It’s never been a good idea to allow your organization’s compensation strategy to go stale, but today’s economic upheaval has made this subject a focal point in a historically competitive job market.
If your organization hasn’t already felt the effects of the current labor shortage, you’ve certainly heard about it. Resignations are currently at the highest rate ever recorded, up 13% compared to pre-pandemic levels. According to the Labor Department, most industries across the nation currently have more job openings than there are people with prior experience in that sector.
At the end of the day, employees often weigh their level of compensation above any other factor in their employment decisions. An organization can have an incredible culture, mission, and benefits package, and still hemorrhage talent if pay isn’t keeping pace with the market. Most employers think their employees are fairly compensated (73% of them according to data from PayScale). Meanwhile, 64% of employees report that they’re being paid below average market value. It isn’t enough to trust your gut on this.
Aside from staying competitive through this economic turmoil, there are a myriad reasons for organizations to clear off that dust, reasons that have been with us for a while. Poorly maintained compensation strategies can leave even the most well-meaning of organizations susceptible to fines and/or lawsuits if they’re found to be discriminating in pay on the basis of race, gender, or any other protected class (intentionally or not). Productivity can suffer from poorly devised or outdated incentive programs. Inefficiencies in timekeeping can reduce revenue. The list goes on and on, and they can all add up to impact engagement, retention, and ultimately your bottom line.
Organizations are often reluctant to dive into these potential issues because they’re overwhelmed by the number and complexity of things that need to be taken into consideration. What’s needed is a little clarity and guidance.
We’ve taken the time to put together a Compensation Strategy Checklist that breaks all of this down into its component parts: policies, strategy, management, and compliance. This checklist will allow you to quickly assess your situation so that you can either act on areas of weakness, or rest easy knowing that everything is good to go.
Employee compensation represents one of an organization’s biggest and most crucial investments. With the right compensation structure in place, an organization can hire and retain great talent to drive profitable business. On the other hand, a poor compensation structure can lead to a talent crisis or trouble maintaining profitability.
Unlike so many other elements of business or HR, executive compensation is not simply a matter of best practices. While industry benchmarks are an important part of the formula, any compensation strategy should focus on the unique needs, goals, strengths, and culture of the organization.
Looking forward, we’ll explore some of the main ideas from the webinar, including:
• The value of planning and alignment when it comes to executive compensation
• Creating alignment with a business’ cultural and philosophical values in mind
• Leveraging equity effectively as part of a compensation strategy
• Creating a bonus structure that’s scaled to your business
The Power of Planning and Alignment Executive compensation would probably be a lot easier if all businesses were the same, but the incredible variety of industries, business types, and corporate cultures in the marketplace means that one-size most certainly does not fit all.
In order to succeed in such a wide-open game, organizations must articulate a clear, well-thought-out strategy to guide their approach to talent acquisition and retention that’s built on a deep understanding of what their business is, where they are today, where they’d like to go, and what they need to do to get there. By focusing on compensation strategy conceptually and not just hiring and compensating employees one-off, businesses can create a more cohesive culture that’s aligned with business goals.
For example, in the case of startups, many key players (especially executives) are often brought onto a team one at a time. This creates a flexible situation in which many early-stage companies create a variety of different salary points, equity offers, and bonus packages on an ad hoc basis to fit employees as they hire.
While that model works well for some startups and may be tempting in the short term, it can be disastrous as a basis for a long-term compensation structure for several reasons. First of all, planning compensation one employee at a time makes it easy to lose the forest for the trees. That means that, after several years of hiring, employees throughout the company could command salaries and benefits packages that have little to do with their current value to the organization and better reflect how desperate the company was for talent at the time of hire.
Additionally, working on a case-by-case basis without a well-structured, well-aligned plan in place can wind up producing a pay scale that feels unfair and demotivating for workers just a year or two in. The more transparency and logical explanation an organization can provide about how compensation works, the more likely they are to connect with discerning talent.
When a business builds a consistent, richly-planned, well-articulated compensation structure, it tells the workforce, “Everybody here is valuable, and we are in this together.” By planning a consistent approach to compensation from the outset, organizations can create a well-scaled core team with a healthy culture that’s positioned to drive both innovation and profit.
Planning with Values and Goals in Mind If self-knowledge is the key to compensation alignment, the next logical question is, “What kind of self-knowledge do we need?” The short answer to that question is “as much as possible,” but let’s take a moment to think about some specific questions businesses’ should ask themselves about their organizational values and goals as they build a compensation strategy.
