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6 trends in executive compensation

To get top talent, companies need to understand the market — and be ready to act quickly

Rodney Morris is senior vice president of The Elliot Group, and Catalina Ganis is executive vice president of The Elliot Group, a boutique retained executive search firm with expertise in the restaurant, hospitality, retail and service sectors. For more than thirty-five years, The Elliot Group has been globally recognized for its thought leadership and human capital knowledge. This article does not necessarily reflect the opinions of the editors or management.

In our role as executive search consultants, we are often asked to help define and strategize ideas regarding executive compensation for our clients and their companies. Every company and situation is different, and there are a multitude of approaches for the long-term success of a company. Our firm has partnered with public, private, private-equity backed and family-funded companies for their human capital needs at the executive and management level, giving us perspective on a wide variety of situations.

Here’s a look at a few of the top trends we’ve observed in the market.

Hiring decisions are happening more quickly. With unemployment continuing to hover at historic lows, expect the market for accomplished executives to remain tight. When a company finds the right candidate, we encourage quick action to secure their employment. Companies today are swifter to make leadership hiring decisions when they feel they have identified the executive best suited to their culture and needs. Given the competitive landscape, companies don’t want to lose out on unique talent.

Private equity is playing an important role. The lure of private equity investment in the restaurant industry continues at an unprecedented pace, and these investments can bring new and exciting long-term incentives for the executive.

Understanding the value of equity granted within a public company is fairly straight forward. But for private equity backed equity grants, the estimated value of the grant is built on a forward-looking growth model, with the executives betting on themselves, their ability to impact the upward growth trajectory and profitability of the company but also the willingness of the sponsor to invest more dollars into the company to move it forward.

As private equity has been active in the restaurant sector for more than 25 years now, executives have become more savvy about not only how to work with these investors but also how to estimate the wealth-building opportunity.

In addition, some private equity groups have been inviting select executives to invest their own money, letting them buy in at an attractive rate. This sometimes increases the potential return, based on the future success of the company.

It’s important to remember that not every executive is wired for work in the fast-paced, nimble world of early stage private-equity backed companies, and may instead prefer the known aspects of a mature business.

Rules around salary history disclosure are fast-evolving. With today’s increasingly complex salary laws, many states no longer allow the company, or any representative of the company, to ask about salary history, though they can inquire about a candidate’s compensation expectations. As a result, if a candidate's expectations are beyond position parameters, they are not in consideration.

Going forward, we anticipate that many states will continue to refine and become more active in employment laws and policies. This is a practice that many welcome as a benchmark and better foundation from which to craft longer-term policies and procedures. 

Well-crafted packages are essential to get and keep top talent. We counsel our clients at every stage of growth as to how to best construct compensation programs and advise them on compensation packages to attract and retain the right executive to their organization. Hiring the right executive starts with a establishing a fair and competitive base salary and annual target bonus plan specific to their local market and the opportunity at hand. Two recognized industry sources for compensation surveys and benchmarks are The People Report/TDn2K and the Chain Restaurant Total Rewards Association.

Executives are thinking beyond financial compensation. In our relationships with executives, we’ve come to see that compelling offers also are sensitive to an executive’s personal situation and life decisions. Whether it is caring for a parent, relocation or finding the right school for a child, executives have become much more vocal in the need to weigh personal considerations as much as financial ones.

Long-term incentives are a key driver in executive retention. Aligning incentives to company performance ensures executives are focused on not only short-term, but also the long-term success of the company. But these plans are as diverse as our clients. Types of equity may include cash plans, stock options (incentive or nonqualified), restricted stock units, phantom stock, profits interest, stock appreciation rights, and even employee stock purchase plans. Work with your company’s labor employment attorney and company sponsor to develop your equity philosophy, gain board or shareholder approval for the plan, then finalize the documents for distribution. These types of plans remain a key driver in an executive’s decision to stay in a role or consider a new opportunity. While not every organization has equity at its disposal, many have the flexibility to develop incentive plans that are just as competitive and exciting.

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