When boards face challenges related to executive pay and performance, the challenges are often symptomatic of underlying management and strategic issues. Boards need help from independent compensation advisors with deep experience in compensation audits, business strategy, who understand the role that executive compensation and performance management can play in executing strategy and achieving organization objectives.
Here’s a sampling of recent Board Advisory compensation work:
Company Value Preservation
RiskRetention
Our client was looking to sell-off a subsidiary and engaged us to identify risks related to leadership talent gaps, pay and succession that could impact the value of the organization to potential investors. Our evaluation and the implementation of our recommendations prepared the organization for a successful sale with an executive team in place to lead the newly independent company through its next stage of development.
Overcoming Negative Say On Pay Vote
Incentive DesignInvestors
A large life-sciences company asked us to help repair shareholder relations following a negative say-on-pay vote triggered by a troublesome review by the proxy advisory firms. After taking immediate investor relations triage steps, we worked with the board and management to rethink and re-vitalize the approach to incentive compensation. Without compromising the culture or the management style, we were able to repackage the incentive arrangements in a way that won over proxy advisors as well as rejuvenated the management team. Operating results and stock performance have since improved as well.
Managing External Threats
RetentionIncentive Design
We were called upon to help a company weather a turbulent period marked by activist investor challenges and government investigations into business practices. We worked with the company to create a plan acceptable to investors, executives and investigators that could ensure executive retention through the crises and then transition the team to a new business model.
CEO Evaluation
Talent StrategyInvestors
We were asked by a board to review their CEO assessment process. The company was frustrated that the factors critical to being an effective CEO were crowded out by short-term results. We developed a survey instrument that allowed the full board to participate in an assessment reflecting five key areas of CEO leadership including strategy development and execution, succession planning and talent risk, management of capital and human resources, management of external constituencies such as joint venture partners and investors, and board relations. The resulting approach provided the board with a constructive platform for CEO developmental and performance discussions.
Business Continuity During Leadership Change
SuccessionInvestors
A global services company engaged us to quickly choreograph CEO succession while minimizing any disruption to existing customer relationships and shareholder confidence. We created a playbook addressing all board (and governance), executive, investor, media and employee actions related to the transition. Our contributions were instrumental in the successful introduction of the new CEO, who was well-received internally and externally.
Linking Pay and Performance
Incentive DesignMetrics
We were asked by a REIT to explore performance metrics outside of the traditional Funds from Operations (FFO), which often had the unintended impact of rewarding leveraged growth. While we recognized FFO as a metric that analysts used, we found it less than ideal for application below the senior management team. Through modeling and back-testing, we developed specific metrics that over time provided superior correlation with total return to investors. The metrics could be applied to both the senior team as well as operating managers. Since 2010 the metric has simplified performance measurement and clarified value measurement for both the board and executive management.
Incentive Framework Anticipating IPO
Incentive Design M&A, Integration
An agricultural co-op board asked us to assist them as they transitioned, first to c-corporation status and then through an initial public offering. The organization’s strategic plan called for growth that would create a company multiples larger than the current one. To meet the plan, the new organization would require additional skills not present in the legacy organization and a compensation framework that would be fully scalable and consistent with changes in the company’s structure that included an IPO. After extensive discussions with the board and management, we introduced a pay framework that was based on the practices found in “peers” that were more like what the company would become. The program delivered size and performance-appropriate actual pay levels as the company continued to grow, using a currency convertible to public company equity once the company achieved scale and a public market for its shares.
Talent Risk Management During Venture Integration
Incentive DesignM&A, Integration
A foreign investor needed our help reducing performance and talent risk as it integrated a US retailer into its portfolio. We developed a long-term model of corporate financial and operating performance that, coupled with a new long-term incentive program aligned with the investor’s economic profit objectives, provided a foundation for integration and subsequent effective governance of the new portfolio company.
Retaining Executive Leadership in a Challenging Environment
SuccessionInvestors
Our client, a publicly-held company, called on Board Advisory to help establish and maintain board and executive leadership cohesiveness during a contentious refinancing process. We provided guidance on executive compensation model changes and brokering agreement among investors, which ensured executive team continuity during refinancing.
Alternative Long Term Equity Plan
Incentive DesignRetention
The board of a high-profile privately owned retailer asked us to develop a long term incentive plan for senior managers that provided reasonable protections for the investors’ equity interests. After discussions with the board and executive management, and a review of the capital structure, strategic plan and operating plan, we suggested a unique adaptation of the economic value concept. The resulting plan provided annual cash awards based on an economic value equation appropriate for this business, but held a portion of the gain (a “bonus bank”) subject to future performance adjustment.
Enhancing Company Credibility with Investors
GovernanceInvestors
Our client, the board of a public company, faced challenges resulting from the fallout of highly-visible performance problems negatively impacting the credibility of the board with investors. We were asked to help repair confidence in the board while helping to address the underlying performance problem. We assisted the board in immediately implementing improved governance practices, including a very transparent executive compensation program linked to investor goals. The implementation of our recommendations, including aggressive leadership retention arrangements, were well received by investors and helped repair the relationship between board, executive management and investors.
Incentive Program Creation to Inspire Performance Needed for Growth
Incentive DesignTalent Strategy
A technology joint venture’s success depended on its ability to compete on cost. Our assessment indicated success was contingent on the company’s ability to attract new leadership capable of continually driving costs down in a nascent and volatile industry segment. As a result, we developed a phantom stock plan specifically to attract leaders with the innovative thinking that could guide the industry and ensure success of the organization. The program rewarded leaders for achievement of strategic milestones while building wealth by building both share and overall market size. The plan was instrumental in driving leadership to grow from de-novo to the second largest in its segment.
Retaining Valuable Scientists Post-Acquisition
Incentive Design M&A, Integration
A large foreign pharma company asked us to develop a strategy to retain scientists and other professionals who were acquired through the purchase of a very successful smaller public R&D pharma business. Under the successor company equity structure, shares were thinly traded and had little relationship to the R&D unit performance. As a replacement to the all-employee option plan of the former public company, we designed a cash-based long-term incentive for hundreds of participants with value tied to R&D value creation, as measured by operating results and development milestone vesting triggers.
Responding to Competitive Threats
Incentive DesignTalent Strategy
Our client, a global public company, faced highly aggressive market challenges from competitors with superior abilities to capitalize on market opportunities. They engaged us for help with creating a compensation philosophy and regional programs that would more closely align executive pay with value creation and improve overall business results through recognition and encouragement of their entrepreneurial and opportunistic efforts. Implementation of our recommendations resulted in significantly improved executive and management behavior resulting in immediately-improved company performance and more a competitive industry position.