From Growth Story to AI Value Creation: Executive Compensation in Technology

Jake: In this season of Pearl Meyer Unscripted, we're looking at executive compensation through an industry lens. Our cohosts, Mark Rosen and Aalap Shah, are joined by several colleagues who specialize in different industries, including technology, healthcare, oil and gas, and more, to examine the aspects of compensation design that are unique to each.

Returning now to the technology sector, where the compensation landscape is being reshaped by AI, digital infrastructure investment, longer private company timelines, and a more segmented talent market.

Mark and Aalap are joined by managing director Steve Charlebois, who is based in Los Angeles. Steve has more than 20 years of executive and global compensation consulting experience, with a focus on technology companies and adjacent industries across all stages of the corporate lifecycle, from startups and pre- and post-IPO companies to later-stage, turnaround, SPAC, and Fortune 100 organizations.

Together, they discuss how technology has moved from a broad growth story to a more AI-driven value creation story and what that shift means for performance orientation, equity strategy, private versus public company dynamics, and the competition for high-demand talent. Let's listen in.

Mark: Steve, hey, thanks. Really appreciate you joining us today on Unscripted. Aalap and I are really excited to have you.

Steve: Thanks, Mark. Really excited to be here. I look forward to today's conversation.

Aalap: Yeah, Steve, I think it's going to be really eye-opening to go through some trends on what's happening in the technology sector.

Mark: Yeah, so let's just jump right in. Can you tell us, thematically, what's happening in tech today and how it might be different than it's been over the last five years?

Steve: Sure. I think, Mark, the big thing is, you know, if you look at the different lenses—so maybe start with the business lens and then talk a little bit about the talent lens and, obviously, the implication for us in the work that we do day to day.

The reality, from a business standpoint, is really that technology's gone from a growth story to an AI-driven value creation story. So, what does that mean? If you look at the last five years, most technology companies, depending on which vertical you're in, focused primarily on SaaS growth, cloud transformation—so going from on-prem to cloud—and digital transformation just generally. And then, obviously, a lot of companies across the different verticals were highly focused on the recurring revenue model and scaling that. Today, it's all about AI and the primary value creation being around the AI buildout. And the reality is there's just been significant winners and losers within that space.

Two is, think of the talent market, and you think of kind of the last five years, going back to probably pre-COVID, maybe a little bit post-COVID. Most technology companies were competing for relatively the same talent, both at the executive level and also at the engineering level—very similar profiles. Today, there are really distinct submarkets that are emerging, right? So, if you think of a small handful of companies like Anthropic, those that are really building the leading frontier models are competing really aggressively for AI researchers and developers. Then you think of other companies that are really focused on attracting AI product builders for building out their products going forward as their business and strategies evolve. And then, lastly, just workforce productivity. So, the entire workforce productivity dynamic is changing around the AI transformation.

What does that mean for us? It's really led to a bifurcation in the market in terms of consequences that companies are going through. It's very context specific. On one end of the market, you have the AI-competing companies and those that are in the digital infrastructure buildout that are having great performance. And then, on the other end of the market, you have the software companies that are really having to change their business models going forward and deal with depressed valuations. Depending on where you're at on that spectrum, it's really different than five years ago, where everything was kind of up and to the right, everybody moving in the same direction. My experience in today's markets is it's just a lot more bifurcated, a lot more segmented, and that just requires more specific thinking for companies.

Mark: Isn't it the same disruption that there's always been, though? I mean, a different kind of disruption, but again, it's still disruption, which has always been a factor always in this industry.

Steve: Correct. Shorter and shorter cycles, right? You think of the fintech cycle, the cryptocurrency cycle, kind of Web3, right? Again, different cycle. Even around COVID, all right, the platform companies like Instacart, et cetera, that went public at that time—dramatic cycle change in terms of where that talent was migrating to. So, yeah, you are right, Mark, just a different focus today. And I think the big thing that I see that's different is just hard dollars, right? A lot more capex at work in today's cycle than maybe we've seen in the past.

Aalap: And do you find that, with that, there's also significantly more sort of performance accountability that's flowing through when you think about the compensation programs?

Steve: Definitely, I think that, in terms of performance orientation, a lot of companies are moving away from just thinking about the traditional metrics, but more it's focused a lot on transformation today, right? And what are the metrics that are really going to drive value? So, if you think of the last five years, a lot of focus on growth, a lot of focus on metrics like ARR and subscription revenue growth, things like that. Now, the conversation is really around what's going to drive not only the income statement part of the equation but also the balance sheet. That's something that I'm seeing in a lot of the companies that we deal with—that, you know, things like economic profit, for example, are starting to come back on the table.

