Many of the defectors would be going to less well paid jobs that would demand longer hours and greater dedication, but there was always the promise of becoming a dot.com millionaire.
In the internet gold rush, short-term suffering offered the chance to become fabulously wealthy when the dot.com made its initial public offering.
It was an inspirational scenario, and for a time it seemed that nothing could go wrong.
But then things changed. Companies like Boo and Clickmango became better known for their failures than for their successes.
Even relatively successful firms like Lastminute.com saw the value of shareholder stock options collapse after the initial period of frenzied overvaluation following flotation.
But one of the lessons that has been learnt from the dot.com failures of recent months is the need for experienced business people, often drawn from old economy companies, to sit alongside the young blades that have so far been seen as the drivers of new economy firms.
Such people need some reason to leave their current jobs and take a punt on a dot.com, and the staple of stock options may no longer be enough.
‘It has been a sobering time over the past four months,’ said James Fulton, managing director at dot.com recruitment firm eLance.
‘For about a year before that there was dot.com mania throughout Europe, but there has been a sobering up in general. People are looking around a lot more carefully. They are being a lot more careful about accepting an invitation from a dot.com.
If a company is going to go bust in six months, then you probably shouldn’t go for it.
‘The staff need to have a fast, aggressive, can-do attitude,’ he continued.
‘They will have to work longer hours.
That has tended to mean a younger workforce which will be both more risk hungry and willing to work those longer hours. It’s probably more difficult for a 40-year-old to swap their higher salary for a stock options package and a lower salary.
‘They will have mortgages and kids to think about as well as themselves.’
According to a survey of 123 public internet companies by PricewaterhouseCoopers’ HR division Unifi Network, dot.com executives now want to see the colour of a company’s money rather than settling for promises of future wealth in the form of stock options.
Such options are still on offer to senior management, but hard cash incentives have increased 13 per cent year on year among the three categories of job which most dot.coms look to old economy companies to fill – chief executives, chief operating officers and chief financial officers.
Base salaries of respondents increased by nine per cent, but the largest increase was in cash bonuses which went up by 28 per cent.
Carl Weinberg, a principal at Unifi, said that the volatility of the stock market has made executives want a bigger guaranteed pay packet.
‘Executives are perceiving that there is greater risk to taking stock options and not as much upside. They want more money up front. There’s still tons of venture capitalist money in the sector, so there is an ability to pay,’ he said.
Pressure from shareholders has also contributed to the change, said Weinberg.
‘From the shareholder point of view, they’re more interested in controlling dilution. Also, they want to see real results and they’re willing to pay cash to get them,’ he said.
The survey also found that the way in which companies grant executives both stock options and cash is changing. Because of the instability of the market, many companies are granting options quarterly instead of annually.
Speidel noted that granting stock options periodically allows companies to average the strike prices over the year.
Many cash bonuses are now tied to more traditional business performance metrics than in the past year.
‘Previously, cash bonuses were often discretionary. Now, there is a greater emphasis on incentive pay and companies are using measurable metrics.
‘These could be revenue growth or earnings related, or tied to a milestone such as completion of infrastructure,’ said Weinberg.
Another finding is that internet companies are granting equity to employees more carefully. ‘Stock options are still being used but companies are being more selective.
They’re determining who are the high-potential employees and which are the true game-breaker positions – the ones where having an outstanding person as opposed to an average one will make a big difference,’ he said.
In the UK, there are clearly lessons to be learned from the US experience as more home grown companies consider flotation.
Services giant ICL is trying to position itself as an e-business and, as such, needs to ensure that it attracts and retains good people.
But the recent cancellation of its long-planned flotation has left a bitter aftertaste as the company’s 21,000 employees realise they will not reap the benefit of their promised stock options just yet.
Fiona Colquhoun, director of human resources at ICL, said: ‘I understand that people will review the direction of the business and decide what to do. We will have to look at other schemes and incentives to retain staff now that we cannot offer share options.’
But there are still those who believe that factors other than cash can still make a dotcom an attractive option.
Jason Kushner, co-founder of GlobalResident, said: ‘Salary and options are important but are not the only factor in an employee’s decision to leave a comfortable job. Dot.coms are still giving the opportunity for employees to learn and develop a new skills.
Leaving a job for a dot.com is certainly not without its risks, but in the overall context of a strong job market the downside is still very limited.’
And for those who are more financially driven there are still some big chances out there.
For example, the individual chosen to head up UK food giant Diageo’s business-to-business operation is in line for a package potentially worth a cool £30m based on a salary of £250,000 and a one per cent stake in the operation.
– Stuart Lauchlan and John Geralds write for vnunet.com, the leading IT news and information website
DOT.COM LEADERS VERSUS OLD SCHOOL TYPES
Those heading up dot.com companies are not all bright-young things, and most still prefer to wear suits to business meetings, according to research by KPMG Consulting.
It says that its new report, E-business Leaders Survey 2000, explodes the myth that all dot.com leaders are young, inexperienced and looking to make a fast buck while ploughing through venture capital handouts.
The survey, which covered 101 executives, found that:
- The average age of dot.com leaders is 38, while those in ‘traditional’ sectors are 46
- UK business leaders work very long hours – more than half of the those surveyed work more than 56 hours a week
- Dot.com leaders are less likely to have a degree than traditional leaders, but more likely to have had a private education
- The dream car of dot.com leaders is the Audi TT, while their traditional counterparts prefer a Jaguar XK8
- Dot.com leaders are happy with casual dressing in the office, but 88% of them still prefer to don suits for important business meetings
- Bill Gates is the most admired business leader of traditional respondents, while the dot.com leaders favourite was Richard Branson
- Only 12 per cent of dot.com leaders have their own PA, compared with half of traditional leaders
- Both groups use the internet on a regular basis, especially for gathering information, but dot.com leaders are more likely to make online purchases and bank online.
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