Cash
Incentives Star in Compensation Strategies of
Fast Growing Private Companies
PricewaterhouseCoopers'
"Trendsetter Barometer" interviewed CEOs of 355 privately
held product and service companies identified in the media as
the fastest growing U.S. businesses over the last five years.
The surveyed companies range in size from approximately $5 million
to $150 million in revenue/sales.
Nearly all of the nation's fastest-growing private companies
offer incentive-based compensation in what is widely viewed
as a competitive market for executive talent. Cash incentives
predominate, but companies managing toward a liquidity event
tend to also offer equity, including stock options, often with
their entire employee population eligible. But in most cases,
shares cannot be cashed out until the liquidity event occurs.
Stiff Competition for Talent
Eighty percent of fast-growth CEOs view today's market for executive
talent as competitive, including 24 percent who say it is highly
competitive. Under these circumstances, to attract, retain and
motivate employees, 91 percent of surveyed companies offer incentive-based
compensation programs, almost all with a cash component.
"Of necessity, private companies have become increasingly
creative with incentive-based compensation," said Rich
Calzaretta, leader of PricewaterhouseCoopers' U.S. Private Company
Services practice. "Cash-based incentives are a staple,
with equity-based incentives most often added if a liquidity
event is planned."
Differing Approaches
Looking ahead, 66 percent of surveyed companies expect to stay
private; 20 percent are managing toward a liquidity event. The
remainder are not sure or did not report. Virtually all those
envisioning a liquidity event (86 percent) expect it will occur
within the next five years.
- Fifty-six
percent of those moving toward a liquidity event offer equity-based
incentives; 92 percent of these offer options.
- Forty-six
percent of those offering equity-based incentives restrict
them to senior management; 54 percent offer eligibility to
their entire employee population.
- But,
78 percent of those offering options and other equity-based
incentives say these are not readily redeemable-employees
must wait for the liquidity event to occur, in order to cash
out.
Companies
expecting to stay private have a different profile. Only 17
percent offer equity incentives, but a majority of these (63
percent) do redeem equity-usually at termination or retirement:
"Companies
planning to stay private generally don't grant equity, whereas
most moving toward a liquidity event, do," said Carl Weinberg,
a principal with PricewaterhouseCoopers' Human Resource Services
practice. "But companies granting equity tend to not permit
cash-out until the liquidity event occurs. The employees must
wait for their payoff, just like the owners."
Cash-based incentives, offered by 89 percent of all surveyed
companies, may include awards for long-term performance, bonuses,
commissions, and other components. For the most part, use of
these and other plan elements is comparable for companies planning
to stay private and those moving toward liquidity, with one
exception: share value-based stock appreciation rights are offered
by 23 percent of those managing toward a liquidity event, but
by only seven percent of those intending to remain private:
"Private
companies are offering highly competitive compensation packages
tailored to their business strategy and needs-to attract individuals
who can make a significant difference in their business, and
for retaining and motivating key employees," said Calzaretta.
Equitable Compensation
Among the 60 percent of fast-growth companies with family members
in the business, three-quarters (77 percent) report compensation
arrangements to be the same for family- and non-family members.
"If a key employee is creating wealth for the company's
owner and sees family members receiving dividends every year,
there can be resentment unless there is an equivalent reward,"
noted Calzaretta.
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PricewaterhouseCoopers'
Private Company Services practice is an integrated team of audit,
tax, and advisory professionals who focus on the unique needs
of private companies and their owners. Our Private Company Services
professionals are committed to delivering cost-effective, practical
solutions and responsive services with the quality clients expect
from PricewaterhouseCoopers. PricewaterhouseCoopers' "Trendsetter
Barometer" is developed and compiled with assistance from
the opinion and economic research firm of BSI Global Research,
Inc. If you have a question about this "Trendsetter Barometer"
survey, please contact Pete Collins, survey director and publisher,
at 646-471-4496 or e-mail to pete.collins@us.pwc.com.
For more information about Barometer surveys, including recent
economic trend data and topical issues, please visit our web
site: www.barometersurveys.com
