Welcome to the first part of our 6 part series discussing executive compensation negotiations and benefit considerations during a corporate spin off. We will be covering topics to help you get a solid understanding of how your risks could increase or decrease, where you may become more "handcuffed" and major issues to understand and evaluate.
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Part 1: Salary & Annual Bonus
Salary and annual bonuses are two of the three main areas executives focus on. The third, equity compensation, will be covered in our next post in this series. In these first two areas it is critical to have an understanding what your previous compensation was and if the market demands a higher base pay for your new position with the spinco.
Salary, often considered to be short-term compensation, is a critical base component of your negotiation due to the fact that your other compensation components - bonuses, equity, deferral programs, etc - are likely to be based on your salary. This salary may be subject to negotiation when moving over to the new spinco due to any number of factors including new spinco compensation guidelines, financial strength of new company, realignment of pay to market levels or a desire to retain your talent. All of these could result in an increase or decrease in pay.
The second piece is for your annual bonuses, often regarded as mid-term compensation. While most companies have specific criteria to follow for executive level bonuses, due to this being a wholly new company it may follow the original company criteria or establish new and different criteria. It is important for you to understand if there is a change – some companies favor bonuses based on individual performance, company performance or a metric of the two - and if there is, how would that have altered your compensation in years past. Know this to understand how these metrics could impact your future compensation package.
Questions worth considering here are these: How will your responsibilities and liabilities change as a result of your new position at the new spinco? Will you have additional duties, travel, or responsibilities? Will you become an officer of the company? Will your name, personal compensation and information now be disclosed in company filings? Will you now be an insider and have restricted equity trading capabilities?
Answering these questions and evaluating the topics above will allow you to have a better understanding of whether your salary and bonus structures are in line with market pay and whether these compensations meet your personal needs and expectations.
Check back next week for part two in which we will be discussing equity compensation, how it may change and how additional restrictions and reporting could impact your risk.
If you would like to privately discuss your personal compensation planning, including ways to potentially reduce risk or mitigate taxes, contact our team today.
Enjoy!
Tim Golas
Partner
Spurstone Executive Wealth Solutions