Is equity payment right for your CEO?

If a company currently in executive recruitment mode wants to take on an executive but cannot match his or her salary demands, it might seem that they have no chance of hiring him or her. However, businesses can offer other compensation in the form of equity payment. This could be an attractive prospect that helps persuade candidates to join you.

When is this a good incentive for executive hires? Writing from the worker's point of view for Grasshopper in 2010, Allison Canty describes some of the criteria businesses should meet before deciding to go this route.

A major factor is whether the equity plan has been structured so it matches the open position. Canty cites figures from venture capitalist Guy Kawasaki, who said that CEO equity could range as high as 10 percent. 

Businesses don't have to rely on equity alone and can use it as part of a more traditional compensation plan. Canty says this is perhaps preferable because the candidate won't lose any options if the company underperforms.

Two others who agree with putting checks on CEO equity payment are Lucian Bebchuk and Jesse Fried. In a 2010 paper for the Journal of Applied Corporate Finance, they argued that controls should be put into place to make sure executives don't "cash out" their equity too early, and remain invested in the business. At the same time, companies should avoid withholding equity entirely until retirement because this could also influence how long the executive stays in their position.

"Requiring the retiring executive to hold her shares until the specified fixed date would both remove any incentive for the CEO to accelerate her retirement, and make it less likely that the executive will focus on short-term results while making decisions for the firm just prior to retirement," the authors write.

Decide beforehand what your company can offer and what your projected growth will be, and it will be easier to offer equity. A recruitment consultant can give advice in this area.

Finding people is easy, but finding the RIGHT people is not. YES Partners helps companies FIND the right people – for all company functions, across many industries and globally.

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