When Stock Options Aren't An Option

One way that publicly traded firms attract and retain talented executives is to offer deferred compensation in the form of stock options -- which gives them a recruiting advantage over privately held firms. But an idea developed by Thomas McCoy, a consultant and incentive compensation specialist, promises to put private companies on more equal footing. Known as "LeaderShare," the program links long-term compensation to increases in the intrinsic economic value of the organization. It is keyed to both short-term and long-term company performance. "This system rewards executives who can successfully manage the dynamic tension between short-term profitability and long-term growth," says McCoy, who heads T.J. McCoy & Associates, Kansas City. "It discourages hidden agendas and motivates executives to act as a team in the best interest of the organization." The dual focus is important, he stresses, because many current incentive plans create conflicts. "Bonus plans tend to force short-term decisions, [while] long-term equity incentives can become disconnected from company performance," McCoy says. "A reward system should link today's results and tomorrow's continuous improvement."