Fatihah Ramzi, DigitalCFO Asia | 26 April 2022
Compensation is key in retaining existing talents in the finance teams.
Recruiting and keeping finance professionals to lead existing financial teams is a challenge that can frequently be solved with innovative compensation packages. While extremely attractive executives frequently have an entrepreneurial spirit, they may and should be compensated appropriately for their abilities and financial demands. There are real constraints to recruiting and retaining financial leaders who are accustomed to more generous compensation in any growing business. A corporation must be innovative in order to recruit and retain a committed, capable financial personnel.
A rising company is confronted with a double-edged sword. On the one hand, it aspires to recruit top-tier finance executives, many of whom come from well-known global corporations, professional service businesses, and academics. Limited resources, on the other hand, preclude top-tier salaries from being paid. With that said, here are five sorts of remuneration that companies can offer to their financial staff to increase productivity and keep them.
The granting of stock options is the most popular remuneration option utilized to recruit CEOs. Stock options provide executives with an equity position in the firm that is directly linked to the company’s performance. If the company does well, the shares underlying the options should rise in value. Early in their existence, emerging businesses should prepare a plan (including ISOs and non-qualified alternatives).
If a private firm is later bought, stock options might be quite valuable. Not only do they provide a way to “cash out,” but they can also be a good defensive tactic if inside management has enough beneficial ownership. Finally, if and when a company goes public, stock options are the major exit plan. Members of the early finance team may be given stock grants in the form of “founder’s shares” by some corporations. The financial statement implications as well as the tax implications of options or grants should be considered by the company.
Achievement Or Milestone Based Bonuses
Due to the erratic cash flows of emerging businesses, constitutionally promised annual bonuses are unusual. Because establishing “success” is difficult, discretionary bonuses are also irregular. In most cases, there is no consistent revenue stream to track, and costs are likely to rise, particularly in research & development. However, there are alternatives.
An employment contract can state that an executive and the company would agree on benchmarks to be met each and every year. The bonus amount will be determined by the accomplishment of such milestones. An R&D executive’s bonus, for example, could be determined by the number of software advancements developed, samples built, or goods awaiting FDA approval. A financial team’s remuneration could be determined by the success of its business operations every quarter of the year. Increased gross margins, decreased net loss, or budgetary limitations could all be factors in a CFO’s bonus.
Golden Parachute Payments
All executives are concerned about what will happen to them if the company is sold or if a potential buyer with a different objective becomes the majority shareholder. To allay these fears, the corporation can provide change-in-control arrangements, which allow executives to receive golden parachute pay if they are fired or have their responsibilities reduced. Although these agreements are typically used to deter takeovers, they can also be used as compensation packages to ensure that executives will benefit from the “upside” if the firm is acquired — even if they are later sacked. Severance compensation, benefits, stock option vesting acceleration, and the granting of additional options are all common provisions.
It is possible that the raise will be a specific percentage based on the employee’s salary. Employees who receive an annual raise are better able to plan and budget for their monthly spending because they are able to keep up with the cost of living. Although there are numerous strategies to inspire and keep a company’s finest employees, raises can help build morale and ensure that long-term employees are compensated more than new hires. A pay raise is also a means of expressing gratitude and recognising your employees’ achievements. Top-performing employees are rewarded with raises in pay to encourage them to stay with the company and further their careers.
By offering dental benefits, companies are encouraging proper preventive and diagnostic care to their finance teams which shows them that the company does care for their well-being. With dental benefits, the number of serious dental issues can be reduced and since preventive visits often take less time than other services, finance employees can be back to the office in no time. With little to now down time, companies can always expect high productivity rates as most employees will be present. Dental benefits help to convince financial employees that they are valued which will make them want to stay longer with the company.
All in all, compensation plays an important part in human resources because it influences many aspects of the company such as the relationship between employee and employer, talent attraction and retention, commitment, and the results achieved. If companies want to save costs and retain their current employees in the finance teams, they must come up with good remuneration systems that will meet the employee’s needs as well as their objectives.