Revenue vs. Profit vs. Innovation – The way leaders are compensated must directly reflect their ability to drive business success. With that said, there a variety of different ways to quantify that success depending on a business’ size, position in the marketplace, and growth targets.
A strong approach to executive compensation must identify key growth indicators or KPIs and ensure individual success is aligned with company success. That means compensation strategies may shift as the organization evolves, but only in mindful ways that reflect the work at hand and upcoming goals.
Individual vs. Team Performance – Some businesses are about achieving results no matter what and elevating the difference-makers who got there when others couldn’t; other organizations emphasize collective or team-based success. Each scenario requires a specific approach to compensation, and a lack of philosophical alignment only sets everybody up to fail.
Make no mistake, incentivizing individual achievement or teamwork will directly and strongly shape workplace culture, which reinforces the importance of planning with organizational goals and values in mind before designing compensation packages out of thin air. Both models can be successful in different scenarios, but once again, it’s a matter of industry, goals, and organizational self-knowledge.
Short- vs. Long-term Performance – It wouldn’t be fair to judge or compete in a race if the distance wasn’t established ahead of time. By the same token, the effectiveness of leaders can’t be fairly judged without a business articulating what they really value and expect.
Some organizations philosophically prefer a slow and steady pace; others are innovation-minded and would rather someone step up to the plate and hit a home run than maintain a solid batting average for several years. Again, both styles can work, but getting caught between the two in terms of articulation or finding compensation out of alignment with organizational goals can both be costly.
Aligning Different Elements of Your Compensation Package Any compensation package includes a salary, employee benefits, and often for executives, equity and bonus opportunities. For a compensation structure to truly work, all those pieces of the pie must be balanced in a way that works for assets and the company alike, building reward, incentive, and buy-in.
Let’s think about how different elements of that compensation puzzle can be implemented or leveraged depending on company goals, size, and industry.
Balancing Base Salary – Base salary is probably the least “unique” piece of a compensation package, as it is generally strongly informed by industry benchmarks. With that said, salary can be adjusted on a sliding scale based on organizational values and growth goals.
For example, an early-stage organization prioritizing growth, innovation, and short-term performance can create strong bonus incentives for executives (more on that later), allowing the organization to place less emphasis on salary. On the other hand, larger, more established businesses who are years or decades past their IPO can align their compensation structure to their market positioning by putting greater emphasis on salaries.
Intelligently Leveraging Equity – In almost any for-profit business scenario, the business itself is the owners’ primary asset. When experienced executives see a profitable idea or great business model, they want to get in on the ground floor and grow along with that company. That means equity offers can be powerful incentives for executives and other leaders to drive growth, achieve milestones, and stay bought in for a half-decade or more.
On the other hand, some organizations’ goals or financial positions might make it advantageous to protect equity. That can be a successful and profitable long-term strategy as well, but in order to win with great talent, those organizations will need to pump up other aspects of compensation, such as salary or achievable bonuses.
Again, the key either way is to articulate a consistent approach that’s aligned to company goals and drives growth – not just to land talent by offering them stock options.
Building an Impactful Bonus Structure – Startup culture has made equity compensation so attractive over the last 20 years that cash bonuses are often forgotten as part of a winning compensation strategy. With that said, a well-scaled bonus structure is a fantastic tool for keeping leadership engaged and maximizing each project or initiative.
Bonuses invite employees to succeed and celebrate alongside the organization they work for and see the true connection between their great work and company growth. In this way, bonuses reward assets for their direct, impactful alignment with company values and goals. That’s why bonuses are great buy-in tools and motivators, both in the long- and short-term.
One of the best ways organizations (even small or medium-sized ones) can provide impactful bonuses that show clear alignment with company values and goals is to provide ad hoc rewards. Essentially, ad hoc bonuses are cash rewards distributed to leaders and/or team members when specific goals are achieved. An ad hoc bonus could come at the end of a timely development sprint, at the completion of a key project, at the closing of a major account, or any other time for organizational celebration.
