Competent executives: hard to find, harder to retain

Finding senior executives capable of motivating people, communicating a vision, and leading a company to the top can be challenging. And with concerned investors closely monitoring company performance, businesses are under enormous pressure to retain qualified executives once they hire them.

Obviously, a company with a clear vision, unique ideas, or a novel product has a much better chance of attracting the best candidates at all levels. But to keep the momentum going, it's crucial to secure top talent at the executive level. Generally, executives are swayed by a unique and challenging opportunity — not just an attractive compensation package.

However, overall compensation is still important. In today's job market, qualified candidates enjoy more negotiating power than ever. This means you need to be flexible and consider the compensation packages your competitors offer. Since candidates know they can command a high salary, extra incentives can make the difference in an executive's decision to join a company. Consider the following types of alternative compensation when you negotiate with executives and senior-level employees.

Equity. Many times, executives ask for equity in a company instead of cash. The amount of stock options you give senior-level employees will depend on your industry and the valuation of your stock. To get an idea about what you might offer, take a look at the proxy statements of a few public companies that are comparable to your own. These documents usually list executive compensation. Some companies offer executives a higher percentage of equity each year, based on company performance or shareholder return.

Flexible schedules. A flexible work schedule can be extremely effective in enticing top talent. Employers who offer flexible scheduling in flextime or compressed workweeks, in geography (telecommuting or satellite workplaces), in time off (floating holidays or vacation carryover), and in career paths (job sharing or part-time work) have an advantage in attracting top candidates.

Deferred compensation. Stock options and other deferred compensation plans are effective tools for retaining employees because they reward employees based on the company's performance over time (typically three to five years). Deferred compensation plans are an investment vehicle that allows people to defer taxation of both the initial contribution and the earnings on the deferred assets.

Performance incentives. Performance incentives are special incentives — shares of stock, cash, vacations, or other bonuses — tied to the performance of the department or business area that the executive manages. Performance incentives linked to long-term goals create vision that can inspire an executive to remain committed to a company.

Other types of compensation. Be creative when you develop executive compensation plans. Consider all types of options, including car allowances, life insurance, relocation payments, flexible start dates, signing bonuses, use of company-owned vacation property, health-club membership, tuition reimbursements, and other compensation that will make your package competitive and attractive. Offering nonmonetary incentives like these will tempt talented candidates and help you retain them.

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