Tag Archives: Compensation

How Do You Get New Employees Up to Speed? Seven Thoughts

Situation: A company has a new set of employees coming up to speed, but this is happening slowly. The work environment is semi-skilled, with learning curves for new office employees and apprentices. How do you get new employees up to speed?

Advice from the CEOs:

  • Provide a competitive level of compensation to journeymen and higher level office employees. Make these levels of skill to which office employees and apprentices aspire.
  • Develop a mentor program. Provide chits (company currency) to both the mentor and the mentee for learning each new processes. Make awarding these chits a big deal. For example, the mentor and mentee collect their chits from the CEO who then takes them down to the treasurer to collect on the chits.
  • As appropriate, create a team learning environment. Game theory has demonstrated that both basic and more advanced skills can be successfully taught in a team game environment where there is both competition and rewards for attainment.
  • Set up a system where successful training is demonstrated bench performance.
  • Establish Operator 1, 2 and 3 levels to qualify for graduated levels of jobs or responsibilities. This creates a career track and an incentive to go for the next level. Celebrate employees as they move from level to level.
  • Company celebrations are important. Celebrate birthdays, tenure anniversaries, skill level attainment, career track attainment, and so on at monthly meetings or events.
  • Hire slow/fire fast. Give new employees a fair shake, but if their mentor doesn’t see promise in them, let them go.

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How Do You Structure a Transition Proposal? Three Insights

Situation: A CEO is transitioning her role in a company that she founded to new ventures, while maintaining a part-time commitment to the company. The company seeks a proposal as to how she will split her time and what compensation she wants during the transition. The CEO seeks guidance on the focus and content of the proposal. How do you structure a transition proposal?

Advice from the CEOs:

  • This sounds like a set of half-decisions.
    • The CEO envisions a transition from the current position to a transition position to a new position. The more likely scenario is that the CEO will go straight to the new position. As soon as one new venture starts to solidify, this will demand 100% of the CEO’s time.
    • Given that this is most likely the CEO’s priority, the important question is what the company wants and needs from the CEO. Deliverables, time commitment and compensation should follow these needs.
  • Another approach is to look at an exit package, including a long-term consulting retainer. For example, full salary for 6 months with a retainer for another 6 months. This will allow the CEO more freedom and flexibility to pursue the new ventures.
  • The current negotiation is just a starting point. Here are the things to consider in the proposal to the company:
    • Does the CEO need income from the current company during your transition? Will a new venture benefit from financial or professional assistance from the company?
    • If the CEO is not fully engaged with the company, leadership will likely want the CEO out sooner than later.
    • The company mostly will want a non-compete and the ability to use the CEO as a resource as needed.

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How Do You Set Appropriate Expectations? Four Suggestions

Situation: A CEO asks: How do you help people appreciate the difference between where they want to be verses where you need them to be? How do you help them understand the realities of career and financial potential that have been set for your company? What do you do to help your employees understand what has to happen before they get to the next step? How do you set appropriate expectations?

Advice from the CEOs:

  • The current labor market has yielded a different employment environment compared with 20 years ago. Many new hires are either:
    • Young – without long term expectations or perspective;
    • Possess an entitlement mentality;
    • More seasoned and possibly looking toward retirement; or
    • Have personality challenges.

 This is just current reality and will last until the next contraction.

  • If you have a clear policy on compensation and promotion you are way ahead of the game because you can communicate this clearly at onset of employment. If you don’t have this, create it and make sure that it is communicated consistently to new employees and during all employee reviews.
  • Once you have established and communicated a clear policy on compensation and promotion the question becomes, on an individual basis, whether an employee “gets it” or not. If they don’t, perhaps your company is not for them.
  • Is there value to stock options as a bonus?
    • If you are a public company, they have value because stock options are tradable within legal guidelines.
    • If you are a private company it’s a different matter. Other than as an emotional boost, without a liquidity event the stock has no value except for possible periodic distributions against shares held.

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How Do You Tell Hunter from Farmer Sales People? Four Tips

Situation: A company hired a sales person who looked during the interview process like a hunter, but turned out to be a farmer. The company’s product-service mix is new to the market and requires a sales person who excels at landing new accounts. How do you tell hunter from farmer sales candidates?