Conclusion/Takeaways Creating a winning executive compensation structure is highly complex because no two businesses are alike. Remember: • Executive compensation must be aligned with organizational goals and values in order to succeed • Salary, equity offers, and bonuses can all be structured, balanced, and leveraged in different ways depending on company size and objectives, but the compensation structure must match be built purposefully and account for the uniqueness of the organization
Businesses are only as good as their best assets. It may sound like a greeting card sentiment, but it’s absolutely the truth.
Hiring the right people shouldn’t be your only concern. In any industry, growth and success are only possible when top talent is fully bought-in and authentically motivated. That means that maximizing business returns requires an intentional strategy to ensure that smart, talented professionals see the incentive in working up to their superstar potential on a yearly, quarterly, and daily basis.
Cash bonuses are a classic way to reward and motivate employees around the holidays or at end-of-year, but they can also be incorporated as part of a regular employee engagement and retention strategy that helps top talent buy into your culture and maximize their work hours to deliver business-growing results.
In this article we’ll cover:
● Why cash bonuses are so powerful
● Why cash bonuses aren’t just for big, established companies
● Ways businesses can create an effective, fair cash bonus strategy
The Power of Cash
Cash is a powerful motivator. At the end of the day, it’s why most people go to work. Unfortunately, though, life gets in the way, and thanks to bills and other financial obligations, very few professionals feel like they’re ever able to fully enjoy the salary they earn.
More than ever, young professionals with impressive talents are also managing impressive debt. For many 35 and under, getting the right qualifications and building their skill set required $100,000 or more in student loans. That’s why, unlike any generation before them, rising millennial executives and top Gen Y talent often live bill-to-bill and paycheck-to-paycheck in a way that was previously associated with blue collar work.
Cash-strapped anxiety among white collar professionals isn’t limited to young talent, however. Increasingly, senior executives and professionals beginning to eye retirement must choose between today and tomorrow, finding themselves forced to either wear the belt tighter than ever in the closing years of their careers or risk outliving their retirement savings.
Most HR directors have recognized these emerging trends over recent years, but few businesses have articulated a strategy for alleviating these stressors. Salaries cover the bills, but can employees really be expected to do their best, biggest, most impactful thinking and work when they’re just covering the bills? Can innovation at the business or national level continue when people feel like they’re barely scraping by?
Pushing talented professionals at both the leadership and individual level requires genuine incentive, and in the current climate, cash is the greatest possible incentive.
Cash bonuses invite employees to make the purchases they want, not just the purchases they need, and get a direct, powerful snapshot of how their effort and hard work directly result in money and buying power. Whether it’s upgrading the TV, pulling together a down payment for a house, or planning a family vacation, a cash bonus at the right time can provide a significant lifestyle upgrade or a major weight off the shoulders.
While salary, benefits, and even equity show employees how they are valued in the talent marketplace, bonuses help them see how they are appreciated by their current employer. A timely cash bonus illustrates both company satisfaction with current performance and commitment to the worker’s long-term fluidity. This helps build the degree of buy-in that pushes brilliant minds toward innovation and profitability.
In the current climate, top talent is presented with more chances to switch teams and explore new opportunities than ever before. Maintaining a strong, highly motivated team requires providing compensation that doesn’t just work for employees but actively makes them feel good at what they do and the culture of the place in which they work.
Too often, people have mischaracterized cash bonuses as “buying loyalty,” but the fact of the matter is that in a diverse, competitive talent market, it is the employer who needs to demonstrate loyalty in order to maintain their top rising talent and motivate them to grow with the business.
When faced with the option of continuing at a company that offers cash bonuses, moving to a parallel role at a new employer that does not offer cash bonuses, or transitioning toward freelancing/consultation, there’s simply no question which situation the compensation-minded employee will choose, especially if they have a TV, house, or seat at a private school for their child that a bonus helped them afford.
Aren’t Cash Bonuses Just for Big Companies?
While many employers provide informal holiday or end-of-year bonuses, few have a clear, consistent cash bonus strategy. That’s in part due to the misconception that in order to offer employees a lump cash sum above their salary, you need a Fortune 500 bank account. In fact, lots of small and medium-sized businesses have never even considered offering regular cash bonuses because they’re not sure they can afford it.
Actually, well-scaled cash bonuses are one of the most effective ways small and medium-sized businesses can push their top talent to achieve and make themselves stand out compared to the competition. Bonuses feel especially impactful on a smaller scale and help employees feel bought-in in a way that pushes people to work in an innovative and company-centric manner. It just requires a little more creativity to get there.