Aalap: Yeah, and something that I'm seeing as well on the private company side is that, when we're contemplating equity refreshes, more and more of those equity refreshes are having a portion be performance-vested rather than solely time. So, Steve, can you sort of just talk a little bit about what you're seeing that's happening differently in private markets versus public markets?

Steve: Sure. Just on that point of performance-based equity, definitely aligned with what you've seen also, Aalap, in terms of, over the last two or three years, just companies going deeper. Tech traditionally went from options to RSUs. Now you're starting to see more emphasis on performance-based equity further in the organization. So, that's a great callout.

In terms of the private market space, you know, not thinking about the different verticals but just generically, I think a couple of points come to mind. One is—and it's kind of the elephant in the room, right? —just time to liquidity is taking longer. If you look at, kind of, a founder starting a company to the time that they take it to IPO, traditionally it's been around 10 or 11 years. That has pushed to 12 or 13. And now, just in general, if you look at the number of companies that are in the private markets, I think I saw a stat the other day that it's more than within the public markets by multiples, right? And so, I think that's a real dynamic.

What has that led to? One, what I'm seeing in the private markets, at least late-stage private, is not a one-to-one trade-off, but cash compensation has materially caught up with public market cash compensation at the top of the house and even down further in the organization. That just goes to people aren't getting liquidity, so there's that pressure that's built within the system for more liquidity, more cash, and so that's working its way through the system.

Two, I think refresh strategies, which you talked about, are real, right? If you look at the private markets the last five years, you know, five years ago, someone would come in, they'd get a four-year grant, and then they wouldn't get a refresh probably until the time they went IPO. Now, because companies are private longer, we are seeing real refresh strategies emerge.

And then three is equity has really turned from a budgeting exercise, where we're trying to target a certain level of gross or net dilution, to an allocation exercise, right? Because there's so much pressure on the system, companies, specifically within the tech sector, are willing to differentiate, limit participation more so than they have been in the past, is what I'm seeing.

And then the last point I'd make on kind of private-public dynamics is, especially as you look at the software space, the depressed multiples in the public markets, those have not caught up to the private markets. A lot of the private companies that I work with, their multiples or their valuations have remained at a higher level because they're not doing financing. When that actually works its way through the system and those valuations potentially come down, I think you will see higher turnover and, obviously, a repricing that will need to happen in the private markets if valuations stay where they are.

Aalap: Yeah, I think that's definitely something that is coming across the board, but I agree with you. You know, as of right now, those private company valuations haven't fallen as dramatically as the public company. Your point on allocation, I think that's a really excellent point because this is something that I think the industry has been reticent to do in the past—really drive significant differentiation. Do you think there's going to be any fallout associated with that, or do you think that both the executive team and the broad-based team understand the necessity for it?

Steve: I definitely think that there'll be a recalibration of talent, right? I think that some of the talent that has historically migrated to, let's say, the Bay Area, where kind of everybody was peanut-buttering, giving everything to the entire population—I do think that you'll start to see a migration of talent potentially away in the middle. You think of, for example, the AI infrastructure space or AI space, you've kind of got a barbell, right? You've got those that are higher up on the stack that are developing those models, and then you've got the infrastructure people that are actually in demand. But in the middle—the SG&A, the normal engineering or eng population—I do think that you could see a migration away from the industry to other industries that may be willing to pay more than they have been historically. And so, that gap between technology and other industries, I think, may narrow as well.

Aalap: Right, and I'm so glad you touched on the sort of digital infrastructure space. That's something that we also covered in our oil and gas series. But I would love to hear your thoughts about what you're seeing, from the technology industry lens, about what's happening in the infrastructure space.

Steve: Sure. So, I mean, maybe just taking a step back, obviously, digital infrastructure—it's on an investment supercycle, right? And then I'll touch on this—and, Mark, you alluded to it—just the software and semiconductor space. How do you think about those three different profiles? From my perspective, what I'm seeing across the data centers, you know, fiber, power, connectivity, it's all about the build, right? So, the capability is there, but connecting it to the grid and having the workforce to do that and, obviously, build the hard infrastructure is really where the conversation is today.

