Case Study

Development of Improved Executive Compensation Plan for Privately Held Company

Industry

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Client Situation

A privately-held company had a complex equity compensation plan for executives that had been developed several years earlier in a very different economy; it was primarily designed by an employee who was no longer employed there. The plan was difficult to understand for participants and for the board. It was not clear whether the comp plan would actually deliver the intended results in the current economy. There was concern on the part of the owners that there be a proper balance between owner returns and employee incentives.

Solution

A E78 Partner led an evaluation and planning process that included a thorough review of the many documents and calculations associated with the plan. E78 made long-term projections to see the impact on the owners and on the plan participants under various economic conditions. Working with compensation consultants, attorneys and top management, several detailed recommendations were developed to improve the plan to meet all of its objectives.

Results

The equity compensation plan and stock grant agreements were amended and the documentation was re-written. Meetings were held with participants to explain the plan changes and solicit feedback, and presentations to the board were developed to submit the plan for approval. The end result was a new equity compensation plan that was appropriate to the industry’s economic conditions, and whose terms and impact could be clearly communicated and understood by all participants and board members.

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