TAILORED AND RESILIENT CAPITAL SOLUTIONS FOR MIDDLE MARKET BUSINESSES AND BUSINESS OWNERS

Executive Compensation: Incentives

Executive compensation plans in privately-held, middle market companies need to be carefully designed to do a lot more than just serve as a catalyst for high performance. Incentive programs must:

Truly motivate for companies on the runway to both a change of control and change of leadership;
Optimize cash resources (especially for equity denominated awards);
Anticipate the evolving capital structure;
Empower succession;
Reduce tax costs for both the company and the executives; and
Sync up with the personal estate planning decisions of the ownership group.

Top 40 Executive Rewards*: A Pathway to Strategic Advantage

Equity Based Incentives
True Equity: Full Value	True Equity: Upside Value	Synthetic Equity (Full or Upside)
1) Sell Stock to key managers	8) Profits Interest in LLC	15) Phantom Stock (enterprise or division)
2) Compensatory stock grants	9) Drop Down Division (w/ upside interest)	16) Phantom Stock with Owner’s Pre
3) Owner Redemption (Gross up others)	10) Employee Stock Options (“Options”)	17) Enterprise Value Unit Plan
4) Restricted Stock and RSUs	11) Stock Appreciation Rights (SARs)	18) Graduating Value Band Unit Plan
5) ESOP (leveraged or creeping ESOP#)	12) Hybrid Capital/Profits Interests	19) Liability SARs
6) Ramp-down/Ramp-up (new entity)	13) Out of the Money SARs, Options	20) Performance Shares
7) Restricted stock paid at CinC **	14) Options/SARs paid only if CinC	21) Sales Bonus upon CinC

Cash Based Incentives
LT Performance Cash	Deferred Cash	Immediate Cash
22) Allocable Profit Sharing	28) Discretionary Bonus (group/Individual)	35) Salary increases
23) Profit Appreciation Rights	29) NQDC Plan (w/ comp match)^	36) Annual Bonus
24) Book appreciation rights (BARs)	30) Qualified Profit Sharing Bonus	37) Sales Commission Programs
25) Deferred Participation Units	31) Defined Benefit Plans	38) Spot Bonuses
26) Discretionary Long-Term Incentive Plans	32) Incentive Bonus Plan	39) Fringe Benefit
27) Cash bonus paid at CinC	33) Split Dollar Insurance (or 162 Bonus)	40) Lifestyle Incentives
	34) CinC payouts as multiple of salary

* Incentives ranked from “Value Now” to “Value Later” (Value Now near top of each of six lists). #ESOP = Employee Stock Ownership Plan, **CinC refers to Change in Control, ^NQDC = Nonqualified Deferred Compensation