Creative executive compensation Featured

8:00pm EDT March 26, 2007
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 tridgeway@kmco.com or (215) 441-4600.