Introduction

During a private equity transaction, much of the focus and energy is put into the management equity incentive plan (MIP). The MIP typically involves the senior leadership team and direct reports and to some extent (though not universally) a broader cadre. Furthermore, the MIP is solely focused on the equity return that management can make through the lifecycle of private equity ownership. However, there are a whole raft of other remuneration issues which typically come sharply into focus through the transaction process of a private equity deal, be it a ‘take private’, IPO, strategic deal or primary/secondary transaction.

Over the last eighteen months, since launching Remuneration Advisory Services, we have seen much activity in the above mentioned areas but the most regularly occurring themes have been public to private transactions, long term incentive design (both Value Creation Plan and Rolling annual grant constructs), corporate transaction incentives (sell side and buy side) and benchmarking. These areas all bring different challenges but one recurring theme has appeared in take private situations; how to replace broad based PLC employee equity schemes, particularly in the tech and healthcare sectors so that future exit valuations are not unduly affected by the multiplier effect on EBITDA.

Combining a ‘top down’ perspective with a more traditional ‘bottom up’ approach when advising on these areas helps management teams in ensuring an optimal solution is reached for PE backed companies. This top down approach should be deeply rooted in financial and modelling skills and coupled with an understanding of the impact of payroll cost on organization value and equity incentive plan value.

To enhance this approach, Jamieson has developed extensive benchmark datasets covering general remuneration, transaction and retention bonuses and MIP economics. Working with advisors who have both depth and breadth of experience across a range of scenarios is essential when navigating some of the more nuanced arrangements.

 

Remuneration in Public to Private transactions

When companies are taken private, there are two main areas from a remuneration perspective where management advisors can help and add value. The first relates to the treatment of existing plc equity incentive plans on a change of control. The other area concerns the handling of employees who were in plc equity schemes such as all employee option plans, but are not to be included in the new Management Incentive Plan.

Remuneration committees will typically wrestle with increasingly complex questions surrounding accelerated vesting and make judgement calls on how much performance conditions have been satisfied. It is crucial therefore to appoint objective advisors with experience in dealing with remuneration committees and an in-depth understanding of many prior processes.

Advisors should have deep expertise and experience in designing cash long term incentive plans for the wider employee population including how to deal with issues related to the cost impact on reported EBITDA.

 

IPO Remuneration

The IPO process provides particular challenges for management remuneration packages which must be navigated carefully. Once a company is listed on the main public market, it will be subject to corporate governance constraints and investor pressures on remuneration which it will not have experienced whilst in the privately owned sector. It is essential for a smooth IPO that remuneration is actively considered during the process. Remuneration advisors can facilitate this process by:

• carrying out benchmarking
• providing an overview of the investor landscape, regulations and corporate governance
• designing a future senior executive remuneration approach
• working with the board to agree a final design and remuneration policy
• drafting appropriate wording for the prospectus and ensure the company is properly prepared for its first AGM post listing

 

 

Incentive Design

Corporate transaction incentives

Jamieson are leaders in structuring and benchmarking management incentive arrangements, in either a corporate transaction or private equity situation, with an extensive proprietary remuneration and transaction incentive database exclusively comprised of privately owned and private equity based companies.

We advise both sell side and buy side corporates on the quantum and structure of transaction and retention bonuses, including deferral and rollover provisions. We also help corporate buyers with the design and quantum of the ongoing remuneration package in both a private and publicly owned environment.

 

Cash and equity long term incentives

We work with companies to design appropriate long-term incentives (cash based or equity based), covering amongst other things plan structure, quantum, performance period, performance measures, eligibility and accounting cost. We also provide detailed modelling showing participant payout, and cost impact. There are a multitude of different design options but two core designs are Value Creation Plans and Rolling annual grants with multi-year performance measures.

We have a comprehensive proprietary database of long term incentive data particularly on value creation plans, which includes hurdle levels, share of value created over hurdle, allocation levels and share of total value created.

 

 

 

 

Remuneration Benchmarking

In addition to the incentive database mentioned above, Jamieson has a proprietary remuneration database comprising over 200 privately owned companies covering the following sectors – Business Services, Industrials, Consumer, Healthcare, TMT, Financial Services and Infrastructure. Data are held for twelve discrete roles from the CEO down covering base salary, bonus paid, on-target bonus, bonus maximum, LTI awards, private health, pension and car allowance. We are therefore able to provide bespoke remuneration benchmarking on demand. This helps the management of PE backed businesses to positively position their overall remuneration package with the incoming sponsor at the commencement of the transaction process.

 

 

To learn more about Remuneration Advisory Services and how Jamieson can help, please contact Managing Director, Compensation Advisory, Tony Gilbert tgilbert@jamiesoncf.com