E-PAY
Recruiting and rewarding internet talent
The allure of dot-com start-ups may have dimmed somewhat, but the way they manage reward still has profound implications for compensation and benefits practices in the e-commerce divisions of older, established organisations, says the latest edition of the prestigious US reward journal WordatWork.
The author of the study, Krista Read Hayes, a principal in the Los Angeles office of Frederic W Cook & Co., warns that dot-coms have intensified the need for established businesses to look at more imaginative ways to seduce and keep that internet talent.
Designing a compensation programme that addresses the company's internet recruiting needs without abandoning its compensation philosophy requires some innovative thinking, writes Hayes.
And signs are emerging that conventional US businesses are beginning to wake up to the problem. Hayes provides some fascinating detail on the range of incentives used to attract e-commerce employees in the overheated US labour market.
Four dominant themes are addressed in the article:
1 Many potential internet recruits — not just senior executives and managers — may have significant unvested in-the-money options at their current employers.
2 Option grant guidelines may not be competitive with an emerging high-tech company, or grant values are not adequately communicated.
3 Tracking the performance of internet divisions of established companies for long-term incentive purposes could prove difficult or expensive.
4 Special internet-style incentive packages for online businesses launched within a bricks-and-mortar company may be a recipe for tension if parent company staff lose out.
Paper millions
Many of the seemingly lucrative stock options that are so often the defining feature of incentive packages in pure web companies are predicated on an employee staying with the company for several years before they can sell their shares. So a company would need to offer significant equity value to lure a potential candidate away from the potentially generous rewards on offer in the start-up.
If you are faced with this challenge, Hayes reckons there are a number of solutions.
One approach is to guarantee a minimum level of stock price appreciation on a company's stock options regardless of actual appreciation.
A phantom stock plan can be introduced to focus performance on the internet entity, Hayes says, using a separate valuation of the internet-related company.
Another solution finding favour in the US is to operate separate annual grant guidelines for use only in the internet business.
Tracking stock
In an attempt to attract the web talent they need, US companies are increasingly keen to replicate the essential features of internet-style reward packages by issuing tracking stock that reflects the performance of the separate internet division rather than the entire company.
As Hayes points out, the drawback is that there are possible conflicts of interest with the parent company, since the same board of directors controls both companies and there is no segregation of assets in the balance sheet.
One answer may be that adopted by Barnes & Noble and the New York Times — to spin off their internet assets and float them on the stock market.
Internal equity
Other US companies have decided to offer internet high fliers a balanced package combining highly leveraged, competitive stock options and the generous salary and benefits of a mature company.
But this kind of approach can prove divisive and may have a damaging impact on teamwork. The problem is there may be disgruntlement among executives with responsibility for the overall organisation and the rank and file not singled out for the potentially generous options.
As many of you will be aware, reconciling the often conflicting needs for pay structures and levels to be equitable — both internally and externally — is no easy matter when your business is competing in the open market for scarce talent that you have to pay a premium to attract.
But raising everyone's pay is just not feasible, says Hayes. If the parent company cannot grow without an internet presence, there is justification for the substantial premium that expertise brings in the organisation.
Separate compensation programmes
But some leading management thinkers remain unconvinced with the strategy of adopting customised incentive plans for internet employees. CEO Jack Welch has not allowed separate compensation programmes for the internet divisions at GE because he considers them divisive and disruptive to the organisation.
Consequently, there have been mass defections of online employees, says Hayes. While this view may be dogmatic, it may not be practical if the current compensation programme cannot attract and retain the necessary talent to run these essential business units.
Want to know more?
Title: E-compensation: recruiting and rewarding internet talent , by Krista Read Hayes, WorldatWork Journal, second quarter 2000.
Availability: contact WorldatWork, 14040 N. Northsight Blvd, Scottsdale, Arizona, USA AZ 85260, tel: 001 480 951 9191 or email worldatworkjournal@worldatwork.org
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