Understanding Executive Compensation – When You’re Ready to Make the Hire

When recruiting C-Suite Executive Talent, compensation comes up early. After all everyone’s time is valuable, best not to waste it on someone who is not going to accept an offer that is not in your range. How can you tell if someone has unreasonable compensation expectations? What components of compensation should you be considering? How can you tell if your opportunity is competitively compensated? You can use a compensation survey, and in general, they are about 8-18 months behind the market.

Base salary, bonus expectations, equity compensation, 401K match (or not), sometime car allowance, health/life insurance are all components of compensation you want to consider. You want to focus on what is most important to the candidate.

Sometimes my clients focus solely on the internal equity / compensation; if your team has been with you for several years, it can be likely that they are compensated under market. Tough to swallow, but best to know your risk internally. Market rate is your target. Trying to secure great talent on the cheap is like trying to buy a home in Silicon Valley today at last year’s prices. You might get lucky, but it is going to take you longer, and it just gets more out of reach, the longer you chase. Also, if your internal team is paid under market, you run the risk of losing them to your competitors.

Often, in startups, the compensation relies solely on base and equity compensation. Others, will have base pay, bonus pay, equity and health benefits. That equity is going to be more important than cash (or so you hope). You will need to articulate the value of the shares. All seasoned executives know that equity in one company is not the same as equity in another (for example Amazon vs Bank of America). You need to understand timelines to reach these equity valuations, too. People are often trading time for equity. Candidates will want to know the details of your vision and their role in helping you maximize value.

When it comes to cash, people are no longer willing to trade cash for equity. To grow your company, it takes people who already know how to do that. These people do not come cheap – there is a saying in the horse world – and it applies to executive level talent:

If you want a horse that is fast and broke he won’t be cheap. If he’s cheap and fast, he won’t be broke. If he’s broke and cheap he won’t be fast.

You cannot have everything – so you need to think about quality of hire and value that they will bring to your company. You also need to work on your internal equity and review annually – the last thing you want to worry about is losing someone because you are not paying them competitively.

People are your most valuable asset when it comes to getting where you need to go. To demonstrate that you value their contribution to your success, you need to pay them appropriately. If you don’t, someone else may come along and offer them more money for the same work.

In summary, you need to be competitive on cash compensation, understand the value proposition of the stock as you reach each milestone, and be generous with your team. You cannot afford a slow, bronc on your team – you need real athletes, performing at their peak to get you over the goal line. You need to be prepared to ante up, get in and play. Value your people fairly and they will be happy to build a successful company for you.

Good executive search professionals will have access to current compensation studies and will know how much a candidate is currently making before they are presented to you. Even in California, where there is a law that you cannot ask current compensation, a search person will know how to get this information. Search professionals will help you stay on top of current compensation for your teams. My clients know what the compensation levels are for each candidate we present and what components of compensation are important to the candidate, too. For example, some candidates can flex on cash compensation in favor of more stock ( note, this is some, not all, and a minority). This information helps our clients make solid offers and good decisions about candidates, and how to hire and retain their best talent.