Is Your Compensation Philosophy Active or Passive?

untitled55Philosophers 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?

Here’s an explanation of Continue reading

ESPP: The Ugly Duckling?

untitled 37We’ve all heard some version of Hans Christian Andersen’sThe Ugly Duckling at some point in our lives. For the record, the original is sadder and more intense than I remember. The summary is this. A bird is hatched. It is ugly and misunderstood. Others ostracize it without even knowing what it is. It doesn’t fit well anywhere and often has to make its way. Later it grows into a beautiful swan, and everyone admires it. The end.

Welcome to the world of Employee Stock Purchase Plans (ESPPs). If you are at a company that is not publicly traded or is unlikely to ever have an IPO, this post may be Continue reading

Are You Paying for Peripheral Vision?

untitled 42We seem to love to get granular with incentive plans. So many compensation professionals are tasked with not missing anything, they include darn near everything in their incentive plans. Increase revenue? CHECK! Manage safety? CHECK! Grow new clients? CHECK! Maintain old clients? CHECK! Focus on the newest product? CHECK! Sell through the old inventory? CHECK? Improve your Net Promoter Score? CHECK! Keep aligned with long-term objectives? CHECK? Meet this month’s sales goal? CHECK! Dang! What was that first one again?

With so many objectives it can be hard for people to focus on what is important. If they focus on the highest priority, they must keep track of Continue reading

Compounding Our Pay Problems

untitled 2The 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

Let’s All Do Nothing About Pay

untitledAre 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

Startup Equity: Staying Private in a Public World (Part 11 in an n part series)

Stickman Startup Private CoIt 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?

The short answer is, they Continue reading

Startup Equity: What About Performance? (Part 10 of an n part series)

Stickman Startup Performance Dashboard“But, how do I make sure that the person is a great performer before I am forced to give them equity?”

This question gets asked by nearly every Founder, Investor or Compensation Committee Member very early in the development of an equity compensation plan. Sometimes it is expressed more genuinely as, “I don’t want to give away part of my company to someone who hasn’t carried their fair share.” Either way, the concern is valid. Sometimes the answer is very simple, and sometimes it is not.

Your equity compensation plan should be aligned with Continue reading

Startup Equity: Three Crucial Variables (Part 9 of an n part series)

stickman startup three crucial thingsStartup equity has approximately a gazillion moving parts. But three of these variables are far more important than all of the others. These three components are what make your plan uniquely yours. They are the things that require real thought. They are also the elements that are most commonly viewed as “plug-and-play” in the world of startups.

  1. Vesting Schedule

Stock options are grants with four-year vesting schedules. Everyone knows this. RSUs have a three-year schedule. Everyone knows this as well. However, while these are the most common vesting schedules, they are not as “standard” or as scientific as you may think.

The truth about vesting is a bit more complex. Vesting should align with Continue reading

Startup Equity: Isn’t It Refreshing? (maybe not) – (Part 6 of an n part series)

untitledThe 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
  • 409A Valuations
  • 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

Broadway Acts on Sharing Success

untitled12You 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.

For years the formula worked like this. Continue reading