Executive Compensation Issues in Private Companies
Executive Compensation Issues in Private
Corporate Fuel provides leadership recruitment services, and to support these activities, we subscribe to compensation data for middle market businesses. We know that in many closely held businesses, there may not be a formal executive compensation plan or ready access to compensation best practices. Here are a few of the ways we have recently provided company owners with specific executive compensation guidance and related organizational advisory services.
Senior Team Re-Configuring
Senior Team Re-Configuring
The CEO of an infrastructure industry client had determined he now wanted to focus exclusively on the strategic issues of his role and step back from operating responsibilities by elevating his designated successor to the role of President. At the same time, the CEO sought to create a wider succession bench by re-framing the roles of his international and domestic business leaders. With current industry-specific compensation data on private companies of similar size, we were able to help redefine and align the position descriptions for the four roles, as well as benchmark all elements of the executive compensation packages for each. The new compensation arrangements clearly defined and aligned the ongoing and future interests of the senior managers with the business, adding performance-based incentives, and the corresponding accountability that is key to driving accelerated business growth.
Creating Senior Team Equity Incentives
A public affairs professional services firm wanted to share equity with a new senior partner joining the organization and, at the same time, create an equity incentive for high potential mid-level team members. After reviewing a number of different equity vehicles that we outlined, the limited liability company leadership decided to use Profits Interests, which are similar to stock options, where individuals are granted options or Profits Interests subject to vesting provisions. A holder of profits interests avoids the costs of member interest ownership and remains an employee and not an owner for the purposes of income tax filings. Provisions usually require the holder of profits interests to remain with the firm in order to receive any benefit, serving as an important retention tool. We provided a business valuation for this purpose and developed the Profits Interests program, which was successfully implemented to address two different levels of participation keyed to the partner and team member roles.
Executive Compensation Advice During M&A Project
While completing an M&A project advising a corporate education company on their sale to a private capital firm, we were asked by the CEO of the acquired company for guidance on establishing the financial parameters of his new compensation agreement with the new owners, as he wanted to continue to lead and grow the business for an additional time. Using our detailed and current industry data for private middle market businesses, we were able to immediately provide ranges for all CEO compensation components by industry, company
revenue, organization size, ownership type, geography, and market size. Our client determined what he could reasonably expect in his new compensation arrangements and was able to confidentially secure the market-based package he sought.
Executive Recruiting Compensation Planning
The CEO of a corporate transportation services company was reviewing multiple strategic alternatives for the future of the business. In one scenario, he would need to add a highly qualified CFO to the organization to assist with significant future growth opportunities. As part of the process, he wanted to budget adequately for a competitive compensation package to attract and retain a strong financial professional. Knowing of our extensive experience recruiting CFOs and other senior executives for our advisory clients, he knew we could help in developing a budget based on a market-rate compensation package for a CFO in the corporate transportation industry in the Northeast. He hasn’t moved on the recruiting decision yet, but clearly knows how he will proceed when the time is right.
More recent news
Strong M&A Market Despite Appearance of Some Economic Headwinds - Still a Good Time to Consider Selling a Business
M&A activity in North America continues at a robust pace this year with $849 billion of closed transactions for 4,754 deals in the first half of 2019. The post-recession trend of strategic and private equity sponsored activity continues at a strong pace for large and small deals alike, as shown in the chart below. If currently announced deals close this year, M&A activity will again cross the $2 trillion threshold in 2019 for the fifth consecutive year. While total dollar volume is skewed by a number of mega mergers, such as United Technologies $90 billion acquisition of Raytheon, the median size of all transactions over the past 5 years is less than $100 million, an important consideration for middle market companies as they assess M&A market conditions for their business.
Recruiting Private Company Board Members
Posted May 14, 2019
A belated happy new year to you.
In 2018 we advised some forty companies on a variety of M&A and corporate finance projects. Among them were five important transactions...
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