Here's a small-company nightmare, circa 1999: Your CFO, marketing director, and information-technology specialist leave en masse to start Herestrouble.com, an irreverent new Web business. How are you going to replace them in a job market where the unemployment rate is 4.3%? You can't afford an executive search, which usually costs about one-third an employee's annual salary. Sure, a listing on an Internet jobs service can run as little as $500. But how do you know who you're getting?

In search of answers to these not-so-hypothetical dilemmas, Business Week Online's Jeremy Quittner spoke with Gary Knisely -- chairman of search and selection for TMP Worldwide Inc., a headhunting agency in New York -- about what it takes to find, hire, and keep top staff in a competitive market. We also asked about using Internet resources. TMP Worldwide operates the jobs site Monster Board, which has a database of 850,000 résumés and had about 28,000 companies post ads for job openings in the past year. Here's an edited transcript of their conversation:

Q: The perennial problem for small business is finding qualified employees and keeping them. What trends are you seeing for compensation packages for midlevel executives?
A: It is amazing. Even small companies today are paying sign-on bonuses. The large companies and the small ones have to give someone an inducement to stay or to come on board. And we are seeing equity at levels which we have never seen, contracts at levels that we have never seen. The idea of a contract for someone making $150,000 10 years ago was very rare. Now, it is de rigueur for even small companies to do that.

Q: What kind of equity offers are you seeing?
A: If you are looking for a CEO, it could be 5% for a fairly good-size company. If it is a smaller company...maybe you are going to give up control. Ten years ago, you would not see equity for an IT person. But now, you are going to give it for a senior person, because it is so critical to the company and the skills are in such short supply. The other things -- and we'll stay away from the soft stuff like "treat them well," which tends to be the most important thing, anyway -- are bonuses that are paid out in the future. These are some of the least sophisticated ways of keeping people.

Q: What are more sophisticated ways of keeping people?
A: Job content, love, and affection. In today's world, that is very important. If the job gets too tough, someone else will give them equity. The problem with the equity and the bonus game is that anyone can do it. Love is harder.

Q: Are small businesses having to behave like large corporations to attract midlevel executives?
A: No. I believe more and more people are interested in working for small companies. They see they have a chance of having really big equity appreciation. And I think many of the business schools are graduating entrepreneurs. So I think the smaller company has an advantage in attracting people and keeping people. The companies that are really retention-challenged are the larger companies: They have got to start thinking and acting like small companies in order to keep these people productive and interested and turned on.

Q: What is the average small-business offering a CFO, a marketing director, or an IT specialist? How might those compensation packages differ?
A: Our clients...tend to be in a national compensation, competitive envelope. I think there are some companies that really want local people. You can get very fine CFOs for a small company for $80,000 to $100,000. In New York, if you are a 20-person Internet company -- and you want a CFO who is going to be able to take you close to being an IPO -- you'll be lucky if you can get him for $150,000, and you will have to give up a big piece of your company.

Most good marketing basics are taught in big companies. Those companies will be bringing these people in off the MBA campuses, and they start out at $50,000 to $60,000. You might be able to get them on [that] basis, but you will have to give them...equity or a bonus.

A LAN administrator -- you can get those for $40,000 to $50,000. The head of IT for a sophisticated company -- we do those at $400,000. You get into a smaller company, and some of the [high-tech hiring] problems are just as severe. Yet it is not very challenging for someone coming in. That is where you get into outsourcing. You cannot afford to own the talent that will get you from being small to being medium size, so what you do is go out and rent them.

Q: What do you mean by national vs. local?
A: If you want a top consumer marketing specialist or a top IT person -- because it is mission-critical -- you have to do a national search and pay national rates. The big companies, because they are somewhat bureaucratic, pay within the same envelope. A small company has a lot more flexibility: They can make those fine distinctions, as opposed to...overpaying for some jobs that you can get locally cheap and underpaying for the critical ones. Pay appropriately for the ones that can be sourced locally -- [and then] use that money to get the people who are really mission-critical.

Q: What about trade-offs? Someone might choose Denver for less money because it is a great location.
A: If you can use [your location] to your advantage, fine. [But] don't think you will bring someone from another place and pay them less because it is cheaper to live in Milwaukee than it is in New York.

Q: It sounds like Internet searches could be profoundly useful for small companies in the coming years. What was it they could not do before that they can do now on the Net?
A: [Employers] will be able to reach a national audience in absolutely the least expensive way. They can electronically narrow their field of choice. They are going to be able to select people with the particular skills that are relevant to what they are looking for, and they will be able to put more information on the Net than in advertisements. You then have to weed it down to the people you want to talk to. We are beginning to provide that service.

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