Let’s face it: it’s hard to replace great executives in the growing business and startup worlds. No one wants to struggle to constantly fill the same positions over and over again. It’s much better to find great talent and keep it for a long time. However, given the competitive market and the high demand, it’s hard to accomplish that in a sustainable, timely manner.
What can employers, boards, stockholders, and other invested parties do to reward and pay top executives to integrate them more into the company and to have them stay with companies for the long term? The answer is much trickier than most people would like to believe. It’s not as simple as hiring high-performers in the first place, paying people more, or even profit sharing. These are many different tools to help structure executive compensation, but they are not the answer to your problem.
That answer is best discovered by a careful evaluation of several factors. And the three main categories can be summed up as follows.
- Understanding the power and limitations of money as a motivator
- Assessing what your business can and can’t do to boost executive compensation
- Approaching executive compensation as part of a multi-layered plan to reward real results
Money as a Motivator
The data shows that money does not always work as a motivator. For people working low-paid jobs, money is definitely a motivator. They have bills that need to be paid and a roof that they need to keep over their heads. But what about for people building a career that have a track record as a high performer? There is a similar need, but it may not be as urgent. In fact, if it is urgent, those people will look elsewhere for other options.
The true difference between how much money motivates low-wage workers and your executives should be that your executives are (at least in theory) invested in your company.
Now that the theory is out of the way, the fact remains that money is still a force to be reckoned with at any stage of a great career. Money is the primary way most people meet their day-to-day needs and wants. If those are not met, no amount of extra perks or positive reinforcement will keep top talent at your company for the long term.
A great place to start when you are assessing your executive compensation strategies is what the current executive salary for the positions in question stand at today. This step is particularly important for small businesses and startups. Larger companies may have resources and certainly a larger network on which to draw this information from. They also tend to factor salaried positions sooner simply because they have to deal with it more.
Once you know how your baseline salary compares to the competition, you can make a more informed decision about how to proceed. Some ideas include but are not limited to:
- Traditional bonuses
- Traditional pay raises
- Milestone bonuses
- Gain sharing
- Ad-hoc rewards/spot bonuses
- And other forms of non-monetary reward
These are all viable options depending on your company’s or startup’s situation. However, they don’t mean much on their own without an understanding of what your executives actually want and what your business can offer. Let’s take a look.
Assessing the State Of Your Business
At this stage, it may be helpful to compare structuring your executive compensation plans to building a shed. Above, the different materials that your plan can use have been laid out and the basic purpose has been explained. But before a solid plan (or shed) can be structured, you need to know what tools you are working with and not just the materials you will use.
Two different situations must be treated in this section. The first is when a company is beginning the process of bringing on their first executive and arranging how he or she will be paid. The second deals with revamping or reforming existing executive compensation plans.
Building Your Plan From the Ground Up
Many successful small businesses and startups find themselves faced with the challenge of hiring and paying executive leadership at a time when they may not be ready for it. Some simple guidelines to keep in mind include:
- What the company can and can’t afford
- General expectations from your new employee and from the company
- How to tie the success of the company to the success of your executive(s)
Simply put, if the money isn’t there at the moment, it’s not there and it can’t be used. The expectations of your new employee should be addressed in order to prevent miscommunication and dissatisfaction. FInally, when the success of the company directly impacts the success of your executive(s), they will be more motivated both for the sake of the company and for the sake of their careers.
Restructuring Existing Plans
The other situation a small business in particular may find themselves in is restructuring their existing methods in order to bring the business to new heights or out of recent slumps. In this case:
- Make sure your existing plan is competitive
- Consider how it’s being paid and where improvements could be made
- And discover how to tie the success of the company to the success of your executive(s)
While most of the same points apply in this situation as in the first, one particular point deserves a mention. Existing structures should be torn down at certain points, inconvenient as it may be for the rest of the company. This is especially true when the current situation has not contributed to the growth of the company.
In Either Case
Assessing what your business can and can’t offer should happen on a regular basis, regardless. When it comes to things such as salaries, bonuses and compensation plans in general, those numbers are very informative and valuable. For significant changes, a clear understanding of where your business is at and where you want to go is priceless.
Creating Your Executive Compensation Plan
With the groundwork in place, creating your executive compensation plan should be a much easier process. Given the fact that each situation by nature is fairly different, it’s hard to say specifically how you should move forward from this point on.
However, the basics of a compensation plan are the same no matter what:
- Base salary
- Bonuses of all sorts
- Long-term incentives
- And perquisites
When Increasing the Money is Not an Option
Compensation is not always about increasing bonuses or salaries. Consider alternative ways of rewarding results, such as additional vacation days under the same salary or flexible working hours when appropriate. With a little extra effort, these options can be built into your plan at a very small additional cost to your company.
The top executive talent out there has options and they aren’t afraid of using them to their own advantage. When small companies and startups can collaborate with their executives and reward real results, it’s beneficial to everyone.
Whether you are part of a small business or a rapidly-expanding startup, the basics of structuring your executive compensation plan remain the same:
- Money motivates people to an extent, especially when it meets their needs. When it unexpectedly goes above and beyond, it can be extremely motivating.
- Your overall strategy should be based on the state of your business, not on “what people say” or other outside statistics. You know best what you can give and should communicate that to your executives.
- Real results should be rewarded in a way that’s directly tied to the success of the business.
A unique executive compensation plan built on these three points is a great start to success.
In conclusion, structuring your executive compensation plan to reward and promote results is a fundamental cornerstone of successful small businesses or startups. And when that is accomplished, it creates a firm foundation for your business’ growth.
If you’re interested in learning more about executive compensation strategies don’t miss our upcoming webinar “Everything You Need To Know About Executive Compensation“.