Focus on Private & Family Business
Compensation solutions for family businesses are both like and unlike compensation for non-family corporations. Wilkening & Company has consulted with family businesses to provide advice and direction on how to structure reward systems for family members who work within the business.
The key to success is to separate three discrete components of pay:
- For responsibility;
- Pay for performance; and
- Return on equity investment.
Wilkening & Company understanding of family business dynamics as well as its compensation databases, job measurement techniques and provide significant value to clients and the “right” solution.
Family business issues are often quite complex. They liberally intermix issues of family dynamics and business structure. We believe that to be able to address family issues and concerns on a broad basis, it is necessary to first establish business objectives and quantifiable business structures and procedures, goals, and responsibilities for individual family members and non-family members. We believe this is a necessary first step in establishing “rules and responsibilities” for a successful and growing family business.
Phantom Stock or S.A.R.s
Phantom stock is the use of a long-term cash incentive compensation system to allow a privately-held firm to allow its key employees to share in the growth in value of the company for which they work. These types of plans are designed to be substitutes for stock option plans in private companies. Hence, a private company can gain the benefits of stock options—primarily key executive retention and “ownership thinking” which can come from a well-designed stock option or phantom stock plan. Phantom stock plans are also often called “stock appreciation rights” or SARs.
When a privately held company considers the use of phantom stock there are a number of decisions to consider. Some of these are:
What key executives should be eligible for such a plan?
- What share of future company value is the firm willing to share with its key executives?
- How will the company determine current and future company value?
- How long should such a plan last?
- What is a fair and reasonable reward for the eligible executives at the end of the plan period—say 10 years?
- Over what period and in what amounts should executive awards vest?
- How will the firm allocate funds to pay its executives their earned share of company value increase?
- Wilkening & Company has assisted clients with the addressing each of the above questions to design and implement phantom stock or SAR compensation plans.