Advice from the CEOs:

  • The hunter sales person is naturally more aggressive and loves the thrill of landing new accounts. The farmer excels at follow-up sales and cultivating existing accounts for new purchasing potential. Neither is particularly good at the others’ job, and it is rare to find individuals who excel in both roles.
  • To differentiate between these two personalities, behavioral interviewing is better than tests.
    • Screen resumes for past sales success in companies in a similar size range as yours to select a group for further evaluation.
    • Behavioral interviews are very different from traditional interviews. They the focus on specific skills and requirements associated with the job and require candidates to give concrete examples of when and how they have demonstrated the skills needed for the job. The interviewer then follows up with probing questions to elicit more details. Responses can be verified in follow-up with references provided by the candidate.
    • During the questioning process, the interviewer may interrupt the candidate with a question like “what are you thinking right now?” These questions provide more insight into the interviewee’s personality and also help to filter out B.S.
    • You are seeking someone who’s “been there done that” in a company which resembles yours and who can convincingly demonstrate what they’ve done.
  • Thoroughly check references – not just those provided by the candidate, but dig and talk to others in the same companies.
  • Strongly align the pay and incentives for a hunter. Hunters prefer a comp package that is heavily commission-based and this will scare away farmers. If they don’t sell, they get paid little.
  • Offer an extended trial period with burden of proof on performance by the sales person.

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How Do You Set End of Year Owners’ Comp? Three Thoughts

Situation: A company is a C Corp with several owners. As it is the end of the year, there is an active debate on owners’ compensation. The CEO has looked at a number of options, but would like the advice of others in a similar situation before making a decision. What do you see as the pros and cons of various options for end of year owners’ compensation?

Advice from the CEOs:

  • In one company, profits are split among owners according to stock ownership. This is similar to a public corporation where dividends accrue according to stock ownership. The pro is that it is equitable; the con is that smaller owners who may have made significant contributions during the year don’t necessarily receive the recognition that they may believe they deserve.
  • Another CEO varies owners’ compensation according to company performance. In good years, there is the option to be generous through enhanced bonuses, etc. In slim years it is more important to conserve cash, and quite frankly company performance didn’t justify significant bonuses. The pro is that this offers the CEO more flexibility than the first option to recognize significant contributions; the con is that the recognition of some may seem arbitrary to others.
    • In response to the latter observation, a third CEO sees this as acting like a good father – sometimes you just have to declare your prerogative if employees squabble about your decisions or push too hard for unreasonable requests.
  • The CEO who originally asked the question followed with an additional question – how do you present your compensation decisions to owners or staff who may think that they deserve more than their stock position or company performance over the year allows?
    • This is a facts of life situation – once the final determination is made it is not negotiable.

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How Do You Manage Cash Flow and Growth? Five Thoughts

Situation: A company faces dual challenges – assuring that payments are collected for work done and developing a business model that facilitates growth. How do assure that payments are collected to support your cash flow needs and that employees are focused on growth?

Advice from the CEOs:

  • It may be that the two problems are closely related. Ask whether your compensation and incentive system is focused on cash flow and growth. If not, you need to change it.
    • Restructure your compensation and incentive systems to create a direct link between profitability and compensation. Augment this with training. For example, if your engineering team isn’t good at assuring that change order costs are paid by their clients, teach them how to write statements of work to anticipate change requests and to include charges in the SOW. Then tie the team’s compensation to how well team members follow though in assuring that work is properly accounted for, billed, and payment collected.
  • Create simple procedures that are innate and complementary to team members’ natural behavior. The best way to do this is to involve them in the writing of the procedures.
  • Give them easy tools that take the guesswork out of negotiating change orders with clients. For example, if a client asks for faster delivery, give them a formula that ties delivery to cost::
    • Standard Delivery = 8 weeks at Price X
    • 4 Week Delivery = Standard delivery price times Y
    • 2 Week Delivery = Standard delivery price times Z

This turns client demands into a simple economic question – what is expedited delivery worth to you?

  • Hire a contracts manager to track contracts and change orders with authority to assure that change order costs are being billed.
  • Create “learning” teams to develop solutions. Allow the teams to speak to each other and to learn each other’s best practices. Supplement this with regular tutorial sessions to bring the whole group up to speed on new technologies.

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Are Your Folks Getting Offers from Others? Five Thoughts

Situation: A company’s employees are increasingly getting offers from other companies. They believe that they have a good team, a good work environment and offer a competitive pay and benefit package. However, they are concerned that the job market in Silicon Valley is heating up. How do you keep your employees on-board when they start receiving offers from others?

