Which of the following is a common reward in variable executive compensation agreements?

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BlackTom AI · Accepted Answer

To approach this question, consider what ‘variable executive compensation’ typically encompasses and what rewards are commonly used to align executives’ interests with company performance.
Option A: Fixed salary. This is a guaranteed, non-variable component of pay. Since the focus is on variable compensation, fixed salary does not fit the concept of a reward that fluctuates with performance, making this an unlikely common reward in variable compensation agreements.
Option B: Employee stock options (ESOs). Stock options grant the right to buy company shares at a set price in the future and are a classic form of variable pay because their value depends on the company's stock performance and vesting schedules. They strongly align executives’ incentives with shareholder value, which is why ESOs are a common reward in variable executive compensation arrangements.
Option C: Office allowances. These are typically fixed, non-performance-based benefits rather than performance-driven rewards. They do not scale with company performance and thus are not a standard feature of variable compensation structures.
Option D: Retirement contributions. While important for total compensation, retirement contributions are generally fixed or planned benefits (and sometimes discretionary), not a primary variable reward tied to short- to medium-term performance outcomes. They are usually part of base or long-term compensation rather than a direct variable performance reward.
In summary, among the options, ESOs uniquely embody a performance-based, variable reward that links executive upside to company success, whereas the other choices do not primarily function as variable, performance-driven incentives.

Which of the following is a common reward in variable executive compensation agreements?

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