One of the hot topics in business today is executive or management compensation.  With Congress firmly convinced that businesses and their shareholders can't make wise decisions about how to compensate their people, a number of compensation reforms are being floated that have a common theme--government telling businesses how and when to compensate their employees.  In general, those advancing these reforms (some of the same people who made millions of dollars off the housing bust) are proposing to 1) increase the downside risk for executives through holding bonus and stock compensation until some period after retirement and employing clawbacks, which is essentially saying, "things didn't go as well as projected so give us back the bonus we gave you last year;" 2) careful consideration of the business risk associated with certain compensation strategies (telling the company whether its compensation program is appropriate), and 3) say on pay, which gives shareholders a nonbinding vote on executive compensation. 

From the executive's perspective, having a potentially significant portion of your earned compensation subject to the performance of your successor is definitely problematic, if not downright unfair.  Now you may be thinking that all these compensation reforms relate only to public companies that take money from the government (essentially you, the taxpayer).  Your small business doesn't have to worry about this.  I wouldn't be too sure about that.  Originally we thought only TARP-funded companies (the banks) would be subject to reforms; but now it appears that all public companies will be subjected to them and the only winners as far as I can see will be the executive compensation attorneys who get to bill a lot more hours.  Once the public companies are taken care of, private businesses are next in line.

There is one aspect of compensation that every entrepreneur should think about in the earliest stages of starting your company and that is the unintended consequences of how you compensate people.  If, for example, you pay for performance (bonus is based on number of sales, number of acquisitions, etc.), could you inadvertently be encouraging behavior that might jeopardize your company?  Recently a company that I'm familiar with had to fire its top salesperson because she had engaged in unethical conduct to close a sale that would have resulted in a sizeable bonus for her.  That conduct could have destroyed the reputation of the company with an important customer had it not been reported by a co-worker before the sale closed.  So, be careful that in wanting to reward top performers, you're not unintentionally encouraging them to break the rules to be successful.

Compensation is going to be an important topic of conversation for a long time to come.  You need to keep up with how things are going and make sure that you are compensating your people appropriately and fairly.