The Blog

The need to attract and retain talented management and professionals is both greater and more challenging than ever. Given this increasingly competitive environment, many privately held companies are reconsidering the effectiveness of existing key person compensation and benefits programs. They are asking, “Do they really have any impact on the performance of the business?”  

The answer is often no. That’s where Executive Benefit Solutions comes in. Delivering the full force of our experience and dynamic solutions, EBS works with privately held companies to better align the interests of key employees and shareholders through value sharing arrangements that can directly impact the bottom line. 

The Potential of Performance-Based Compensation

A thoughtful, curated performance-based compensation package presents several opportunities for a more effective organization and workforce. 

The shareholders of many of the privately held businesses with which we work are interested in adding performance and retention incentives to the key person compensation and benefits package to: 

• Better align the interests of key employees with those of the shareholders 
• Provide an opportunity for key employees to share in the future growth and appreciation of the business 
• Distinguish the key person compensation and benefits package from competitors and make the company the employer of choice in the industry 

Fundamental Principles of Plan Design

At every step in the process of designing a holistic plan, EBS relies on the best practices below to convey exceptional results

• Completion of a competitive assessment:
  • What are peers in the industry offering?
• Alignment of key employee and shareholder interests:
  • How are the company’s strategic goals reflected in the compensation packages?
• Creation of a balanced total rewards package:
  • Fixed versus variable pay
  • Short-term versus long-term incentives
  • Cash versus equity (or phantom equity) awards
  • Individual versus group (company / division) performance
• Direct line of sight:
  • Keeping a pulse on the company performance informs any adjustments needed for executive compensation.
• Compensation linked to Metrics:
  • What KPIs can key employees control? Do these data points best reflect the promise of profitable growth?
• Creation of a performance culture:
  • A company-wide ethos driven by superior achievements can be unlocked by the combination of the potential for above market compensation and the at-risk nature of those rewards.
• Preparation for Potential Sale of Business:
  • With respect to those companies with a sale in the foreseeable future, there must also be a balance between incentives for ongoing operations and incentives related to the sale.

Partnering with EBS

As with all our clients, EBS cherishes our bond with privately held clients. Our promise of holistic support, paired with an appreciation for the nuances that make each company unique, enables custom, rather than cookie cutter, solutions.

Given that nimble approach in curating plans for each client, it’d be a challenging task to distill what we deliver into a simple list. That said, many of our clients have incorporated the plan elements listed below to achieve their specific aims.

• Phantom Equity:
  • Align the interests of key employees and shareholders both with respect to short / mid-term financial goals and, possibly, a longer-term interest in the sale of the business by providing the key employees a share of the future growth and appreciation of the business they help create.
• Bonus Pools:
  • Create a special incentive arrangement for key employees using an “Economic Value Added” approach with a bonus pool based on operating income in excess of an opportunity cost of money. This design utilizes the theory that the key employees are only adding value to the extent that the return to the shareholders is in excess of the amount they could earn on a conservative diversified portfolio.

Whether suggested by EBS or clients, the wide array of elements of our compensation packages are carefully evaluated before being incorporated.

Final Thoughts

Our review of the potential of performance-based compensation, the fundamentals of plan design and some of the elements clients have utilized in addressing their specific aims ultimately leads to one key takeaway: when it comes to corporate preparedness, the time to act is always now. 

In your own company’s battle for talent and profitable growth, whether our shared guidance and experience validate the course already taken or lead to critical changes and redirection, EBS is poised to evaluate your unique situation to position your firm for today’s challenges and tomorrow’s possibilities.