The Take At The Top

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That concern has also fueled the trend toward performance-based compensation systems. "I think that there's a movement much more toward the tying of the reward systems of the individuals to the results of the company," says Bill Ryan, owner of the trucking company. "I also perceive that there's a movement on the part of a lot of employees, a desire to participate, almost a demand to participate, in the results. I think that those two concepts are somewhat linked, that if we do good and I contribute to that, then I want to participate in that in relationship to my contribution."

There is another reason that more companies are turning to performance-oriented compensation plans: They work. Peat Marwick's Chingos says his firm took a slice of the data from this year's survey and found that of the 100 fastest-growing companies (during the past five years), 28 had short-term performance plans in place. None of the slowest-growing 100 companies had short-term performance plans.

At Ken Swanson's construction company, for example, managers set gross profit goals for the year. If those are met, Swanson then deducts twice the managers' annual salaries and awards a bonus equal to 10% of the remainder. For a good manager earning $50,000 a year with a profit goal of $400,000, this bonus would amount to $30,000.

Some owners see in all this a human need that goes beyond the desire to earn more money. "People want to belong," says Bill Ryan. "They're either going to belong to unions, or they're going to belong to churches, they're going to belong to something. . . . It's basic human weakness that goes through their fiber. You give them something to belong to and it goes a long way."

Getting employees to feel part of the team involves more than just talk, though. It may involve a major change in the compensation plan in one case, a minor tinkering in another. Take Jess Brand, president of $5-million Brands Inc., a Columbus, Ind., lumberyard, who changed his annual bonus to a semiannual one. Why? "To keep it on people's minds," he says. Now, he thinks it may be necessary to move away from a discretionary bonus system based on a person's job tasks to one tied to the achievement of specific company goals.

Or consider Lucille Flint, president of Derma Science Laboratories Inc., a Rockwall, Tex., cosmetics manufacturer. Rather than part with equity in the business she and her husband own, Flint set up separate sales organizations, and the management of those entities can then earn and purchase equity in those companies. "We have found that's the best way to reward them, and I don't see why a lot of the bigger companies can't do that instead," she says.

Likewise, Keith Blackely, president of Advanced Refractory Technologies Inc., in Buffalo, has had to confront the equity question. His company's investors include local businesspeople, New York venture capitalists, and large industrial companies that want a window on promising new materials technology. Blakely knew that they did not want to see their holdings diluted further. But when he had to lure a key employee away from a bigger company, one able to pay a higher salary and offer more perks, equity became a deciding factor.

Considered almost a birthright by employees in high-tech Silicon Valley or Massachusetts Route 128 companies, getting a piece of the company is becoming increasingly common in all industries. At K.O. Swanson & Co., project managers are offered a chance to buy 5% stakes in some of the buildings the company erects and manages. If the employees don't have the cash to do so, the company will lend them the money at favorable interest rates. "If we're lucky, a $5,000 investment will be worth $20,000," says Swanson, noting that his people can buy into a building at wholesale prices and sell out at retail.

In addition, there is a trend to include more and more employees in equity plans. "In the small organizations, it's not uncommon to see every employee participating," says Jerrold Bratkovich, partner and general manager of the Los Angeles office of Hay Management Consultants.

But such tactics are not for every company. For some, just meeting the weekly payroll is a challenge. For owners of cash-poor and low-margin businesses, the words of Bill Ryan may ring true: "There is a rule of survival for small business. There are things that you want to have and things you can afford. You had better go with what you can afford."

Survey profiles:

The Chief Executive

Officer

Total compensation $82,495

Base salary $62,080

Percent receiving bonus 59%

Bonus as a percentage

of base salary 45%

Percentage change in

total compensation +19%

Age 45

Years in position 9

Years with company 11

Founder 71%

Board member 80%

Stockholder 92%

Average equity position 67%

The Company

Net revenues $4,481,526

Net pretax income $288,190

Payroll $1,000,465

Payroll as a percentage

of revenues 22.3%

Employees 49

Projected revenue increase

for next fiscal year 15%

Age of company 9 years

Percentage private 95%

Changes in

compensation policy

Added Cut

Short-term

incentive plan 37% 1%

Long-term

incentive plan 31 0

Health/retirement

benefits 36 8

Perquisites 17 2

Special recognition/

awards 19 0

Performance

appraisal system 24 0

CHARTS AND TABLES BY BERGMAN HAKE DESIGN

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