So, you’ve identified a crucial hire. Their current base and bonus structure allows you to make them an offer worth considering.
The problem is, they also have $500K in long-term incentive coming to them over the next three years – and you’re going to struggle to match that.
Should you try, nonetheless? Can you justify a large sign-on bonus over the first couple of years, to make things work? Does your organization have a competitive long term incentive program with a vesting schedule that offsets what they are walking away from? Or should you move onto another, more affordable candidate?
If you’ve ever had this dilemma, you’re not alone.
Businesses of all sizes are struggling to meet the ballooning compensation requirements of their recruitment targets in all functions across the organization.
It’s happening primarily because many companies have evolved their compensation models in ways that are difficult for others to compete with. Aggressive stock plans are common. And public companies’ stocks have performed so well that even mid-level employees are making far more than their role or the market may justify.
Not only does this raise the bar for companies elsewhere, it’s a challenge for anyone in any vertical recruiting from these companies. And ultimately, it affects pay structures at the top-of-the-house everywhere.
Furthermore, COVID has exacerbated the situation, because many companies were conservative about the bonuses they offered at the height of the pandemic. This year bonuses are far higher, to compensate.
Finally, it’s all compounded by the fact that some companies just don’t understand how much they can expect to pay for senior people right now. You may be used to benchmarking within your own sector, but this is less relevant when you’re hiring a CTO or AI expert from another vertical. “Sticker shock” is common.
So how can you still compete – even if you can’t really afford the aggressive long-term incentives that are becoming expected?
First, you need realistic expectations of what you can expect to pay before your search begins. Your executive search firm should be able to offer you this market insight.
They should also benchmark the packages of the leading candidates as the search progresses, so there are no surprises at the end of the process.
One additional challenge is that in many American states, employers and recruiters are no longer allowed to ask what someone is earning until you are ready to make them an offer. This can be a challenge , but candidates are allowed to volunteer this information to prevent their own time being wasted.
Second, recognize that what you want to offer is irrelevant. The market dictates the salaries – not you!
If you discover that your coveted hire may cost more than you expect, you really have only two choices.
You can be realistic about your company’s financial constraints, and look at up-and-coming candidates who may or may not have the leadership experience you seek. .
This may not be ideal and will mean revising your expectations, but remember the real definition of an A-Player: The best of what’s available at a price you’re willing to pay (Geoffrey Smart, Topgrading).
Lastly,, you could go outside your expected compensation parameters in order to secure the right person – which is the route to go if you really want the best.
Here, you can get creative with your own compensation models, perhaps offering larger bonuses or more stock options of your own. Be prepared to buy out people’s stock plan, and wait for bonuses or vesting periods to trigger.
When this is your preferred route, it’s crucial that you create alignment between the hiring and HR teams, so that everyone is on board. Be prepared to convince your internal stakeholders that the candidate is worth the package you’re suggesting. Lastly, compare and contrast a number of qualified and interested candidates, to give the hiring manager enough information to make an educated decision.
To decide whether this is the right approach, you need to take a long-term view of the candidate, and assess whether they can do more for your organization as they grow and are promoted. Can you justify the cost of acquiring them?
You should also consider how offering one person an outsized compensation package may affect parity within your leadership group. Are others going to ask for a raise? Or do they perhaps need to modernize their skills, to justify it?
There are no “right” or easy answers here – it all depends on your priorities and this will be different for every organisation.
Please free to contact me directly firstname.lastname@example.org or +1 917 816 8365.
The best time to talk about this is before you’ve started your search!