COMPENSATION PACKAGES FOR TOP MANAGERS
Stabilization of the economy and, as a result, a rising employment market encourage employers to think, as in good old days, about attracting and motivating top managers not only by competitive salaries but also by using innovative approach to compensation packages.
There was no question of motivation during the crisis. It was a difficult time with plenty of reasons for depression and employers certainly needed to motivate people to overcome difficulties. However during the crisis the main motivation for employees of all levels was having a job. The crisis is now over and it is time for building new relations between employees, including top managers, and business owners. In the previous issue I argued that unfortunately “the number of talented and successful managers has not increases during the crisis” and in order to attract and retain the ‘stars’ often mentioned in the pre-crisis times the employer now needs to introduce a new and often unconventional approach towards motivation.
According to our survey held in November 2010 among HR managers of Russian and foreign companies, salaries and bonuses account for about 82% of total expenses budget for top managers, and compensation package – for 18%. Speaking about the level of the compensation package in general 45% of HR managers agreed that their companies offer a standard package, 35% said it was better than the market average, and 15% mentioned an innovative approach – development of individual motivation models of top management taking into account individual motivation and needs. As Elena Batova, Compensation and Benefits Manager at Skolkovo Business School, notes, “Major Russian companies offer top managers MBA programmes, professional association membership, participation in conferences or trainings abroad.” According to GoodYear HR Manager Anastasia Antonova, “If we speak about the importance of incentives in the company, they play different roles in motivation: as for the salary, it is primarily an incentive to attract top managers. Pay increase and all sorts of bonuses (for personal and team achievements) bring a sense of satisfaction to top managers and make them feel part of the company. At the same time it is necessary to try to ensure that all these systems correspond to the ephemeral concept of social justice and are perceived by staff with understanding and interest. In order to achieve this effect one needs to work a lot with employee motivator scorecards and corporate culture in general. The compensation package and various corporate events contribute to employee retention and commitment.”
However, the majority of surveyed HR managers (63%) believe that the compensation package is an incentive for top managers, 35% think it is a good reason for their motivation in general, 13% believe that the compensation package provides the appropriate level of comfort, and only 8% say that it is a way to retain top managers. Anyway, in the post-crisis period we feel that the traditional methods of attracting and recruiting are out of date and the compensation package and a more differentiated approach to its composition will work for companies in competition for talent. Although today not all companies use a differentiated approach to drafting packages, as much as 70% of those surveyed HR managers heard about the concept of cafeteria benefits where the company offers a choice of several components of the compensation package.
As for examples of non-traditional components of compensation packages for top managers, respondents named the following: additional days off, company shares at a discounted price, pension insurance, training in business schools abroad, etc. One could argue about non-traditional benefits like these a few years ago, but today, in a period of stabilizing economic performance, this kind of monetary (and other) compensation can indeed be called an innovation. There is a growing trend toward offering non-standard and new benefits in the companies. Thus, one of the most popular of the examples mentioned of the compensation package is acquisition of shares or participation in stock-options contract where the potential buyer or potential seller has the right, but not the obligation, to buy or sell an asset at an agreed price. Every manager wants to achieve an appropriate balance of responsibilities, prospects and free time to do something else important in life than work. He also needs to believe in what he is doing and have people to work with.
It is reasonable that he wants to join the team that will trust him, maintain and share his values, and hence the values of the company. As noted Elena Batova, Compensation and Benefits Manager of Skolkovo Business School, “Quite often when a certain level of income is achieved money ceases to play a major role, and then other underlying motivators such as the wish for self-realization, or investing in oneself, gain importance.” But, returning to the survey, it should be noted that today the main factor, affecting managers’ choice of a company, is the salary, the second in importance is the level of the position offered, the third is the prestige of the company or the brand image, and the fourth – the components of the compensation package.
Judging from the data motivation policies are developing. The market just started to recover after a serious crisis, and companies already think about the attractiveness of their image on the labour market and recruiting talented executives, who in fact play a major role in stabilization and effectiveness of business. Back in the 19th century Berthold Auerbach said, “To acquire money requires valour; to keep money requires prudence; and to spend money well is an art.” In my view, development of an effective system of motivation for all employees, including top managers, by offering monetary and nonmonetary remuneration systems and rational inclusion of this expenditure in the company budget is truly an art!
Russian Industrialist Magazine, Vyacheslav Konovalov, Business Development Director, 4Astra/IMD International Executive Search