Compensation Evolves in New Economy

July 23, 2001 ( - As the new economy matures, tech companies are emulating their old economy peers in the methods used to enhance management team performance in turbulent times, a new survey finds.

The annual Internet Compensation Survey of 98 public Internet companies, by Unifi Network, a subsidiary of PricewaterhouseCoopers found that:

  • over 70% of the executives in the survey received an increase in total cash compensation over the previous year,
  • of the executives receiving annual bonuses, the median increase was 82% from last year.

In addition to their use as an incentive, bonuses are also used to retain employees, many of whom now hold underwater options, particularly when the implementation of a company-wide turnaround is necessary.

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Run Rates

Equity was still found to be a large part of executive compensation. In previous years, run rates, or the total number of options granted as a percentage of total shares outstanding, rose because options were used to attract talent.

Now, these rising run rates occur because of additional grants being made to compensate employees for underwater options. The value of executives? option holdings has declined substantially, but the number of those shares held has increased.

High Overhang

The industry’s high overhang, an indication of potential dilution of shares, is a result of many employees not being able to exercise options granted at strike prices significantly higher than the current value of the stock.

However, staff turnover and the re-pricing of underwater options in the last 12 months, has helped to control this overhang and refresh option pools through recovered canceled shares.

Other key findings include:

  • the use of equity at the board level increased over the past year,
  • the practice of offering a compensation package to board members comprising both cash and equity fell
  • salary increases were up a median of 17%