Now that Internet companies have woken up and smelled the toast burning, it seems that one thing they’re starting to realize is the importance of paying people cash.
That’s according to a recent survey by PricewaterhouseCoopers LLP’s human resources consultancy, Unifi Network, which found that Internet company compensation is becoming increasingly similar to that of traditional, brick-and-mortar firms by offering higher base salaries and bonuses. On average, the 123 companies surveyed (the names of which Unifi would not disclose but include “pretty much a Who’s Who” of the country’s top Internet firms, according to a company spokesman) paid its top three executives (CEO, COO, and CFO) 13% more in total cash compensation than they did last year. Of the companies surveyed, base salaries went up at least 9%, while bonuses went up at least 28%.
One reason for this, according to Unifi senior consultant Craig Kams, is the need for seasoned executives in the C-level positions as the companies mature. In particular, companies are adding chief operating officers, a job which is frequently taken on by the CFO. “Lots of companies don’t have a COO,” says Kam. “A lot of times, the CFOs are taking on the COO duties, and now they’re saying, ‘I can’t continue to do this anymore.’”
In addition, company founders are stepping into strategic roles, such as chairman, as they bring in talent to deal with daily operational duties.
And with the need for experienced executives in a tight labor market comes the need to deliver the goods— in detailed cash compensation contracts. “Experienced executives have seen the risk of going to a dot.com, they’ve seen the type of M&A activity happening, and they’re asking [prospective dot.com employers] to put their offers in writing,” explains Kams.
Another reason for the increase in cash compensation is that the infamous we’ll-get-there-when-we-get-there attitude towards profits that companies had in the halcyon days of Internet youth no longer flies. Executive bonuses are increasingly based on more traditional metrics such as profitability and earnings before interest, taxes, depreciation, and amortization.
None of this means anyone is moving away from stock options. According to the survey, the median share ownership of senior executives was .3% of a company’s shares outstanding. And companies will continue to use stock options as an integral part of the package. “Options are as important as ever,” stresses a Unifi spokesperson. “It’s just that cash is becoming more important.”
The survey’s findings indicate less of a trend among Internet companies than an evolution, says Kams. “What you’re seeing is a merger of the [compensation] practices of traditional companies and Internet companies. Internet companies now see the need for profits, while traditional companies are integrating at least some degree of ebusiness strategy.”
And while this may not be news, “I think what shocked everyone is how quickly it happened.”