The most classic way smaller firms can provide bonuses without obliterating cash funds is to spread that bonus out over a term. For example, a hypothetical $1,000 bonus could be paid out with $500 up front and an extra $100 per paycheck for a set number of terms.
This kind of partially deferred bonus is beneficial for both talent and the employer, as the employee receives both an impactful short-term bonus and, essentially, a short-term raise, while the employer avoids depleting their cash reserves, especially in a scenario where an entire team or department is being bonused. Practices such as these can help small businesses close the cash gap and offer competitive, rewarding bonuses.
Cash bonusing is also ideal for start-up owners who prefer to maintain as much of their equity as possible. A regular, achievable cash bonus framework empowers employees to see real returns faster than in a vesting scenario, making a bonus-powered business more appealing to talent compared to similar organizations that are asking potential employees to take a five-year bet.
Anchoring a Bonus Strategy
Here’s the thing with cash bonuses: they have to be fair, transparent, and grounded in carefully measured KPIs. One of the biggest misconceptions out there is that bonuses come from a black bag of discretionary money that leaders can use to reward their favorites. Building a culture in which cash bonuses are a valuable incentive and motivator for everyone means obliterating that preconception and presenting a clearly articulated approach to bonuses that gives employees brass rings to reach for and shows them that hard work is truly rewarded.
For each asset within the organization, bonus opportunities should be tied directly to expectations laid out in their individual job description and their performance on on-going projects and initiatives. That means strengthening the connection between leadership, accounting, payroll, and HR to ensure that there’s a clear vision for each position in the company and an understanding of what adequate and outstanding performance look like in each scenario.
Ideally, employees should sign on knowing what kind of bonuses they can qualify for from the outset and what kind of data gathering and analysis leaders will conduct in order to determine their eligibility. For organizations unveiling a new bonus strategy, it’s absolutely crucial that existing employees understand which aspects of their work and KPIs are tied to bonuses and what they can do to ensure they qualify. Regular check-ins from supervisors and leaders can reinforce the company-wide culture of working toward bonuses and keep individual team members bought into the system.
When rolled out correctly, a cash bonus incentive system can give long-time talent the push they need to make it to the next level while attracting new potential superstars. On the other hand, if rollout is fumbled or articulated poorly, a seemingly unclear or unfair system can actually hurt workplace culture.
Scheduling a Bonus Strategy
Given that clarity, transparency, and fairness are so crucial to using a cash bonus system as an employee motivator and attraction/retention tool, organizations must articulate from the outset how they will schedule bonuses. Traditionally, bonuses are given on a yearly, quarterly, or project-based schedule. Let’s quickly look at each of those approaches to discuss how they differ:
Yearly: Advantages: Yearly cash bonuses have been traditional in the workplace for several centuries. Businesses can plan financially to bonus everybody at once. Workers get a large lump sum.
Disadvantages: A year is a long term, which means assessment is complex for leadership and bonuses are fewer and further between for workers.
Quarterly: Advantages: Business planning and accounting is typically conducted in quarters. Quarterly business metrics can most directly inform bonus decisions. Quarterly check-ins with employees regarding goals and company culture feel appropriate and unobtrusive.
Disadvantages: Assessing goals and tracking KPIs for all workers on a quarterly basis is a job unto itself, potentially for more than one person depending on company size.
Project/Milestone-based: Advantages: Milestone-based bonuses reward assets directly for getting work done. They provide a timely reward and a pat on the back.
Disadvantages: It’s easier to quantify and articulate bonus qualifications for some positions (e.g. project manager, sales professional, etc.) than others (e.g. graphic designer, service technician, etc.). Mindful planning must be employed to ensure fairness in terms of assignments.
Individual vs. Group bonuses: One theme that we see across all these bonus scheduling strategies is that businesses must be mindful about whether they want to create an approach in which a large number of employees are potentially getting bonused around the same time or try to stagger assessments to provide massive cash pay-outs in a small time frame.
For smaller businesses and startups, spreading those payments out is preferable in most situations. That means staggering assessment quarters across the workforce, potentially deferring bonus payments out over a longer term, and calibrating bonus goals to be attainable but adequately lofty. All those concerns again speak to the necessity of extensive planning (both in terms of articulation and financial allocations) in the months before rollout.
