Management Pool Size / CEO Compensation

by a professional from University of Colorado at Boulder

3 years ago

It's a deal with $100M in Value Creation over 5 years... I need to pay powerful CEO and Management team.  Any guidelines, suggestions, benchmarks?  I'm thinking 6% of value creation total for both - 3% for management team and 3% for CEO.   Any thoughts, feedback, cautionary tales?

4 likes
319 views
18 comments

professional from University of Colorado at Boulder

Chase - thank you. Good callouts - and I agree. We spend aftertax dollars... not %'s. Yes, CEO investment is key - how much do they believe in it? Enough to put a half a million of his own dollars? If so, then confidence (on everyone's part - including the bankers) is improved. I'm keen on (but not highly knowledgable) on tax - I will gain the insights of M & A tax counsel on this piece - thank you. Your contributions are thoughtful, intelligent and candid... as well as much appreciated. Thank you.

3 years ago | like reply | 1 like

professional from New York University

Good comments so far. There are of course lots of nuances and custom arrangements based on the deal, the person, the strategy, etc. A couple other points: the type of structure (corporation/LLC) and the type of equity (options, profits units) have significant tax differences. So it's worth keeping in mind that the economics are the most important thing, not the percentage.

You also should strongly consider requiring the CEO invest hard dollars. Having capital invested is important to align interests on top of just the free equity.

Happy to discuss further if you like: --@----.com

3 years ago | like reply | 1 like

More on Searchfunder

Just Closed on My First Deal! Reflections and Takeaways for other Searchers

45,152 transactions are available on Searchfunder (now searchable by keyword)

Now everyone has unlimited IBISWorld access

Family office looking for traditional searchers

Examples of self-funded searcher websites

Investor seeking Self-Funded Search Deals

What are market terms for Seller Notes?

2 Best Ways To Find Motivated Sellers, Off-Market Deals

Searchfunder is an online community and toolkit for searchfunds. Over 80% of those involved in searchfunds maintain a Searchfunder.com account to help them network, problem solve challenges, and keep up with the industry.

We maintain partnerships with database providers that make searching more effective, efficient and affordable along with features that help searchers find deals and investors and vice versa.