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Pay Cuts for Shares

In a move that echoes the dotcom boom and bust; new research has revealed that candidates are willing to take a pay cut in exchange for shares when joining web 2.0 companies, Tim Hoang reports.

UK IT staffing company, ReThink Recruitment has released figures this week which reveal that three quarters of IT candidates joining dotcom start-ups have sacrificed up to a third of their salary in exchange for shares in the company.

According to ReThink Recruitment, a recent example of this was a contractor who worked at a start-up on £72,000 a year only to take a salary of £50,000 with the options worth over £20,000 in order to become a permanent member of staff.

This is in contrast with the situation only two years ago when only one in ten IT employees would take shares as an incentive in lieu to join these companies and also bucks the trend in the IT industry where more and more staff are becoming freelancers.

Nathan Callaghan, sales manager of ReThink Recruitment cited the regularity in which blue chip companies restructure their organisation as one of the main factors in this development.

"IT companies now regularly reorganise and restructure their workforce, so candidates don’t really see start-ups as that much more risky than blue chips," he said.

The move is reminiscent of the dotcom boom and bust where companies with potential for growth offered similar incentives and is a sign that with the recent acquisitions and investments in social media start-ups in particular, shares in web 2.0 companies are much more saleable.

Miriam Lahage, chief executive officer of online retailer koodos believes the prospect of more responsibilities is a major factor for potential employees looking at start up companies.

"I think that there are the financial benefits and the career benefits and the intangibles. The standard financial package at a start-up is never going to measure up to big corporate world.  However, people often put in what they get out.  All employees at koodos participate in the stock option scheme.  People are working to create a business that they will add value to and then collect value from."

"Often start-ups attract smart talent quite young in their career and expose them to all aspects of the business. They are in situations where they learn to balance risk/reward and leverage existing assets and resources to best ability. If they were in similar jobs in big companies they would never get that kind of exposure to the big issues of business."

However, Charles Wasdell, marketing manager of moveme.com believes that the findings are questionable as the reason contracted staff take a reduced salary when they become permanent is a purely business decision.

"In the majority of cases we hire contract workers whether in marketing or tech on a project basis and based on delivery of these projects we will then make these staff permanent.  Clearly we are not going to pay people based on their contract rates so we work out what they would have taken home after fees and then offer them less because they have a permanent job. We also offer share options because individuals are more motivated and it reduces the out going cash outlay for the business and therefore increases the runway from funding."