Paying Management in Equity
June 01, 2022
by a searcher from Georgetown University in Waterloo, ON, Canada
I'm creating a compensation plan to hire a CFO. We can't afford a market salary, so trying to attract great talent using an Equity plan of some type.
Any suggestions on ways this has been done on search-acquired businesses?
Looking for experiences and feedback. Thanks!
from Monash University in Perth WA, Australia
1. Aligning KPIs/Vesting Conditions with business interest - Ensuring you're putting the weighting on where you see they can deliver value. For CFO's this could be a combination of external and internal measures. External may be a growth driver (e.g. EBITDA) tied to overall business success. Internal may be improvements you wish to see operationally that they can control, such as staffing, delivery of monthly reports, developing internal controls/improvement processes etc.
2. Accounting impact - Depending on your reporting framework, you should look at how the incentive will be treated (i.e. a share-based payment) and if this affects your own reporting metrics. Differences in terms of the arrangement can vary the accounting take-up
3. Taxation - You and the CFO should always get some advice around when these instruments vest and the taxation point. Nothing worse than a scheme which means the employee is taxed up front on the arrangement, before they even become entitled to the equity
4. Service condition - Sometimes overlooked but 9/10 schemes will generally make it explicitly clear that the employee is not entitled to the equity should they leave the Business (with Board approval to override if a "good leaver"). Such a simple clause but can lead to disputes down the track around entitlements should the relationship sour.
Good luck and reach out if you have any queries.
from Hofstra University in New York, NY, USA
Equity can work depending on the nature of your business. Past/future performance, industry, etc.
If the business will grow heavily in the future, I'm assuming it will if you're encentivizing with equity. Then equity maybe the most expensive form of financing. Have you spoken to your banker regarding financing?
I would also considering the following:
-Part time CFO
-Interim CFO
-See whether or not your current accounting firm can advise in these matters. Many firms offer a suite of services that may fulfill the needs you have without having to bring on an additional employee