So, what am I seeing across the space that I work with? We're actually getting pulled into companies that we historically wouldn't have worked with. So, if you think of—you alluded to it, Aalap—the energy space. I know that we have deep roots in construction and engineering, and we're just getting pulled into areas where those companies are asking, "Well, what are the hyperscalers paying? What are the hyperscalers' talent looking for?" Because they're trying to protect some of their people, or they're trying to attract as they think of building out those specific capabilities within their business. So, I do think, because of that build, we're just more connected to industries that we traditionally haven't been. And from a comp perspective, what we're finding the conversation around is just trying to get really accurate and good information around some of these hard-to-find roles, right? I think everybody that plays in that space in today's environment is in the same boat, in the sense that it's a fluid market, that market is still emerging, and so trying to get good information is proving to be a little bit difficult.

Aalap: Right, and I think, you know, the other point that I talk to clients about is that, yes, the talent's hard to come by, but also the talent isn't 100% proven yet to deliver on results. So, this is where you have to be careful in terms of chasing significant quantums of compensation and not have it be tied to some performance orientation.

Steve: Great point. I think that—and we talked about this earlier with Mark's comment on the different cycles, right?—you think of those different cycles and companies willing to, as you build in those newer cycles, bring in talent at a higher level and have less performance orientation. I think what we're seeing in the infrastructure space right now is, historically, for example, you look at the Bitcoin miners that have pivoted to the data center space, right? As they've made those pivots, you're starting to see more and more emphasis on performance-based equity and just equity constraints in general because the business models are changing—more capex-heavy, et cetera. So, I think that's a good point.

Mark: Hey, Steve, you talked a little bit about some of the hot areas, but can you talk a little bit more about how the talent conversation's evolving? What are the hot areas today, how are companies dealing with this disruption from AI, and how does it affect the talent?

Steve: Yeah, sure. I think a couple of things, Mark. So, as I talked about earlier, you know, talent has moved up the stack and down the stack. And so, what do I mean by that? Hot skills today are things like AI infrastructure engineering, obviously GPU architecture and AI systems engineering, AI product leadership. And then downstream, again, the same thing we just talked about this, the data center development and operations people, those types of roles.

In the more traditional businesses, the reality is they're really starting to look at this buy, build, reskill talent model. And what do I mean by that? Right. So, building either agents or new business models for the future, buying talent from the outside, or—really, most companies that I work with, I'm seeing a reskilling of the talent in place, right? Learning to work with AI from an operational standpoint. It's this build-buy-reskill kind of model that is emerging within technology.

And then lastly, as I mentioned before, just from a comp design program perspective, really looking at what are the leading indicators of performance that employees can actually tangibly affect as companies pivot is going to be important. And I know, Aalap, we've talked about this in other places. Really, the emergence of singular comp programs that are highly specialized in terms of driving either a cohort skill set, or cohort performance, or individual performance. I think the willingness in this industry to be very specific is something that's a positive. You don't see that in many other industries, and I think that, Mark, is again starting to emerge as well as part of this discussion.

Mark: I think that's something interesting you said that in other industries can learn from, and that is the reskilling. Because a lot of people are very afraid of this transition as it will apply to their own business, and recognizing that we all need to learn, we all need to think about how our jobs are going to evolve—including us in our business—and recognizing that the area that's moving the fastest is also thinking about those same issues, I think, is comforting.

Aalap: Yeah, most definitely. And I think it seems that, from what you've said, Steve, there's a lot of drive toward more differentiation, as you mentioned, sort of personalization as well. That level of experimentation that companies are willing to have sounds like it'll be a competitive advantage if they are a bit more creative about their compensation programs. Would you agree with that?

Steve: I agree with that. Yeah, fully.

Aalap: So, Steve, this has been wonderful. Really appreciate you spending some time with us to give us your views on what's happening in the sector. Thank you again.

Mark: Yeah, this is great.

Steve: Thank you both for having me. Look forward to the next discussion.

Aalap: All right, take care.

Jake: Our thanks to Steve for giving us such a clear picture of the recent shifts and dynamics shaping the technology sector. In our next episode, Will Cockle will join us to discuss how tech companies are no longer operating in a single compensation market and why boards should think differently about compensation strategy depending on which market they're operating in.

Until then, you can find all of our Unscripted episodes on Spotify, Apple Podcasts, pearlmeyer.com, or wherever you get your podcasts. Thanks, as always, for listening, and we'll meet you back here next week.