Key Takeaways:
● Cash bonuses are especially relevant and attractive in a climate where many professionals are wrestling with debt or trying to secure retirement. ● Cash bonuses both attract new talent and provide current assets with the push they need to take their work to the next level. ● Businesses of any size can offer cash bonuses if they commit to a program and get creative. In fact, cash bonusing can be a good way for start-ups and smaller companies to protect equity. ● In order to work as employee motivators and attractors, bonus programs must be grounded in practices, schedules, and KPIs that are clearly codified and administered as part of a transparent system.
Are you interested in learning more about how to effectively leverage cash bonuses at your business? Don’t miss our upcoming webinar:
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:
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
Benefits
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.
Key Takeaways
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.
This article was written by guest author Brandon Auster, Principal Consultant at BEA HR.
Acquiring and retaining top executive talent can be one of the biggest challenges faced by early stage and growing businesses. Maintaining a high-impact suite of executive compensation programs is a key strategy for meeting this challenge. These programs must be viewed as an investment in growth and value creation that requires diligent focus in order to be maximized over time.
Executive turnover is a disruptive and costly setback, with a
financial impact of 100% or more of a departing executive’s salary. Meanwhile, engaged leaders are far more
productive and effective at rallying their teams to drive growth. Getting the
right mix and design of rewards elements enables companies to attract, engage
and retain top talent, while maximizing their compensation ROI and driving growth.
Let’s explore some of the highest-impact compensation strategies
that high-growth companies can employ in the effort to cultivate top talent,
including:
Aligning compensation with company culture and strategy
Leveraging bonuses at every stage of growth
Rewarding real results
Leveraging uniqueness
Alignment with Culture and Strategy
Compensation is one of the most powerful and visible ways a
company demonstrates what it values.
Well-aligned compensation programs give companies an
advantage in the talent market and are a catalyst for teamwork, goal achievement
and thriving cultures.
On the flip side, when full alignment is lacking, even the
most well-intentioned and technically elegant pay programs can lead to disappointing
results, discord among team members or tension between executives and ownership.
Looking at the alignment of each individual rewards element is
required, as is a holistic look across all elements of the rewards portfolio including
base pay, bonuses, equity, perks and benefits.
This will ensure each element individually supports and drives the desired
company results and culture, while together, the overall rewards program is greater
than the sum of its parts.
Additionally, as a company grows and evolves, it must continually
reassess its compensation programs to stay in alignment with new circumstances
and objectives.
Bonuses for Every Stage of Growth
Bonuses can be a powerful element of an effective overall compensation
program. It is a common misconception that cash bonuses are only useful for
established cash-rich companies, while early-stage companies should focus solely
on equity compensation. However, the reality
is that currently, almost three quarters of pre-IPO startups with less than $50M
in revenue include bonuses in their executive compensation program.
Augmenting equity with cash bonuses can increase focus and
urgency, while helping employees stay energized during the series of sprints
required to generate long-term growth and equity payoffs.
Given their sometimes unpredictable and volatile pace of
growth, smaller companies may face challenges when designing bonus plans. This makes stress testing compensation plans against
the entire range of possible business scenarios especially important. It is required to fine tune plans to ensure that
fiscal realities are well balanced with desires to pay for performance and retain
key talent.
Not only do bonuses encourage executives to contribute to
the company’s short-term goals that will ultimately lead to its long-term growth,
but they are essential in helping growing companies compete for high-quality
executive talent with larger, more established organizations.
Reward Real Results
Annual bonuses are an extremely useful tool in the
compensation arsenal. However, creatively supplementing a traditional bonus
plan with a results-based program, such as one of those listed below can improve
the impact and ROI of a company’s variable compensation investment even further.
Milestone Plan – payouts are tied to hitting a fiscal or other key objective. This serves to: focus the team on specific goals, incentivize attainment of important results, provide execs with added pre-liquidity cash and celebrate short-term successes. Costs can be fixed upfront at an amount that is commensurate with the value created by hitting the milestone.
Ad Hoc Awards – discretionary payouts are tied to positive performance. While this approach is quickly gaining popularity below the executive level, it can also be used to recognize and encourage upside results for executives. Costs can be managed by pairing with a bonus plan that uses modest targets and/or maximums payouts.
Medium-Term Plan – a two to three-year medium-term performance period is created and payouts are tied to a key success metric such as revenue growth or value generation. These plans can provide liquidity if a longer exit period is anticipated and generate longer-term focus with more tangible risk/reward than either short-term bonuses or long-term equity.
