The end of the year is a time when compensation is on a lot of people’s minds—particularly with company committees busy working to set executive salary, bonus, and equity compensation for the coming year. Last week, I gauged Xconomy readers’ thoughts on the subject with a short quiz on tech- and life-sciences-executive compensation. The questions were drawn from the latest CompStudy, a survey of cash and equity compensation for top management at private technology and life sciences companies that is conducted annually by executive search company J. Robert Scott in partnership with Ernst & Young.
Now it is time for the answers, along with some commentary from Aaron Lapat, a managing director of J. Robert Scott, and Michael Greeley, a general partner with Flybridge Capital Partners and chairman of the New England Venture Capital Association. Both helped me choose the questions in the first place.
First, some high-level perspective from Greeley. “There was kind of a cascade over the past year of plans being reset,” he says. That means targets established a year ago are almost “completely irrelevant today,” making it extremely hard to determine whether an executive did well or poorly in 2009. Greeley says the focus of compensation discussions has shifted from being very quantitative (based on achieving or missing financial targets) to looking more at a person’s relative contributions to the company and whether he or she did a good job in a tough environment—as well as what it will take to keep good people motivated for the coming year. “The discussions, I think, have become much more difficult,” he says.
It is pretty safe to say, though, that with companies still in cash preservation mode, cash bonuses will be down significantly this year, Greeley says. That has led some companies to hold out hopes of bigger-than-normal bonuses in 2010, so that their execs have a chance of making up some ground. Greeley acknowledges, however, that this might not be possible for many companies, because the general outlook is still for slow growth or no growth.
One big frustration for Greeley as an investor and director is that people being recruited for senior executive positions are putting a lot less value on equity. Traditionally, he says, when people are being recruited from a big company to a startup, they don’t look to match their cash salary and instead figure they will come out far ahead in the long run thanks to the equity component. In this environment, he says, the attitude is often: “Hey I need basically what I was getting at the big company if you want me to join your early-stage company and I want the equity.”
Greeley calls that “disappointing,” and says it arises from the general lack of liquidity in markets today. In the past, recruits always knew people who had made a killing in a startup, “and that hasn’t been the case in a while.”
So, if that isn’t enough to make you nervous about your own year-end bonus and next year’s package, here are the answers to last week’s quiz, along with commentary from Greeley and Lapat.
1) Across both life sciences and technology companies, which founder position, other than CEO, gets the most equity?
Reader responses:
Correct answer: COO
Commentary: Both Lapat and Greeley were surprised by this answer. “Intuitively I would answer that question with CTO,” says Lapat. And in fact, he points out, some 70 percent of respondents in the compensation survey came from companies with less than $5 million in annual revenue—companies so small they don’t typically even need a COO. So why are COOs on average so well compensated? Lapat and Greeley say the numbers could reflect a number of instances when a founder/CEO has been replaced and given the COO title instead.
2) Which technology management position [other than CEO] has the highest compensation package (bonus and salary)?
Reader responses:
Correct Answer: Sales
Commentary: Our readers’ top choice was CTO. But, say our commentators, it
