Extraordinary compensation is a specific type of compensation that is granted to an employee or company in unusual circumstances. It is usually given to reward exceptional performance, loyalty, or services that are rendered either to the company itself or to an individual, usually in a non-employee capacity. It is typically given in the form of cash, stock, or non-cash incentives.
Types of Extraordinary Compensation
Common types of extraordinary compensation include signing bonuses, employee stock options, performance-based bonuses, retention bonuses, golden parachutes, and rewards for accomplishments not usually recognized by the company. In some cases, it can include extra vacation time or special perks such as car or house allowances.
When Is Extraordinary Compensation Appropriate?
Extraordinary compensation is most appropriate when the individual or company has done something extraordinary to create or maintain success for the company, or when there is a need to reward loyalty to the company or organization. Companies may offer extraordinary compensation to key employees or to ensure the retention of critical personnel. Common scenarios in which a company may determine that extraordinary compensation is necessary include mergers, acquisitions, or when a long-term employee retires.
How Does Extraordinary Compensation Impact Compensation Plans?
Extraordinary compensation is usually treated as an add-on to an existing compensation plan. It’s important to remember that, when granted, extraordinary compensation should not be seen as a part of the regular compensation plan. Instead, it should be viewed as an incentive or reward for outperforming expectations or for unique accomplishments.
Conclusion
Extraordinary compensation can be an effective way for companies to reward valuable employees and to recognize non-employee contributions to its success. When used judiciously, extraordinary compensation can be a great way to motivate and attract top talent. However, it’s important for employers to understand the implications of providing such compensation in order to ensure that it is properly accounted for and that it does not disrupt existing compensation plans.