Thursday, June 10, 2010

Important Steps to Take Now to Keep Your Key Talent

The first quarter of 2010 is completed and signs of economic recovery are popping up like May flowers. Of course the improving economy also means that recruiting and headhunting activity is picking up, requiring a careful assessment of your compensation programs for executive management and other key employees.

Have you taken the steps to ensure that the talent who led you through the downturn, and continues to give you 110%, is rewarded and retained for the future? Here are seven steps to consider taking now, so that you do not lose your most valued employees:

1. Conduct a comprehensive review of pay packages
New proxy data is now available from publicly-traded organizations for their 5 most-highly paid executive employees (including CEO's and CFO's). In 2009, companies placed a greater focus on reducing risk in compensation programs. The focus on risk, combined with legislative limitations on the use of equity, resulted in notably different approaches to base salaries, cash incentives and equity compensation from prior years.

2. Re-assess your compensation benchmarking peer-group
Is the peer group you used for compensation benchmarking purposes still relevant? If you have adjusted your peer group used to benchmark financial performance, you may want to apply a similar examination to peers used to benchmark compensation. For financial institutions TARP regulations dramatically altered pay practices and peers should be reconsidered in light of your participation in TARP. Regardless of TARP impact, a number of companies failed, or were acquired in 2009, resulting in a loss of peer group members. New additions to replace lost peers should be considered and incorporated. Peers with notably different performance results in the past year (either greater or lower) should also be discussed and possibly replaced with more relevant peers.

3. Conduct a formal risk analysis
If you have not completed a formal risk analysis, or conducted a limited analysis focusing solely on short-term incentives, it may be an appropriate time to conduct a comprehensive analysis of risk in compensation. Such an analysis would cover the full range of compensation from base salary practices to post-termination payments and retirement programs.

4. Carefully examine retention components of pay and long-term compensation
Take a look at your use of equity or cash-based long-term retention programs. If you do not use equity, now may be the perfect opportunity to implement a stock-based compensation program to motivate and retain key employees. With stock prices at low levels the expense associated with these programs is low while the opportunity and reward is high. If you do have equity programs in place, it may be critical to examine award levels and risk mitigation features of these programs.

5. Review your annual cash-incentive programs
Did your incentive annual cash incentive programs align properly with the performance of your organization? Is your plan designed to differentiate between high and low performers and compensate accordingly? Does your payout timing align with your risk horizons? Are you preventing short-term payouts on long-term risk periods? It may be the right time to make adjustments in annual cash-incentive programs to both decrease your risk exposure while increasing the effectiveness of the plans.

6. Consider implementing ownership requirements or holding requirements on equity awards
If you do not have formalized ownership requirements or holding requirements on equity, now is a good time to consider such policies. Such policies serve to reduce risk taking through a focus on long-term success while also aligning shareholder and management interests.

7. Examine your Board of Director compensation
Over the past few years the responsibility of Directors and the time spent on board responsibilities has increased, while Director compensation remained relatively stagnant (and is some cases decreased) due to the economic downturn. The improving economy and corporate performance results make this an appropriate time to examine your director compensation levels to ensure the are fair and reasonable in consideration of the time spent by board members and the increasing responsibilities placed on their shoulders.

Contact CompWiser Consulting
CompWiser provides a complete suite of compensation consulting and related services, from a custom compensation risk analysis to salary benchmarketing and the creation of formal salary structures and administration policies. Visit details.

CompWiser Consulting
San Francisco, CA
phone: 415.894.5556

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