Philosophers probably have a difficult time with our definition of “philosophy.” Most resources will tell you that a compensation philosophy is a statement explaining the company’s position about pay. For most of the companies who take the time to write a philosophy, the result tends to look something like this:
“Our compensation program is intended to attract, motivate and retain talent employees. Our goal is to target base pay at the 50th percentile for employees who meet expectations. We offer various incentive and recognition programs that are designed to provide compensation for the achievement of company, team and individual objectives. Our principles include striving for internal and external equity, focus on stated corporate objectives, alignment with investor interests and maintaining or building our position in the marketplace.”
What if I told you that a philosophy was not a statement, but an activity?
The pay ratios between CEOs and average employees are once again in the news. This is partly because proxy season always raises this issue and partly because there is a move in some circles to do away with the new pay ratio disclose rule that is part of Dodd-Frank. This year’s ratios will likely be bigger than last. The same will likely be true for most years in the foreseeable future. Here’s why.
The average annual increase for the average employee has been between 2.6% and 3.2% for several years. The use of equity compensation and other long-term compensation tools went down over at least the past decade. At the same time, executive base pay has increased between 5% and 8% most years over most of the past decade. During this period, the use of Continue reading →
Are we really doing anything? We create salary structures and write job descriptions. We organization our data and provide reports up and down the organization. We do a lot, but how much of it is making us competitive in a tight talent market?
The “annual Increase.” Sometimes we even call it a merit increase. According to one study, at the beginning of 2016 companies predicted their pay budgets would increase 3% and at the end of the year they reported the actual increase was 2.6%. Similar reports from several prior years had Continue reading →
It is readily accepted that an IPO is Nirvana to a startup. Of course, a fantabulous acquisition will also work in a pinch. Most startups design their equity plans around one or both of these possibilities. The events increasingly trigger vesting events, earn-out periods, house purchases and early retirements. But, what if you want to build something far longer-term? What if you only want to grow, make money and accomplish some important goal? Do equity plans even work for these companies?
Here is my 2017 gift to you. I truly believe that equity compensation helped build the technology industry, and therefore the world as we know it. But, an unfortunate number of startups make the same error when using this complex and powerful tool that drive corporate success.
If you browse the internet, ask entrepreneurs or receive guidance from someone at a VC firm, you will get similar answers when asking about equity awards for the first twenty, or so, employees. This information, while accurate at a generic level, is likely to be incorrect for your specific circumstances.
The answer looks a bit like this. Outside of the founders, the C-level hires should each get Continue reading →
The historically long periods between the startup and “big event” for companies has given rise to many issues that were never considered when stock options and other equity tools first became the preferred startup incentive tool. Among these unplanned issues are things like:
Wealth inequality between the first 20 employees and employee 5,000 or 12,000 or more
Grants expire when the company has not yet made its move to IPO
Dilution and burn rate issues long before IPO
Grants becoming stale
Downward movement in stock prices
(Ugh, this list can take the maximum 800 words allowed for this post)
This post we will discuss the controversial issue of “refreshing” grants for long-term employees. To clarify, these are not grants for promotions or company-wide performance. These are equity compensation awards that are given simply because Continue reading →
Figuring out the right amount of equity compensation at startups is a challenge. How much should I grant? How big should the grant be? How should I size the grant relative to base pay? Investors, boards, executives, HR and compensation departments at start-ups have conflicts over these questions all the time. In the past I have written about the11 Reasons Your Equity Compensation Survey Data is Wrong. This article focuses on three common ways to determine equity at startups regardless of your survey source.
%Percentage of FD Outstanding Shares
This is where most companies start. The first 10 or 20 key players at a start-up are Continue reading →
You build it. You buy it. This may become the new mantra on Broadway. The original cast of Hamilton was recently followed by the new cast of Disney’s Frozen in receiving a share of the success of the shows they helped create. Similar to a great tech company building towards an IPO, a Broadway company has to do a whole lot of work before it ever gets to the starting line. Beyond the original idea, words and songs are the testing, tweaks, enhancements and embellishments that can make or break a show.
What do ‘Up’, ‘Cars’, ‘Inside Out’, ‘Monsters, Inc’, ‘Ratatouille’, ‘Toy Story 3’, ‘The Incredibles’, ‘Finding Nemo’, ‘Toy Story’ and ‘WALL-E’ have in common? First, they are 10 of the best animated movies made by Pixar. Second, they all follow Pixar’s “22 Rules of Storytelling.” As it turns out, these rules adapt well to the world of compensation plans and philosophy. Continue reading →
“You won’t believe what this star from the ‘80’s look like now!” “The best banana bread EVER!” “This great trend is your next haircut!”
It happens to everyone. We see the headline and click through to see the interesting pictures or stories. When the new page opens up (and we get past the explosion of ads) we find nothing surprising, new or even interesting. In fact, we are disappointed and annoyed that we were fooled again. Before you stop reading, you should know that this is exactly what many of our compensation programs are doing during the recruitment process.
Attract, Motivate, Retain (and hopefully Engage). This is the mantra of Continue reading →