Stronger Habits - Pete Leibman

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5 Ways to Design a Better Executive Compensation Package (Without Offering a Higher Base Salary)

One of the most difficult parts of executive recruiting is working out the numbers, so that both the employer and the executive are happy with the compensation package that is offered. Many times, an executive is looking for a base salary that is higher than what a company wants to pay. In this article, you will learn how to overcome this challenge. We’ll cover five ways to design a better executive compensation package (without offering a higher base salary).  

(1) Offer a signing bonus.

A signing bonus can help make up for a lower base salary, or it can help make someone whole if there would be money left on the table (i.e. a pending bonus) by accepting a new offer. The benefit for the employer is that it’s a one-time fee.

If your company plans to offer a signing bonus, include a clawback provision for one year or some other period of time. This means that the candidate has to pay the bonus back if he/she leaves the company or is terminated for misconduct or performance reasons during the agreed-upon time-frame.

Note: If a candidate is concerned about leaving money on the table, you could also consider a delayed start date. However, this option comes with some risk. Delaying the start date also leaves time for the candidate to cool off on your opportunity, or to explore other opportunities that might be even more attractive.

(2) Guarantee a bonus (to be paid in the future).

A bonus guaranteed for the future is another way to sweeten a package and remove risk for a candidate, as long as he/she remains with the company for a certain period of time. If you have a candidate stepping into a brand new role, a position that requires a long ramp-up period, or a situation where results are difficult to predict, a guaranteed bonus can ease a candidate’s concerns about compensation during the first year.

If your company plans to offer a guaranteed bonus, decide on the time-frame and which conditions, if any, will need to be met by the executive. For example, perhaps you could guarantee a bonus at the end of year one, with the understanding that bonuses for year two and beyond will be based on performance and not be guaranteed.

(3) Offer a higher bonus and/or commission percentage.

If you want to offer a better compensation package, and you do not want to guarantee a bonus, another option is to offer a higher bonus and/or a higher commission percentage. With this option, the candidate will be able to earn even more if he/she performs better.

As with a guaranteed bonus, your company could offer a more generous bonus/commission structure for some initial period of time only, like the first year. If so, just make sure the candidate understands that this initial structure will not be guaranteed forever.

(4) Offer more equity.

Offering more equity might be a more viable option if your company is early-stage, has limited cash flow, or plans to have a liquidity event in the next few years. A common vesting schedule is for equity to vest proportionally over a four-year period, on a monthly basis, with a one-year cliff. The cliff protects your company if the employee leaves or is terminated for any reason within the first twelve months. The vesting typically also accelerates and vests immediately if there is a “change of control” and the company is sold in less than four years.

(5) Offer better perks.

Finally, your company could also try to make up for a lower base salary by offering better perks. While these special benefits cannot make up for a significant financial gap, they can help the seal the deal when you are in the same ballpark. There are an endless number of perks that you could offer, based on your company, your budget, and the candidate. Here are some examples:

  • Extra PTO days
  • Flexibility with telecommuting
  • On-site day care
  • Paid family leave programs
  • Relocation assistance
  • Access to corporate housing
  • Administrative support or an executive assistant
  • A private office
  • Executive coaching
  • Financial planning assistance
  • Tuition reimbursement
  • Severance package
  • Tickets to sports and entertainment events
  • Club memberships
  • Free car service to and from work
  • Free car lease and on-site parking

How do you know what to offer?

The easiest way to know what to offer is to ask candidates what is important to them. For example, if a candidate is concerned about leaving money on the table from their current role, maybe your company could offer a signing bonus or a delayed start date. On the other hand, if a candidate is most interested in financial upside for their next role, maybe your company could offer more equity or performance-based incentives.

Regardless of how you structure the financial details of the package, consider which perks your company can offer as well. Personalize your compensation packages as much as possible, and more of your offers will be accepted.

P.S. If you enjoyed this article, you can share it by clicking a social media icon on this page. 

About the author: As the Founder of Stronger Talent, Pete Leibman recruits exceptional leaders for companies that make the world stronger. Throughout his career, Pete has helped clients recruit exceptional leaders at the Board, C-Suite, Senior Vice President, Vice President, General Manager, Managing Director, and Director levels. Pete’s work has been featured on Fox News, CBS Radio, and Fortune.com, and he is the author of two books and over 150 articles on career management, healthy living, high performance, and executive recruiting.

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