In today’s competitive talent marketplace, many businesses are realizing that the creative use of compensation programs has become an essential tool for attracting, motivating, and retaining key personnel at all levels within an organization—nowhere is this more important than when business owners seek to create alignment with their key employees as they plan for and implement value-maximizing business exit or business succession solutions.
Particularly when contemplating an ownership transition event that might involve selling the company to a key employee over time, thoughtfully developing a non-traditional or deferred compensation package may provide a pathway for either/both (a) the key employee to use “sweat equity” to fund a “down payment”; and/or (b) the owner to develop an alternative path for “selling” the company.
When implementing executive and key employee compensation packages, it is incumbent upon companies to consider the possibility of shareholder scrutiny, tax efficiency, 409A compliance, securities law requirements, general corporate profitability, life insurance-funded solutions, and future business ownership transition plans.
At Rose Law, our attorneys excel at designing and implementing many types of innovative executive and key employee compensation and incentive programs, including:
- Equity-based and synthetic-equity solutions;
- Use of voting and nonvoting equity interests;
- Creative use of vesting tools;
- Performance-based bonus and/or stock award plans;
- Stock options (including nonqualified stock or incentive stock option) plans;
- Stock appreciation rights (SARs) arrangements;
- Change-in-control arrangements;
- Split-dollar life insurance arrangements;
- Profits interests in LLCs;
- Rabbi trusts;
- Coupling compensation strategies with appropriate restrictive covenants;
- Supplemental retirement and severance plans;
- Non-qualified deferred compensation arrangements;
- Restricted stock (also referred to as phantom stock) plans; and
- Individual employment and consulting agreements.
Our attorneys are also prepared to advise regarding the tax consequences that often accompany such key employee compensation arrangements and plans. These tax concerns often include issues of corporate deductibility for the company as well as income tax and FICA tax issues for the executive or key employee.