When clearly and proactively communicated, these plans
contribute to a culture of transparency and goal-oriented thinking that is
crucial to rapid and sustainable growth.
They lead executives to feel that their efforts are rewarded fairly while
ownership has confidence that payouts are tied to results that also generate
value for them. This win-win situation
creates a great foundation for long-term partnership and success.
Leverage Uniqueness
While smaller companies don’t have all the resources of
major industry players, they possess many unique advantages in the war for
talent. Understanding these and using them
for maximum impact goes a long way in attracting, motivating and retaining top
talent.
Start with ensuring that people know how much the company is
investing in them. This is most
effectively done through concise, graphical, high-impact total rewards and
equity statements. Total rewards statements depict the value of base, bonus, equity,
benefits and perks. Equity statements demonstrate current equity value and
holdings along with the potential value derived from future vesting and growth
in the company’s valuation.
Closely held companies can exercise far greater flexibility in
issuing equity awards than public competitors for talent. They can use equity awards to reward strong individual
or team performance, recognize milestone achievements or demonstrate commitment
to key talent. It’s also important to carefully
develop a vesting and refresh equity grant structure that ensures everyone
continues to earn equity for ongoing contributions while avoiding vesting droughts
that entice them to look elsewhere.
Strong leaders seek out companies and roles where they will have
significant impact, experience professional growth and contribute to an important
mission. Each small company has its own
compelling story to tell current and prospective team members that other
suitors for their services cannot match.
For example, will company executives: have greater access to the CEO, board,
or other thought leaders; be part of shaping the future of an industry; work with
uniquely passionate team members; build a team from the ground up?
Every company is unique. The most successful ones understand and use
their special blend of culture, opportunities, programs, perks and purpose to create
a competitive advantage whenever possible.
Key Takeaways
Highly capable and motivated executives are required for any
company to generate sustained growth and succeed in bringing its vision to life. Implementing smart and creative rewards
programs are a difference maker in the ongoing effort to acquire, engage and retain
top executive-level talent.
The high-impact compensation strategies outlined above are a
great start for any organization looking to optimize its approach to executive
compensation:
Let business strategy and company culture guide compensation priorities
Leverage bonuses to engage employees at every stage of growth
Focus on bonuses that reward real results to fuel company growth and long-term success
Leverage the unique assets at your disposal to attract and retain the best talent
If you want to take your compensation strategy even farther, don’t miss our upcoming webinar on high-impact executive compensation strategies. We’ll delve more deeply into the strategies in this article and provide more strategies to optimize the effectiveness of your compensation plan, including the most effective approaches to equity grants. Register today.
Whether you’re pre or post-funding, hiring top talent on a growing business’ budget is challenging. Larger organizations can offer candidates lucrative salaries, stability, and expensive perks. However, there are several strategies you can use to hire great talent while keeping costs down.
In today’s post we’ll explore five ways you can build a top team on a budget. We’ll cover:
Leveraging independent contractors, interns, and part-time hires
Seeking out non-traditional employees
Offering low-cost high-impact employee benefits
Offering equity
Aligning compensation with company performance
Leveraging independent contractors, interns, and part-time hires
Independent Contractors
In cases when you can put off bringing in a full-time team member, an independent contractor or freelancer may be the best option. For example, you might contract a developer to mobile-optimize your website or build an app for your product. In these cases, hiring a full-time team member doesn’t make sense. Contract employees allow you to leverage a wide range of talent without committing to hiring a full-time employee.
Consider contracting commission-only salespeople or manufacturer’s reps if you’re not ready for a full-time sales hire. Another great idea is to hire freelance marketers to write and promote content for your blog or to execute your social media strategy.
Sites like Upwork and Guru can help you find freelancers to fit your budget.
Part-time
If you need extra help but aren’t quite ready to bring a full-time staff member into the role, a part-time hire may be a great option. There are many highly-skilled individuals looking for part-time work. A part-time hire allows you to get the help you need while also remaining payroll-friendly.
Interns
While interns may require guidance and coaching, there are several areas they have natural strengths in. As part of Generation Z, most interns are highly skilled in social media and online presence. If you partner with local colleges, you can find interns in nearly any field from marketing, to accounting, to software development. You may choose to make your internships unpaid or paid. Paid interns can receive an hourly wage or stipend. It’s important to understand that although interns can be valuable, low-cost team members, they will need significantly more guidance than traditional employees.
