SPAC Attack: Executive Compensation Top 10 List

If you are reading this series (SPAC Attack 1, Equity Compensation) of articles closely, you are probably working at a high-growth, privately-held company with aspirations of being an even higher-growth publicly traded company. A SPAC transaction is an easy, exciting, and invigorating path to your goals! Just kidding. It’s like being told to race up a hill dragging a giant piece of meat while being followed by your hungry, but loving dogs. While you are running up the hill you will need to go ahead and change nearly everything about your executive compensation and be ready to explain all of that, in writing, to a group of shareholders and Board members you have not yet met. Congratulations!

Just a few things you will need to finish in about 30-60 days:

1. You will probably want to address and update your Compensation Philosophy.
2. You will need to create a new peer group of publicly traded companies who kind of seem similar to you, but don’t overshadow you. Sort of like the first day of high school, but with compensation details.
3. You will need to completely revamp your equity compensation programs. Completely. New plans. New details. New methods for granting equity. The works!
4. You will need to learn how to evaluate executive compensation using publicly disclosed proxy materials. Yes, even if you hire a consultant. Otherwise, you won’t know what they’re talking about.
5. You will need to review every single executive offer letter and employment agreement and make sure you understand even the smallest details.
6. You will need to determine what happens to every piece of legacy compensation at the time of a transaction that is unlikely to be a Change of Control. Then, you will need to explain this to executives who often believe that it IS a change of control.
7. You will need to help come up with a new Board compensation package. Since you are the “comp person” you will probably be asked to contribute to the Compensation Committee Charter, and help get them up to speed.
8. You will need to do a full analysis, using your new compensation philosophy, and newly collected proxy-sourced pay data. You will need to defend, set, or correct base, bonus/STI and LTI pay levels, design elements, and links to performance.
9. You will need to review every historical equity transaction and the compensation that was created. Your stock administration system will need to be spotless. This is even more fun if you just have spreadsheets.
10. You will need to work with Legal and Finance to identify their new needs for executive compensation. How will insider trading and/or preclearance be set up and managed? Who will perform Golden Parachute calculations? Who will be in charge of determining the compensation expense each quarter? Who will own the tracking and finalization of any performance metrics linked to executive pay?

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The things listed above are common topics during an IPO process, but for that, you have a year or more to prepare. They are also common in nearly every normal merger process, but for those, you have an acquiring company with their own strong policies and procedures that you just need to follow. In a SPAC you will be challenged in new ways, and very quickly. It is important to ask tons of questions upfront. Once it gets moving there will be little time for major course corrections.

In a publicly-traded world, everyone has an opinion about your executive’s compensation. You will far more visible, internally and externally. If this type of transaction is potentially on your horizon, the time to study is now. If you have gone through a SPAC transaction, please feel free to add your own thoughts in the comments.

Dan Walter is a CECP, CEP, and Fellow of Global Equity (FGE). He works as Managing Consultant for FutureSense. Dan is also a leading expert on incentive plans and equity compensation issues. He has written several industry resources including a resource dedicated to Performance-Based Equity Compensation. He has co-authored ”Everything You Do In Compensation is Communication”, “The Decision Makers Guide to Equity Compensation”, “Equity Alternatives” and other books. Connect with Dan on LinkedIn. Or follow him on Twitter at @DanFutureSense.