Compensation Cafe

SPAC Attack: Looks Like We’ve Made It!

For the past several weeks I have been writing about SPACs and their impact on compensation. Much of that information has been cautionary, and some of it may have been overwhelming, but there is a real upside. Once you have navigated everything discussed in my prior articles (listed below) you will find yourself in an entirely new, and often lucrative, publicly-traded world.

If you’ve been with your company a while this may mean a small pot of gold at the end of the rainbow. Of course, SPACs are unusual, so yours will seldom end as quickly as finding the mythical leprechaun’s fortune. Let’s cover the last few unique hurdles and get on to the good stuff.

With the De-SPAC complete, your company will begin trading publicly as part of the new entity, but unlike a traditional IPO, the transaction will not yet be complete.

1. You will likely be dealing with a mostly, or entirely new Board of Directors. Approval processes will probably change along with the personalities that must be navigated.
2. You will not be able to roll out an ESPP and have the shares registered under an S-8 until at least 60 days after the De-SPAC, and only if the new Board approves the new plan that you hopefully were designing during the de-SPAC.
3. Your employees are unlikely to become super-rich, super-fast. They may expect this. They may also expect that they will get entirely new amounts of base pay after the transaction.
4. You will need to deal with all of the disclosure, reporting, and competitive poaching issues that are a challenge for every popular public company.

But the main benefit of being a compensation professional at a publicly-traded company is that all of your pay tools, and some new ones, can now work in the ways employees expect.

1. You will likely have the cash available for some sort of predictable Short-Term Incentive Plan. This plan may not rival larger companies, but it should give you a confident pay element that may have been a bit sketchy in your pre-SPAC days.
2. Equity compensation plans will have planned and predictable liquidity. Employees will have confidence in knowing that when their shares vest there is a way to turn them into money, or at least cover the cost of taxes owed.
3. You will finally know how much your peers pay their executives…with specificity. Your peers will need to report their pay data just like you will need to report yours. Learning to navigate and use this data and turn it into useful information will include a learning curve, but you won’t be guessing anymore.
4. All of the above puts you on more equal footing when trying to attract, motivate and retain high-quality staff. Less imagination and more evidence mean less guessing when pricing a specific job.

The list, of course, goes on. You can read many of the other 3,000-ish posts on the Compensation Café to learn more about those topics. The point is this: SPACs are rowdy, hard-playing corporate transactions that will stretch your skills and talents and ultimately make you a better compensation professional. Some people estimate that as much as 70% of the “heavy lift” in a SPAC involves compensation (I honestly think it’s more like 50%.) In the best case, you will do a year’s worth of work in four or five months. Let your imagination define the worst case.

SPACs are unlikely to go away. They are likely to slow down and may even have a crash sometime during the next year. But, just like the Dot-com crash did not end the use of IPOs, the potential SPAC-crash will not end their use. They will become more refined and predictable. There will be better data that allows better decisions. There will be more people with experience who can guide you through them. And this series of articles will become a quaint reminder of the past, much like a sepia-toned picture of Billy the Kid reminds us of the old west. Until then feel free to reach out and ask questions and exchange ideas!

Other articles in this series

1. SPAC Attack: Intro
2. SPAC Attack: 5 Critical Equity Compensation Issues
3. SPAC Attack: Executive Compensation Top 10 List
4. SPAC Attack: Unwieldy Expectations, Proxy Time
5. SPAC Attack: Who’s On First?
6. SPAC Attack – Welcome to the Starting Line
7. SPAC Attack: The Emperor’s New Clothes?
8. SPAC Attack: Bridging the De-SPAC Gap

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.

We’ve Never Done It That Way

When you read the title of this post did you groan or light up? We’ve never done it that way before can either be the most depressing or most exciting phrase in the world. For many, this phrase is a defense mechanism against change. For others this phrase is the spark that leads to change. The past year has included a lot of “never before” moments. Truthfully, change, even the best change, can create chaos and stress. Your attitude about “different” can be the deciding factor in whether the upcoming year or two will result in new successes or the repeat of past frustrations.

It can take years to create the processes, spreadsheets, reports and system features that make your job predictable and efficient. Being asked to start over or simply do something differently can trigger an immediate aversion response. This can happen when a new CHRO or CEO asks the Compensation team to reevaluate just about anything. It’s understandable, but it can be truly counterproductive. Yes, change can be hard, but without it you simply cannot improve.

For those of you working at innovative, high-growth or emerging industry companies the response may be much different. “We’ve never done it that way before” can be the caffeine boost to create something new and more effective. If you think about the companies most of us look to as examples of “better”, they are also companies who do things differently. These types of change must always be tempered with realistic planning to create the capabilities and communications that will allow change to ultimately be successful.