Seek out non-traditional employees
When recruiting talent, may business owners make the mistake of overlooking non-traditional employees. Non-traditional employees might include those who are not currently working, those looking to re-enter the workforce, older employees, or employees who are outside of your industry.
While non-traditional employees are often overlooked, these individuals present a unique opportunity for your business. Often they are extremely eager to work and will go above-and-beyond for your business. It’s also not uncommon for their salary expectations to be more in-line with what a startup can afford.
You can leverage LinkedIn to source and outreach to non-traditional employees.
Offering low-cost high-impact employee benefits
People, especially Millennials, are willing to sacrifice a higher salary to work somewhere they truly enjoy working. Making your company a great place to work can be your secret weapon in the struggle to hire and retain the best talent. Offering attractive employee benefits and team perks is a great way to improve workplace satisfaction and attract top talent to your company.
Some business owners have the misconception that they need significant funds to afford expensive employee perks. However, there are many low-to-no cost methods you can utilize to transform your company into a sought-after workplace. Some great options include:
Flexible scheduling: allow your employees to work non-traditional hours. For example, an employee with a flexible schedule might work 10:00am-6:00pm or 8:00am-4:00pm. Another example of flexible scheduling is to allow your employees to come in late or leave early on some days without taking PTO. Many employees see flexible scheduling as a huge value add as it allows them to take care of their families while also balancing their workload.
Remote working: allow team members to work remotely, either some of the time or all of the time. Offering a remote working arrangement doesn’t cost your business anything but is seen as an attractive perk by potential employees.
Casual dress: nowadays most employees don’t want to put on a suit every morning to go to work. Offering casual dress and a relaxed work environment can make your business a more attractive place to work for younger talent.
Standing desks: having standing work areas in your office requires a small financial investment up front but can be a huge value-add to your employees. Many Millennials realize that “sitting is the new smoking,” and appreciate a work environment that encourages healthy behaviors.
Bring your dog to work: if your office space accommodates it, allowing employees to bring their dog to work is another no-cost way to appeal to great talent. For employees with a dog, being able to bring their dog with them to work not only gives them piece of mind but also saves them significant costs on pet care.
Food and drink freebies: offering your team free snacks, soda, or coffee can help boost morale and make your company a great place to work.
Team meals: whether it’s once a week or once a month, offering a free catered meal to your team is an attractive benefit.
Corporate responsibility: give employees dedicated paid time off to volunteer on a monthly, quarterly, or yearly basis. Nowadays, employees are looking for a workplace that affords them a greater purpose in life. Instilling opportunities for volunteerism can make your company more attractive to purpose-driven employees.
Offering Equity
While larger companies attract employees with lucrative salaries and stability, startups afford their employees the opportunity to directly reap the rewards of the company’s financial success via equity in the business. Equity is a unique bargaining tactic startups possess that larger organizations don’t, and it should be leveraged accordingly.
If a particular candidate is risk-for-reward driven, they will often forgo a higher salary now for the promise of potentially greater financial rewards in the future. Not to mention, financial equity aligns your team with the company’s long-term objectives. As such, aim to actively involve these team members in important business decisions moving forward.
Aligning compensation with company performance
Another strategy to hire great talent when your cash flows are tight is to offer a lower salary upfront, but with the promise of incremental salary increases in the short-term future. For example, you might offer an employee 60% rate of market compensation up front but include the opportunity for 80% market salary within one year if a financial company milestone is met.
You might also structure employee salaries with a below-market base but the option for a significant year-end bonus if your company’s financial goal is met. Aligning compensation with company performance keep costs down and aligns employee interests with company goals.
Key Takeaways
In today’s post we explored several ways you can hire great talent on a budget. Some key takeaways include:
In cases when a full-time hire doesn’t make sense yet, contractors, part-time hires, and interns can be cost-effective options
Non-traditional employees can be skilled hires willing to accept lower salaries in exchange for experience at your company
You don’t need a large budget to offer high-impact employee perks like flexible hours, remote work, or causal dress
Equity can entice top talent to forgo a larger salary up front in exchange for the opportunity for future gains
Structure incremental performance-based salary increases into employee compensation
What methods do you use to attract and hire great talent on a tight budget? Drop your ideas in the comments box below.