Advice from the CEOs:

  • Make sure that your wage and benefit scale continues to be competitive. The Silicon Valley Index, published by Assets Unlimited in Campbell, is the best local survey covering Silicon Valley and the San Francisco technology market.
  • Survey after survey finds that compensation is basically a hygiene factor – it has to be good enough so that needs are satisfied, but it isn’t one of the more important factors in retention. The Gallup Organization has determined that respect, challenging responsibilities, and personal recognition are much more important factors in employee retention. Be sure that you are actively involving your key personnel as leaders in formulating and updating your processes, and that there are plenty of opportunities for recognition and celebration for your staff.
  • If you are generating a profit, share this with the employees as an incentive. This may well be better spent in fun and team-building activities like a weekend in Tahoe for a team, or supporting their creative needs by sponsoring their efforts in engineering design competitions. Whatever is appropriate for your company, involve your employees in setting company performance goals and give them a voice in determining how achievement should be rewarded. Making them part of the process builds better long-term loyalty.
  • On the sales side, establish a reward incentive structure for bringing in new business for the company to prompt field personnel to develop and exercise their business development skills.
  • Whatever you and your team decide, be sure that your choices support your overall strategic plan.

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How Do You Negotiate New Shares for the Founders? Five Suggestions

Situation: A company’s founders will be fully vested in their options by the end of the year. Also, the option pool for founders and employees has been exhausted. The CEO has spoken with the Board Chair and Compensation Committee about this in terms of fairness and incentives for future work to both founders and employees, while making it clear that the Founders are not unhappy. The Chair listened sympathetically and promised to get back to the CEO. Is there anything more that the CEO should do to negotiate new shares for founders and employees?

Advice from the CEOs:

  • Seek a letter of understanding from the Board that the founders and employees will have access to future stock incentives, and a timeline as to when this might occur – either in the near future or at the next financing round.
  • Wait a few weeks and have an informal follow-up conversation with the Chair about his current thinking. Ask whether he would like any further supporting information on the issue.
  • So far, your approach has been non-threatening. Keep it this way.
  • Maintain focus on fairness and your tone supportive of the best interests of the company.
  • Don’t press the issue if you sense resistance.

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How Do You Recruit Outside Board Members? Five Recommendations

Situation: A company wants to add outside members to its Board. They seek individuals with industry knowledge, experience and contacts, among other things – members who can provide high level introductions to potential clients or key players within these organizations. The team is struggling to develop a list of candidates. How do you recruit an outside Board member?

Advice from the CEOs:

  • Your best bet is to hire a firm with a good track record of Board placements.
    • Given your other priorities, it is unlikely that you can devote the time required to develop a list of candidates on your own. Ask yourself whether this is how you should be spending your time, and what the value of that time spent would be.
    • What level of business do your expect from the contacts that the new Board member will provide for you? Calculate a fee that you would be willing to pay a recruiter as a percentage of future business. A fee of $25,000 or more for a good member is not out of line.
  • Network with significant players in your industry, and also look at who is serving on their Boards.
  • Investigate LinkedIn Groups – Groups that focus on Board members. These can be helpful in learning who might be available and connecting with them through mutual acquaintances. In addition, firms that specialize in Board placement frequent these sites. Also look at LinkSV.com which is more focused on Silicon Valley.
  • Determine what you will offer as both liability protection and compensation for new Board members. At a minimum you want to have a good directors and officers insurance policy, as well as stock and cash compensation that is competitive for your industry and company size.
  • Current Top Executives may be too busy to meet your needs. Consider individuals with deep experience who are nearing retirement or recently retired.

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How Do You Leverage an Advisory Board for Biz Dev? Three Guidelines

Situation: A company has a high-powered Board of Directors. This Board is focused primarily on company strategy. The CEO wants to create a separate Advisory Board for technical and business development. How do you create and leverage an Advisory Board for technical and business development?

Advice from the CEOs:

  • Be clear on the role and compensation of the Advisory Board.
    • Create a clear set of expectations to initiate the process, and refine these expectations in early meetings of the Advisory Board.
    • Early stage companies often pay out of pocket expenses for attending Advisory Board meetings, plus stock options. When business development is the focus, you may want to add a percentage of any new business brought to the company by the member.
    • More mature companies may add a stipend for Advisory Board service.
    • Not all Advisory Board members may be compensated equally, particularly if members receive a percentage of business that they help to create. You may also choose to compensate members differently based on their experience and influence.
  • Choose Advisory Board members carefully.
    • Go beyond personal contacts of the CEO and company officers. Look for individuals who are known and respected within the industry. You also want individuals who have exceptional contacts and who will agree to use them to benefit you.
    • Look for individuals who are highly positioned within target companies – for example a VP of Operations or of Business Development. Also look for individuals who have excellent relationships with personnel in target companies
  • Be open and clear about your expectations of individual Advisory Board members. Celebrate success.
    • Establish metrics that the members are expected to fulfill.
    • Record commitments made by Advisory Board members and include updates against commitments as part of Advisory Board meetings, as well as updates against metrics that expected of members.
    • Celebrate successes of Advisory Board members and note individual and team contributions whenever the Advisory Board meets.

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