I have been at 3 board meetings this week. It is very apparent to me that we are in an environment where money is easily available to both the best and not so good performers. There are exceptional cases when the awful performer is also getting funded, but I want to avoid judging performance at the earliest stages.
Ben Horowitz popularized the term Peacetime CEO and Wartime CEO’s. We are at a really good peacetime – so the tactics for hiring, fund raising and customer acquisition are different than those when the market will turn – and it will. I cant predict when that will happen, and wont even know when it will start to turn.
I wanted to highlight the change in compensation strategy that’s being used by 3 companies who are preparing for when money gets more constrained, hiring is easier and customers are more cautious about their spending.
Most of the companies I know are moving from 60/20/20 split of base salary, performance bonus (based on individual goals) and stock options to
50/40/10 for marginal performers and
for the superstars, the compensation is 70/10/20.
The superstars have a total compensation that’s greater than the marginal performers.
What is being optimized is the bonus – for the marginal performers a lot more is being paid out on bonus – variable pay based on performance.
The logic behind the thinking is that the key players should not be poached – hence they are given a higher base than they would get outside, and are to be kept for the longer term – hence the incentive on the stock, whereas the marginal performers do not care about options that much.
Who are the marginal employees? Most of them are putting the “6 months, course at a coding academy” folks in the marginal employee pool. Not sure that’s correct, but that’s the approach being taken right now.