government or a
religious body—that would facilitate work-for-hire exchanges on a regular enough
basis to constitute salaried work. From this, most infer that the first salary would have
been paid in a village or city during the Neolithic Revolution, sometime between 10,000
BCE and 6000 BCE.
A cuneiform inscribed clay tablet dated about BCE 3100 provides a record of the daily
beer rations for workers in Mesopotamia. The beer is represented by an upright jar with
a pointed base. The symbol for rations is a human head eating from a bowl. Round and
semicircular impressions represent the measurements.

By the time of the Hebrew Book of Ezra (550 to 450 BCE), salt from a person was
synonymous with drawing sustenance, taking pay, or being in that person's service. At
that time salt production was strictly controlled by the monarchy or ruling elite.
Depending on the translation of Ezra 4:14, the servants of King Artaxerxes I of Persia
explain their loyalty variously as "because we are salted with the salt of the palace" or
"because we have maintenance from the king" or "because we are responsible to the
king."

The Roman word salarium

Similarly, the Roman word salarium linked employment, salt and soldiers, but the exact
link is unclear. The least common theory is that the word soldier itself comes from the
Latin sal dare (to give salt). Alternatively, the Roman historian Pliny the Elder stated as
an aside in his Natural History's discussion of sea water, that "[I]n Rome. . .the soldier's
pay was originally salt and the word salary derives from it. . ." Plinius Naturalis Historia
XXXI. Others note that soldier more likely derives from the gold solidus, with which
soldiers were known to have been paid, and maintain instead that the salarium was
either an allowance for the purchase of salt or the price of having soldiers conquer salt
supplies and guard the Salt Roads (Via Salarium) that led to Rome.

Payment in the Roman empire and medieval and pre-industrial Europe

Regardless of the exact connection, the salarium paid to Roman soldiers has defined a
form of work-for-hire ever since in the Western world, and gave rise to such
expressions as "being worth one's salt."

Yet within the Roman Empire or (later) medieval and pre-industrial Europe and its
mercantile colonies, salaried employment appears to have been relatively rare and
mostly limited to servants and higher status roles, especially in government service.
Such roles were largely remunerated by the provision of lodging and food, and livery
clothes, but cash was also paid. Many courtiers, such as valets de chambre in late
medieval courts were paid annual amounts, sometimes supplemented by large if
unpredictable extra payments. At the other end of the social scale, those in many forms
of employment either received no pay, as with slavery (though many slaves were paid
some money at least), serfdom, and indentured servitude, or received only a fraction of
what was produced, as with sharecropping. Other common alternative models of work
included self- or co-operative employment, as with masters in artisan guilds, who often
had salaried assistants, or corporate work and ownership, as with medieval universities
and monasteries.
Payment during the Commercial Revolution

Even many of the jobs initially created by the Commercial Revolution in the years from
1520 to 1650 and later during Industrialisation in the 18th and 19th centuries would not
have been salaried, but, to the extent they were paid as employees, probably paid an
hourly or daily wage or paid per unit produced (also called piece work).

Share in earnings as payment

In corporations of this time, such as the several East India Companies, many managers
would have been remunerated as owner-shareholders. Such a remuneration scheme is
still common today in accounting, investment, and law firm partnerships where the
leading professionals are equity partners, and do not technically receive a salary, but
rather make a periodic "draw" against their share of annual earnings.

The Second Industrial Revolution and salaried payment

From 1870 to 1930, the Second Industrial Revolution gave rise to the modern business
corporation powered by railroads, electricity and the telegraph and telephone. This era
saw the widespread emergence of a class of salaried executives and administrators who
served the new, large-scale enterprises being created.

New managerial jobs lent themselves to salaried employment, in part because the effort
and output of "office work" were hard to measure hourly or piecewise, and in part
because they did not necessarily draw remuneration from share ownership.

As Japan rapidly industrialized in the 20th century, the idea of office work was novel
enough that a new Japanese word (salaryman), was coined to describe those who
performed it, and their remuneration.

Salaried employment in the 20th century

In the 20th century, the rise of the service economy made salaried employment even
more common in developed countries, where the relative share of industrial production
jobs declined, and the share of executive, administrative, computer, marketing, and
creative jobs—all of which tended to be salaried—increased.

