Dot-Com Compensation More than Options

Dot-com compensation used to mean lower pay with the promise of a payoff in stock options. But with a shortage of high-tech and business professionals, pre-IPO dot-coms are doling out top salaries and stock options, as well as a host of other benefits such as catered meals and massage therapy, according to a study by WetFeet.com and Hewitt Associates.

The “dot ComP 2000” survey, which is based on research done at 20 pre-IPO Internet companies in Silicon Valley and the San Francisco Bay Area, found that leading programmers at dot-coms are making near six-figure incomes. As for heads of sales, they are earning nearly $200,000 in total cash compensation per year. The survey also found that 94 percent of employees at dot-coms receive stock options or grants. Non-monetary compensation is also prevalent among the companies surveyed, with 70 percent offering flexible work schedules and 85 percent providing training benefits and personal services such as fitness programs and catered meals.

“Quick, effective hiring is always a necessity for high-growth companies, but our survey shows that dot-coms are beginning to realize that equal thought must be given to retention,” said Steve Pollock, president of WetFeet.com. “In today’s cut-throat environment, many dot-coms are balancing base pay, bonuses and stock with non-compensation incentives to ensure that employees stay before, during, and after the company goes public.”

Other findings of the study include:

  • Use of cash bonuses is not as widespread as commonly believed; only 17 percent of employees in non-sales positions received bonuses. However, sales positions are highly leveraged, with 78 percent of employees receiving bonuses or commissions.
  • The average voluntary turnover rate at dot-coms is 7.2 percent and the average involuntary turnover rate is 7.4 percent. This total turnover of 14.6 percent is higher than the 13.2 percent national rate predicted by the Bureau of Labor Statistics.
  • In comparing founder pay with non-founder pay, founder base pay is an average of 18.8 percent lower than non-founder base pay. At the same time, founders have an average of 11 percent higher company ownership.
  • 70 percent of companies offer at least one type of flexible work schedule (86 percent offer flex-hour workday schedules and 57 percent offer telecommuting).
  • While 85 percent of dot-coms offer training benefits, only 35 percent offer internal company-provided training courses.
  • 70 percent of companies give performance stock options grants.

Aggressive growth rates have made staffing a top priority among participating companies, which averaged a one-year employee growth rate of 85 percent during the last 12 months. To add to this challenge, the study found these same dot-coms are coping with a total annual turnover rate of 14.6 percent, which is dangerously high when 82 percent of employees have only been at their companies a year or less.

According to a survey by CareerPath.com, 95 percent of human resources professionals polled said they hire up to 25 percent of their new recruits from the Web. The CareerPath survey also found that recruiters use the Internet to find candidates with more than just entry-level experience. Almost half (46 percent) of HR professionals polled said they use the Web to look for middle management candidates and 25 percent indicated that they use it to fill all levels of jobs. The survey also found that 81 percent of HR professionals said the number one reason why employees leave a company is for a job offering better pay.

The “IT Market Compensation” study by Gartner Group, Inc., which on human capital within IT organizations, found that firms experiencing high rates of turnover have higher salary levels on average, suggesting that firms responding to turnover with pay have limited access.

Other findings from the Gartner survey include:

  • Lack of career development opportunities is cited as one of the most reported factors as to why employees leave, yet less than 50 percent have career paths and career development processes for their IT professionals.
  • The employee most likely to leave is 46 years old, and those employees with less than 24 months of employment have the highest turnover rate.
  • The length of recruitment time for the top 14 IT job titles ranges from 3 months to 4.4 months, with Database Administrator leading at 4.4 months.

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