Compensating Operators....

August 31, 2022

by a searcher from The University of North Carolina at Chapel Hill - Kenan-Flagler Business School in Austin, TX, USA

I'm looking for some insight from other acquirers that have rolled up businesses. How did you compensate the operator, if you had one? Was it all equity in each new biz rolled up or a mix of cash and equity? How did you get to that decision? What did you factor into the decision?

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Reply by a searcher
from Central State University in Atlanta, GA, USA

Don't be so quick to throw people equity. You may just end of giving equity to a person that turns out to be a real jerk. Now you're stuck with them because they're a equity owner.

Instead, offer fair market value in terms of salary and tie bonus compensation to performance metrics. How often to offer the bonus? Whenever you'd like. If they've hitting goals every week, give a bonus every week, etc....be flexible.

Do NFL quarterbacks get equity in the team for winning the Super Bowl? No. They do get a bonus tho.....

I'm amazed at the number of people that give up their equity because they think they have to. Equally so, I'm amazed at those that think they deserve equity for performing well. Cash bonus is all you're getting.

Just because some "expert" says give equity doesn't mean you should nor have too. Giving someone equity DOES NOT mean they will perform well.

Reply by an intermediary
from University of Texas at Austin in Austin, TX, USA

I'd recommend working with an attorney and having classes of equity ownership, and ensuring that your operating agreement protects you (And your $$ investors) as you want to maneuver the business later (other capital / funding, other acquisitions, sale, etc.). It's absolutely okay to incentivize an operator with equity, but do so in consideration of what your future plans might be, including some worst-case scenarios, and what might need to happen.

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