It's Not the Principle, It's the Money

Despite downturns, e-commerce companies plan to reward best workers

January 24, 2001 -- So you're burned out on the torrent of financial news so depressing that it would make Mr. Rogers run for the Prozac,  and you want some good news to perk up your week. Well, we're here for you. How about news that Internet and e-commerce companies plan average salary increases of between 7.7 percent and 9.7 for their best workers? According to a recent study conducted by Watson Wyatt Worldwide, that's what the take-home forecast is for 2001. By comparison, average salary increases in general industry for 2001 are projected to be 4.4 percent and 5.7 percent for technology businesses.

Internet and e-commerce companies are playing to win in the competition for high-performing employees, in both up markets and down, by providing more flexible approaches to compensation, says Rick Beal, a senior strategic rewards consultant with Watson Wyatt in San Francisco and co-author of the study. We're seeing these companies be more responsive to market demands through aggressive use of stock-based compensation, traditional forms of cash compensation and non-monetary rewards.

While the bloom may be off the stock-based compensation rose, given the market's seemingly Teflon-coated slip downward, more than a few analysts are forecasting an upturn in the next six to 12 months, so stock options might be worth bragging about once again. And of course, cash and perks never go out of style.

According to the study, more than eight out of 10 Internet and e-commerce companies (84 percent) use stock as a form of compensation. This ranges from a high of 92 percent in Western states to a low of 74 percent for those in the Central states. Among those that use stock as a form of compensation, 94 percent offer stock options, 33 percent offer employee stock purchase plans and 22 percent offer 401(k) or other savings plans with company stock.

In addition, Internet and e-commerce employers are providing new hire bonuses at all levels of their organizations, with bonuses more prevalent at higher job levels. While most organizations provide new hire bonuses in cash, more than 40 percent provide these bonuses in stock.

Internet and e-commerce companies have steadily increased their use of traditional forms of compensation while maintaining their equity emphasis, says Beal. Cash compensation is fully competitive with traditional employers for most positions. Even the typical entrepreneurial CEO pay gap that is offset by sizable equity opportunities continues to close as companies grow out of the start-up stage.

Additional highlights from the survey include:

· Between 17 percent and 35 percent of Internet and e-commerce companies conduct salary reviews more than once a year, with variation by job level.

· The most common form of incentive pay for senior executives is annual bonuses (85 percent), followed by spot awards (16 percent), key contributor retention awards (16 percent), and cash profit sharing (13 percent).

· The average base salary for CEOs in e-commerce is $223,000; it's $150,000 for a vice president of human resources.

The study, Raising the Bar: Internet and e-Commerce Compensation Practices, is based on survey responses from 107 organizations involved in e-commerce  those organizations involved with the direct distribution, sale or exchange of business through the Internet  and supplemented by proxy statements of more than 100 organizations. The report is available for purchase at: .