Custom Packaging for Paychecks
Stock options. Lucrative bonuses. High starting salaries. Flextime. What kind of compensation matters most to experienced managers? There's no universal answer. And there's no universal standard for executive compensation packages anymore. Today, each high-level candidate is looking for a slightly different type of opportunity. Understand that, and you'll understand why there's never been a better time to attract senior talent. Scores of recruiters, company owners, human resource directors, and recruits agree. For the right opportunity, a lot of heavy hitters are willing to make considerable compensation trade-offs -- even when it comes to base salary. In general, bonus plans with escalating payouts (usually tied to such metrics as growth in sales, profits, cash flow, or a company's valuation) are increasingly popular forms of executive compensation.
"I want to make a decent salary, but I'm not motivated by money and never have been," says Tom King, a banking veteran who took a sizable pay cut to join a much smaller company. In April 1999, King became the new president of Reliant Professionals, a staffing agency in San Diego. "I got typecast as a turnaround specialist, but I was tired of doing turnarounds," King explains. "I toyed with retiring. Now I'm excited about having a new challenge."
As president of Reliant Professionals, King does not have a grandiose compensation package, but there is potential for him to be richly rewarded. Once the company is profitable, and as long as quarterly targets are reached, King will receive a fixed percentage of pretax profits right off the top. King also negotiated his own version of a severance payment, or what some would call a "change in control" bonus. Should owner Dana Dodds sell Reliant Professionals before three years are up, King will receive a lump sum to make up for any compensation he lost when he took a pay cut to join the staffing agency.
Dodds, who also owns Reliant General Insurance Services, is thrilled that he was able to attract a strong candidate like King. Not long ago, Dodds would have agonized over whether he could afford such an experienced executive. He couldn't offer any real equity or even perks like a company car. "How am I going to raid these large companies for the talent I need?" Dodds used to wonder. But hiring the right top people turned out to be "a piece of cake," Dodds says. He signed on three other top managers besides King, two of them from rivals 10 times the size of his insurance company.
Recruiters say it's not unusual to see cash incentives equivalent to 30% -- or even 100% -- of salary, typically earned over a period of one to three years. A well-designed executive bonus plan takes the sting out of the lower starting salaries that small, young companies often offer -- or the edge off risky stock options. In fact, Dodds has found that a bonus plan can replace the equity piece of a compensation plan. In recent years, the plan he created for the senior team at Reliant General Insurance has paid out as much as 500% of salary.
"People's eyes really open when I show them that," says Dodds.
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