A novel generalized net model of the executive compensation design

In the paper we are concerned with a structured approach to the process of design of an executive compensation system in a company which is one of most relevant issues in corporate economics that can have a huge impact on a company, with respect to finances, competitiveness, etc. More specifically, we present a novel application of Atanassov’s concept of a Generalized Net (GN) which is a powerful tool for the representation and handling of dynamic discrete event problems and systems. First, to present the problem specifics, a broader Total Reward system is discussed together with the importance of proper structuring of the compensation system for executives to support company’s goals, allowing attracting, motivating and retaining managers. The proposed compensation design model starts from incorporating a broad spectrum of benchmarks, expectations and constraints to those already incorporated in the early phase of the design of the executive compensation. In the design and testing phase a significant emphasis is placed on the flexibility and adjustability of the executive compensation package to external factors by testing, dynamically adjusting and stress testing the proposed compensation package already in the design phase. Then, we apply some elements of the theory of Generalized Nets (GNs) to construct the model of executive compensation design using the proposed approach.