Compensation in Dotcoms

The last three years have wit-nessed a boom in the Internetand new media businesses in India. Since 1997, the dotcom sector has rapidlyexpanded and now includes several major players that are committed to satisfyexpressed and latent customer needs over the Internet. However, the initialhoopla around Internet ventures has subsided a little over the last few monthswith Venture Capitalists (VCs) insisting on returns on their investment. Theoft-used phrase "all it needs is an idea" no longer holds true asdotcoms search for sustainable business models.

While revenue streams are no doubt the most integral part ofany business model, in order that a dotcom runs successfully, it has to ensurethat it gets the right people, in the right place, and at the right time. Theamount of "intellectual capital" that goes into building andsustaining a successful e-commerce business is enormous. Thus, dotcoms wouldhave to continue recruiting large numbers of people who are competent enough tocreate a synergy between state-of-the-art technology and traditional businessmodels. The demand for talent in this sector outstrips the supply, therefore,making attraction and retention strategies the core concern for most HRexecutives. The way dotcoms pay their employees is an integral part of such astrategy.

Before we look at the compensation scenario in dotcoms, wemust recognise the fact that most Internet ventures are still in their infancy.They do not have clearly defined organizational structures and role definitionsand, as a result, determination of compensation in most cases is ad-hoc andincumbent driven. Most dotcoms that have come about as offshoots of largercorporate houses have been found to employ the same compensation and benefitspractices as the parent. However, the dotcom has business objectives that aredifferent from its parent. It also faces a dissimilar business environment and,therefore, must necessarily have a different people strategy.

How Is It Structured?

Any good pay structure would include three basic components:

• Fixed pay

• Variable pay (including ESOP), and

• Benefits and perquisites

In most dotcoms, fixed pay is quite unstructured and thereare no definite allocations to traditional components of pay. Most dotcoms aremoving towards a flexible system where the employee can choose how much hewishes to allocate to which component of pay. Recent research conducted byHewitt Associates concluded that most of the dotcoms studied offered higherfixed pay as the bait for prospective employees. Only companies that wereconfident of their projected stock value offered lower fixed pay amounts. Due toa cash crunch, the prevalence of health and lifestyle benefits has taken a backseat to fixed pay.

Dotcoms, in general, do not grant stocks freely and acrossall grades. Several of them prefer stock options schemes that are aimed atspecific positions, i.e., those that are critical and strategically important.Dotcoms also view length of service as well as performance as qualifyingcriteria for the stock option plan. Where the dotcom has founder members, thelion’s share of equity goes to them. A critical part of any ESOP is thevesting plan. Most dotcoms in India have staggered vesting plans in which thestocks can be availed in lots. The market trend is to make a small percentageavailable to employee at frequent intervals.

The nature of benefits offered differs from organization toorganization. Some do not differentiate between levels of management, reflectinga true state of flatness in the organization. Benefits typically excluded fromlower levels of management are–company car and company accommodation,furnishings, business appliances, telephones, credit cards and club memberships.A paucity of funds means that subsidized loan programmes are also uncommon.However, benefits could also be function or role specific. For example,employees in lower management levels in the business development function couldbe provided with laptops and mobile phones.

A sizeable number of the dotcoms that were studied alsoreported having a cash bonus plan in place. In all cases, this payout isdirectly linked with performance. Performance, in the absence of formalPerformance Management Systems, is measured by the senior’s perception of thejunior’s contribution to the role that he is supposed to perform. For salespositions, most dotcoms are concentrating on sales incentives and the payout tothe salesperson is a function of the ad space sold. However, this trend islikely to change as dotcoms move from the "advertisement" model tomore sustainable business models. The split between fixed pay and variable paywas found to be between 70—30 and 60—40 in most cases.