NFIB

What to Pay
03/ 28/ 2002

by Milton Zall

Smaller firms tend to focus on their immediate needs when filling a position, often paying whatever it takes without realizing such an approach can cause internal equity problems.

Aubrey Daniels, founder and CEO of Aubrey Daniels & Associates, a compensation consulting firm says, "What many small firms pay an incoming executive depends a lot on that executive's personal persuasiveness. Where an executive comes from and what he's earned elsewhere often have a great impact on what he's offered."

Daniels says that on many occasions, an incoming executive is paid more than his peers are and this can cause grave morale problems.

"A better approach," says Daniels, is to pay an incoming executive, "not for what he's done but for what he will do." If a firm lures an executive by offering an attractive compensation package that is performance based, the chance of creating jealousy and envy are greatly diminished.

"A compensation package that contains market-based base pay and performance-based bonuses and other perks won't upset your other executives" says Daniels.

Some small firms handle their executive compensation just right. Elizabeth Longstreet, executive VP, CFO and general manager of advertising firm Siddall, Matus & Coughter (SMC) in central Virginia, says, "We always tie compensation to performance."

Longstreet's firm, which has about $50 million in revenue and 53 employees, conducted a salary survey for all of its positions and has established a low/medium/high range for each one. Says Longstreet, "This has been a great help in determining what we should pay incoming employees." She also notes that her firm considers its ability to pay when making an offer. "You've got to be able to afford who you're hiring, no matter what a salary survey might suggest," she says.

The Bottom Line: Executive compensation in small to medium size companies is an art, not a science. Often, inappropriate considerations creep into the pay setting process, creating unintended problems. If you link the compensation of executives to performance and you conduct salary surveys to gauge what others are paying, you've taken some very important steps towards establishing an effective executive compensation program.

---

This article originally appeared in the November/December 2001 issue of MyBusiness Magazine, NFIB's member magazine.

Small Business Sound Off
Does this story hit home?  Share your story with us