Just how different are internet-style reward packages?


Just how different are internet-style reward packages?

Much of the dot-com compensation package mirrors rewards found in more established businesses. But while not revolutionary, there are elements which make dot-comp unique, finds a new study by Cornell University, published in a recent edition of the prestigious US pay journal WorldatWork.

The research suggests that as internet companies grow, so do the development of monetary rewards. What’ s more, once a dot-com has floated, compensation systems begin to take on a very traditional form.

Author Mike Wanderer says: At a fundamental level, dot-comp in the post-IPO phase is merely the application of traditional compensation practices in the internet space .

But the rate of change in the industry, volatile performance of dot-com shares, transparency of pay and a fusion of industries make internet-style rewards something new .

Dot-com rewards similar to traditional compensation . . .

The Cornell survey found that dot-com reward packages had much in common with more traditional compensation:

  • Basic elements of compensation: The post-IPO compensation system for online employees is replete with short-term incentives, competitive base pay, stock options, benefits packages and performance rewards. Hardly unique. But as one US-based dot-com quoted in the report said: What’ s different is the mix of those components in the total rewards scheme, with the emphasis on equity being the most significant.

  • Competitive base pay: Employees in these dot-coms are no longer willing to sacrifice lower base pay in return for potentially lucrative stock options.

  • Internal equity: Post-IPO internet companies, like their more traditional counterparts, place a great deal of emphasis on ensuring that their pay levels are internally consistent.

. . . but also unique

Although the underlying components of internet-style rewards do not appear to be new , the survey uncovered elements of internet packages that do make dot-comp unique .

  • Fusion of industries : While the compensation tools are not vastly different from what we have seen before, the diverse nature of the workforces employed by online business is extreme . This employee diversity may drive a need for greater flexibility. What works for one group in terms of programmes and communications may not be effective with another, says Wanderer.

  • Pace of change : In a rapidly-changing industry, finding good, timely market pay data is fraught with difficulties.

  • Top performer treatment for all employees : Traditionally, stock options are reserved for senior managers. In dot-coms, they are seen as an entitlement.

Four phases in evolution of internet pay . . .

1. Start-up phase

Base pay well below market equity primary means of attracting talent.

2. Developmental phase

Equity still main compensation focus limited salary increases but not market-level cash.

3. IPO launch

Market pay levels needed to retain proven employees.

4. Post-IPO

Upon going public, competitive/market-driven base pay internal equity principle more of an issue stock options still required regardless of pay level communicating values of options crucial.

Source: Dot-comp: a ‘ traditional’ pay plan with a cutting edge , by Mike Wanderer, WorldatWork Journal, fourth quarter 2000.

A final word

The general consensus is that the company’ s technology and market position is key to attracting and retaining talent. What sets dot-coms apart from their competition, and is thus strategic, is the ‘ cool stuff’ people get to work on. Employees want to work on state of the art technology for market leaders while their stock yields substantial returns.

Mike Wanderer, WorldatWork Journal, fourth quarter 2000.

Want to know more?

Title: Dot-comp: a ‘ traditional’ pay plan with a cutting edge , by Mike Wanderer, WorldatWork Journal, fourth quarter 2000.

Methodology: A Cornell university graduate course conducted a series of interviews with 15 post-IPO internet companies.

Availability: Contact WorldatWork, 14040 N. Northsight Blvd, Scottsdale, Arizona, USA AZ 85260, tel: 001 480 951 9191 or email worldatworkjournal@worldatwork.org.

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