Page 543 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

Chapter 9. Design and Communication Considerations 529

Market Stage

Threshold Growth Maturity Decline
For-profits
• Publicly traded Low Low Moderate High
• Privately held Low Moderate High High

Not-for-profits High High High High

Table 9-3. Probable relative important of perquisites in different market stages
as a very nice office or a car. A special supplemental pension plan would be very attractive
to a second-career executive. As with employee benefits, perquisites are not particularly
effective at attracting, retaining, or motivating key employees. Nonetheless, they may be of
interest to some.
In for-profits, perks are typically of low to moderate importance in the early stages of the
market cycle, although privately held companies may place a slightly higher importance on
them because of their low visibility and the absence of publicly traded stock. Interest increases
in later market stages.

Short-Term Incentives

Not-for-profits may have a difficult time satisfying the Internal Revenue Service (IRS) that a
short-term incentive plan is consistent with a nonprofit tax status. Therefore, the short-term
incentive is of “low” importance and is nonexistent for some, as shown in Table 9-4. (Not-
for-profits might approach the pay-for-performance aspect of short-term incentives with a
substitute form of lump-sum merits for executives. These can take on the appearance of
incentives without running into difficulties with overseeing agencies.) Since these incentives
are an important part of the package for many executives, not-for-profits have a distinct
disadvantage in attracting, retaining, and motivating. However, individuals may be attracted
to not-for-profits for more altruistic motives, namely, giving back to a defined community,
rather than for the pay. Intrinsic rather than extrinsic reward is their driver.

Market Stage

Threshold Growth Maturity Decline
For-profits
• Publicly traded Low Moderate High Moderate
• Privately held Moderate High High Moderate

Not-for-profits Low Low Low Low
Table 9-4. Probable relative importance of short-term incentives in different market stages

Conversely, the for-profits line up much better with those executives interested in
extrinsic compensation. However, companies in the early stages of market development have
to overcome cash shortages and appeal in other ways (e.g., with long-term incentives).