Creative executive compensation

Wanted: A CEO who can wear 12
hats, increase sales 18 percent and
double the company’s $50 million revenue. Must have deep experience in the
field and a reputation as an aggressive
growth leader. Competitive salary.

Companies that adopted conservative
hiring practices several years ago are now
on the hunt for top executives to propel
their businesses to growth milestones.
Recruitment for C-level players takes
longer, requires tireless interviews and
much more due diligence since corporate
scandals turned on companies’ personnel
radars.

But at the negotiation table, top execs are
promised more total compensation than
last year; more short- and long-term
bonuses, fringe benefits like technology,
and robust health plans. Base salary is just
a starting point.

“Those executives know if they take risks
and turn a company around, they will be
compensated for their efforts,” says Tyler
Ridgeway, director of the executive search
practice (Human Capital Resources) for
Kreischer Miller, Horsham, Pa.

Cash compensation for top executives
was 30 percent more in February 2007
compared to February 2006. Cash compensation includes only base salary plus short-and long-term bonuses.

Smart Business talked to Ridgeway
about compensation trends and the innovative ways corporations are rewarding
their executives.

Why are companies paying top executives
more today?

The marketplace is changing. Companies dedicate more time and energy to
locating the right people, and they must
pay to attract and keep them. For example,
in years past, the interview processes were
shorter. After hiring a CFO, the executive
team would wait a few months before they
trusted the executive enough to bring him
or her into their management team’s inner
circle. Today, companies can’t afford that
ramp-up time. They need a leader who can
hit the ground running. As a result, you see longer interview processes. Since companies feel that they know the executives better after a longer interview process, they
are more willing to provide an attractive
salary with bonuses rather than waiting out
an initiation period.

Second, companies are better positioned
in a more secure economy to make
changes in their top-executive lineup.
Many companies played it safe from 2001
to 2004, when the economy suffered a
blow from Sept. 11. A wait-and-see attitude
has shifted to a growth-hire mentality.
Those companies are ready to make immediate changes and locate executives who
can ignite growth.

Also, because many baby boomers are
retiring, the employment pool is suffering a
talent gap. There are fewer executives with
the deep experience that major corporations seek. So when a company has an
opportunity to recruit a top executive that
it perceives will take the business to the
next level, competitive compensation,
bonuses and benefits are critical to seal the
deal.

What sort of compensation attracts top-level
executives?

We’ve seen a change in attitude. For example, executives are not simply saying,
‘I expect $150,000.’ They understand they
are entering a growth environment and
they will earn a good salary. But, if they are
willing to take some risk to grow the company, they know they will be compensated
for their efforts. It is a risk-reward strategy.
If a company wants to grow from $50 million to $100 million, there is risk involved
for the executive. How will he be rewarded
for performance? Today, executives desire
both short- and long-term bonuses, which
along with base salary, comprise ‘cash
compensation.’

For example, let’s say a company is hiring a VP/operations. A top candidate may
accept a lower base salary, agreeing to
$150,000 rather than insisting the company
match his or her former $170,000 salary.
But the company must be creative and
offer the candidate a signing bonus, and
short- and long-term bonuses based on performance. In addition, they should also
contemplate creating a VP executive bonus
pool. If the company exceeds performance
goals, a chunk of revenue is set aside for
the VPs to split evenly. This is one example
of creative long-term bonuses.

Are companies providing top executives with
more fringe benefits as well?

Base salaries are not necessarily increasing significantly. However, we are seeing
more advances in total compensation.
Total compensation equates to providing
anything of value to executives to retain
them and keep them happy. This might
include club memberships, meal allowances, medical coverage and company
cars. In addition, as technology advances,
companies are giving more than cell
phones to their executives. They want
them to have cutting-edge PDAs and lap-tops. Also, health care coverage is
extremely important to employees and
their families and viewed as a part of compensation.

TYLER RIDGEWAY is director of the executive search practice
for Kreischer Miller, Horsham, Pa. Reach him at
[email protected] or (215) 441-4600.