Compensation for Interim Executives Part 1
One of the most frequently asked questions at the beginning, middle, and end of client conversations is around compensation.
There are more options than you may have imagined for structuring the scope and compensation for the interim executive’s work assignment.
Compensating for Value: More Ways than One Way to Compensate an Interim Executive
Executive compensation has traditionally been either a mystery or a contentious subject since there are so many options for compensating executives. Similarly, there are several options for compensating interim executives to best fit the company, situation, and the executive.
To help get your creative juices flowing, we’ll provide insights into some of the more basic compensation structures, including more novel ways we’ve seen companies reach agreements with interim executives that are agreeable for all.
Most interim contracts are based on a straight rate, whether it is hourly, daily, weekly, or a monthly retainer. The interim executive is simply paid for time spent working on the assignment based on a simple agreed-upon rate.
Contracts based on project rates are common for predictable work that has a beginning and an end, such as an initial assessment, audit, creation of policies and manuals, or certain types of marketing projects. You typically know the total cost of the project up front, exactly what is involved, what the executive will do, and specific deliverables. Payment is broken up into a percentage up front, followed by remaining percentages based on time or deliverables.
Such arrangements are appropriate for predictable work with a well-defined scope for types of projects the executive has completed before. This structure can also be used in cases which a company has a very tight budget, the executive has schedule flexibility, really wants to help the company, and is willing to work for a set fee, knowing it’s extremely likely the assignment will require more time than usual to accomplish specified deliverables (thus reducing the effective hourly rate). We typically see this when the executive already knows the company, is doing a referral source a favor, or is looking to get a relationship established and wants an opportunity to demonstrate the potential impact he or she can make. This is usually a small project within a very defined scope.
This is where creativity really shows and situational circumstances prevail. At Cerius, we have seen several examples of this type of compensation structure over the years. Performance-based compensation will always involve some type of minimum base plus additional compensation tied to some metrics or event achieved. Here are examples we have come across:
To see the examples, come back tomorrow to read part 2.