Salary and other forms of payment today

Today, the idea of a salary continues to evolve as part of a system of all the combined
rewards that employers offer to employees. Salary (also now known as fixed pay) is
coming to be seen as part of a "total rewards" system which includes bonuses, incentive
pay, and commissions), benefits and perquisites (or perks), and various other tools
which help employers link rewards to an employee's measured performance.
Salaries in the U.S.

In the United States, the distinction between periodic salaries (which are normally paid
regardless of hours worked) and hourly wages (meeting a minimum wage test and
providing for overtime) was first codified by the Fair Labor Standards Act of 1938. At
that time, five categories were identified as being "exempt" from minimum wage and
overtime protections, and therefore salariable. In 1991, some computer workers were
added as a sixth category but effective August 23, 2004 the categories were revised and
reduced back down to five (executive, administrative, professional, computer, and
outside sales employees). Salary is generally set on a yearly basis.

"The FLSA requires that most employees in the United States be paid at least the federal
minimum wage for all hours worked and overtime pay at time and one-half the regular
rate of pay for all hours worked over 40 hours in a workweek.

However, Section 13(a)(1) of the FLSA provides an exemption from both minimum
wage and overtime pay for employees employed as bona fide executive, administrative,
professional and outside sales employees. Section 13(a)(1) and Section 13(a)(17) also
exempt certain computer employees. To qualify for exemption, employees generally
must meet certain tests regarding their job duties and be paid on a salary basis at not
less than $455 per week. Job titles do not determine exempt status. In order for an
exemption to apply, an employee’s specific job duties and salary must meet all the
requirements of the Department’s regulations."

Of these five categories only Computer Employees has an hourly wage-based

exemption ($27.63 per hour) while Outside Sales Employee is the only main category
not to have the minimum salary ($455 per week) test though some sub categories under
Professional (like teachers and practitioners of law or medicine) also do not have the
minimum salary test.

A general rule for comparing periodic salaries to hourly wages is based on a standard
40 hour work week with 50 weeks per year (minus two weeks for vacation). (Example:
$40,000/year periodic salary divided by 50 weeks equals $800/week. Divide $800/week
by 40 standard hours equals $20/hour). Real median household income in the United
States climbed 1.3 percent between 2006 and 2007, reaching $50,233 according to a
report released by the U.S. census bureau. This is the third annual increase in real
median household income.

Salaries in Japan

In Japan, owners would notify employees of salary increases through "jirei". The
concept still exists and has been replaced with an electronic form, or email in larger
companies.
Salaries in India

In India, salaries are generally paid on the last working day of the month (Government,
Public sector departments, Multinational organizations as well as majority of other
private sector companies). Several other companies pay after the month is over, but
generally by the 5th of every month. However there are companies pay after this also.
For instance, for companies under 'Godrej Group', salary is paid on 9th of month for the
preceding month. In case 9th is a holiday, it is paid on 10th, and in case both 9th and
10th are holiday, it is paid on 8th.

The minimum wages in India are governed by the Minimum Wages Act, 1948. Details
regarding the same can be seen at http://labourbureau.nic.in/wagetab.htm Employees
in India are notified regarding their salary increase through a hard copy letters given to
them.

Wage
A wage is a compensation, usually financial, received by workers in exchange for their
labor.

Compensation in terms of wages is given to workers and compensation in terms of

salary is given to employees. Compensation is a monetary benefit given to employees in
return for the services provided by them.

Contents

 1 Determinants of wage rates

 2 Wages in the United States

Determinants of wage rates

Depending on the structure and traditions of different economies around the world,
wage rates are either the product of market forces (supply and demand), as is common
in the United States, or wage rates may be influenced by other factors such as tradition,
social structure and seniority, as in Japan.

Several countries have enacted a statutory minimum wage rate that sets a price floor for
certain kinds of labor.
Wages in the United States

In the United States, wages for most workers are set by market forces, or else by
collective bargaining, where a labor union negotiates on the workers' behalf. The Fair
Labor Standards Act establishes a minimum wage at the federal level that all states
must abide by. Fourteen states and a number of cities have set their own minimum
wage rates that are higher than the federal level. For certain federal or state government
contacts, employers must pay the so-called prevailing wage as determined according to
the Davis-Bacon Act or its state equivalent. Activists have undertaken to promote the
idea of a living wage rate which account for living expenses and other basic necessities,
setting the living wage rate much higher than current minimum wage laws require.