Rewarding Key Employees for Driving Corporate Growth: Long-Term Incentives for Private Employers

Transcription

1 Rewarding Key Employees for Driving Corporate Growth: Long-Term Incentives for Private Employers Stephen D. Mann, Area Senior VP, Arthur J.Gallagher & Co Rob Ivy, Chief Financial Officer, Lee Company

2 Why we started the project Overall tightening of labor market felt even more significantly amongst highly skilled executive talent Nashville area is booming and several positions could be targeted by competitors Benchmarks identified potential issues with salary levels and short-term incentive levels Benchmarks identified that long-term incentives for these positions are critical part of overall compensation packages in the market Concern among corporate leadership that growth cannot happen as quickly as desired without retaining critical talent Corporate growth had outpaced executive comp 2

3 Looking backwards before moving forwards Old plan design was common for the time it was installed but had not been updated and was not structured to drive appropriate behaviors Compensation philosophy had never really been addressed, and needed to be discussed and validated with ownership and leadership Growth goals established by leadership warranted a more thorough conversation about rewards, retention and attraction New plan design needed to be flexible for eligibility, metrics, award amounts, vesting timelines and payment features 3

4 Benchmarking and Philosophy Create Energy to Re-work the Whole Thing If Salary and Short-Term are not right, then Long-Term will not be right It is appropriate for Short-Term metrics and Long-Term metrics to be similar but different Steps to success: How much at-risk compensation is appropriate? What is the budget that can be allocated to the program (assuming the metrics are achieved)? What is the proper vesting schedule for your team? 4

5 Compensation Benchmarking Median 75th Two data sets received Market Median considered appropriate for a fully experienced employee who is performing well and meeting expectations. Market 75 th Percentile - normally reserved for experienced employees who frequently and consistently exceed expectations (i.e. franchise players). Above 75 th Percentile typically reserved for individuals who are exceptional performers and who have extensive experience in the role (at current company or previous companies). Note that market values by nature reflect career experience in the role, not tenure at a specific company. However, as a retention strategy organizations often choose to continue to increase employee pay beyond market to reward longevity / tenure. 5

6 Applying Market Benchmarks to our Team Each participant (Executives & HIPOs) were evaluated and given a ranking based on the following criteria: ASSUMPTIONS Calculus: External Value Internal Value High Medium Low A 100% of 75th Percentile B 90% of 75th Percentile High A B C C 100% of Median Medium B C D D 90% of Median Low C D E E 80% of Median Notes: External Value = how valuable would this person be to other companies? Likely to be approached with offers to leave? Internal Value = how critical is this person to our future success? How much pain would the company endure if he/she were to leave? 6

7 Summary of LTI Program Define the Metrics Common private company metrics are operating profit, net profit, EBITDA and Total Revenues Define the Growth Expectations Common issue of many private companies is designing a plan that shares a percentage of profit without expecting growth to occur Define the Budget (Target, Minimum and Maximum) Determine the Eligible Group and Allocate the Budget at Target Define the Vesting Timeframe Determine the Distribution Options (409A or not?) 7

8 Thank You! 2850 Golf Road Rolling Meadows, IL USA

9 Disclosures This material was created to provide accurate and reliable information on the subjects covered, but should not be regarded as a complete analysis of these subjects. It is not intended to provide specific legal, tax or other professional advice. The services of an appropriate professional should be sought regarding your individual situation. Consulting and insurance brokerage services to be provided by Gallagher Benefit Services, Inc. and/or its affiliate Gallagher Benefit Services (Canada) Group Inc. Gallagher Benefit Services, Inc., a non-investment firm and subsidiary of Arthur J. Gallagher & Co., is a licensed insurance agency that does business in California as Gallagher Benefit Services of California Insurance Services and in Massachusetts as Gallagher Benefit Insurance Services. Investment advisory services and corresponding named fiduciary services may be offered through Gallagher Fiduciary Advisors, LLC, a Registered Investment Adviser. Gallagher Fiduciary Advisors, LLC is a single-member, limited-liability company, with Gallagher Benefit Services, Inc. as its single member. Certain appropriately licensed individuals of Arthur J. Gallagher & Co. subsidiaries or affiliates, excluding Gallagher Fiduciary Advisors, LLC, offer securities through Kestra Investment Services (Kestra IS), member FINRA/SIPC and or investment advisory services through Kestra Advisory Services (Kestra AS), an affiliate of Kestra IS. Neither Kestra IS nor Kestra AS is affiliated with Arthur J. Gallagher & Co., Gallagher Benefit Services, Inc. or Gallagher Fiduciary Advisors, LLC. Neither Kestra AS, Kestra IS, Arthur J. Gallagher & Co., nor their affiliates provide accounting, legal, or tax advice. Kestra LCN(283521) Exp(5/2019) 9