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The giant sucking sounds emanating from corner offices at Citigroup, Merrill Lynch, Motorola, Dow Jones and other behemoths should give small business owners pause about how they go about cultivating their most precious asset: human capital.
While large firms can lavish millions of dollars in salaries and perks on their top officers (sometimes regardless of performance), small fry have to watch their pennies when chasing talent. The cold truth: "If you are a small business, it is going to be more difficult for you to attract employees," says Christine Midwood, director of survey services for Salary.com, a compensation consultancy.
So what are key decision-makers really worth? Unfortunately, there is no tried and true formula that transcends industries and business cycles. Tackle the problem in logical steps, though, and you can increase your odds of landing that important player and getting a solid return on your investment. Note: As with any strategy exercise, arriving at a sound plan takes work--so be prepared to do some research.
The first step: Examine each department and define all the required tasks and their value to your organization. This will give you a basis for benchmarking compensation against industry standards.
Figure out which positions have the most impact on overall performance, based on a variety of financial metrics--sales, earnings, return on capital and the like. Be sure to consider how certain positions affect others--poor performance in one area could be the result of problems in another. Then, rank each job in order of importance, based on these factors.
Step two: Canvass the competition. "Try to establish a fact base for the role you're hiring," says Russ Miller, managing director of Executive Compensation Advisors. "Look at industry data."
Remember that pay scales for certain roles vary considerably by industry, geography and company size.
According to Salary.com, top executives in the finance, insurance and real estate industries do better on average, while construction and health care execs--UnitedHealth ex-chief William McGuire notwithstanding--go wanting. As for geography, companies in the northeast United States, for example, tend to compensate key executives at higher rates than companies elsewhere in the country. Finally (and not surprisingly) size does matter: Overall, larger companies pay 20% to 70% more for key players across all executive positions than do businesses on the whole.
Salary-benchmarking surveys from major human resources consulting firms like Mercer can cost up to $5,000, but you don't need to pay that much. Comparison sites PayScale.com and Salary.com sell compensation reports for as little as $20 a pop. The Bureau of Labor Statistics provides salary data by industry for free online. Yet another data option: Look at Securities and Exchange Commission filings by smaller, publicly held companies in your industry.
But compensation isn't all about salaries, especially at small companies strapped for cash. Perks and other incentives are critical too.
Perks shouldn't be gratuitous; rather, they should somehow boost performance or engender loyalty. Example: Let top salespeople fly first class, but only if they are traveling to meet with clients. Other perks that might seem costly, but end up reaping returns in the long run, are gym memberships and time to attend to family illnesses.
Finally, you will have to wrestle with the balance between short-term and long-term incentives. Bonuses are a big deal, especially for head honchos. Such short-term incentives for chief executives run in the neighborhood of 42% of base salaries, according to Salary.com. Lower down the totem pole, heads of marketing corral incentives totaling some 23% of their salaries.
Of course, many small shops can't afford to pay plump salaries or bonuses. But they can offer talented prospects a stake in the proceedings--in the form of shared profits, stock options, or even a slice of equity. Chances are, the more equity someone is willing to take in lieu of a two-week paycheck, the more committed he might be to making the company succeed.