If this past year has taught us anything, it has made it clear that we can adapt to far more change than we believed. It has also taught us that not all change is easy or even good. Working from home became a reality and for some roles it will stay forever, because it works better. For other roles, remote work was impossible or just made things harder. Where it was impossible, people, companies and governments struggled to survive. Even where it was a good thing, it wasn’t an easy thing. New processes, tools, perspectives and rules had to be created and will take months and perhaps years to perfect.

I get the aversion to even the best change. It’s hard to learn something complex the first time. It’s even more frustrating to have to learn it in an entirely new way (are any parents enjoying common core math?). The chaos created by change is unavoidable but short-lived when addressed head on. The stress related to change is almost completely avoidable. New pay data? You’ve done it before. New CHRO wants a new pay structure? You know how to do that. Your CEO wants a new incentive plan that looks like the plan at his friend’s company? Just rip the band-aid off quickly and get started.

The only constant is change. Fighting against it will only frustrate you and wear you out. If you are lucky enough to be excited by change, the phrase “we’ve never done it that way before” can be start of something amazing. If you don’t love change you may be in the wrong business. Change is coming. The upcoming year of hybrid work, returning to a new version of an old normalcy, becoming good at paying and rewarding remote workers and so much more will challenge all of us. Embracing the new may be the thing that keeps you engaged and happy in a world where it is unavoidable.

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.

Consultants, Pick a Shoulder!

Compensation consulting is an odd profession. Companies hire consultants for all sorts of reasons. Some are looking for greater bandwidth. Others are looking for more extensive expertise. Some are checking a box on their “best practices” list. Others are truly looking for the guidance needed to solve a current problem or avoid one in the future. And there are those companies who are looking to get the answer they want, and only the answer they want. Knowing which of these companies you work for is a key to your consulting success.

Consultants, like a person’s horned and haloed conscience speaking into either ear in cartoons, usually pick a shoulder to sit on and stick to it. Some focus on doing what clients need, while others choose the shoulder of doing what clients want. Each shoulder provides different types of risks and rewards. The shoulder your consultant chooses is likely to be the reason you choose them.

Before we get into the details it is important to note that consultants cannot make the company do anything. A consultant simply provides information and the experience on how they feel that information can best be used. The final decisions and actions are up to the company or its Board of Directors. This is exactly how things should work. A company must have the autonomy to make the final choices. A good consultant contributes to whether the company understands if they are making a good choice.

Giving people what they want is the path of least resistance. Just like some parents choose to be the “party house” where high school kids can get together and drink while underage, some consultants will support almost anything. Being a cool parent usually leads to happy kids and popularity. Occasionally it leads to something more tragic. Consultants who choose this shoulder are often highly sought after. They make executives rich and allow HR professionals to defend virtually any decision. But the risks are real.

Many consultants provide a more authentic answer to any project deliverable. This can put them at odds with the people who hired them. Unlike the parent who will let their kids use the car to go to the party house, consultants can only point out the risks of partying and driving and hope that the message is heeded.

Here are some good considerations when you are hiring a consultant.

1. Are you looking for guidance or agreement?
2. Do you want a consultant to provide recommendations on what you want, or what you need?
3. Have you discussed this topic internally, to ensure that the consultant’s recommendations will be supported as recommendations move up the approval chain?
4. Have you been absolutely clear about the objective for the project? Some clients will take any work. Some will only take work that fits their own approach.

With these questions properly framed and answered you are likely to have a successful consulting relationship. Too often an HR or Compensation leader sees something wrong and brings in a consultant to “prove” this wrongness to people who do not want to hear about it. Make sure your stakeholders are on board with your plan before you bring the consultant in the door. The best consultant in the world cannot change things that leadership is unwilling to change. Getting stakeholder buy-in is the secret to less frustrating and more successful consulting engagements.

It is critically important to note that many consultants have convinced themselves that they are always sitting on the right shoulder. Defining your project and making sure you have the correct stakeholder support are the most effective method for ensuring you get the right guidance from any consultant.

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.

SPAC Attack: Bridging the De-SPAC Gap

SPACs have many critical inflection points, but the De-SPAC process is truly special First a SPAC is formed and goes public. Then the SPAC finds you, a beautiful company in the rough, just bursting to experience growth and success. Then you both agree to join and beat the world. You announce your intentions in a big splash and the De-SPAC process begins.

It’s kind of like when two young people get engaged early in a relationship and hoped that their parents and their lives would bolster them through a successful wedding day. Most of the time it works, but some engagements end because the additional scrutiny proves the pairing will not work. Others end in someone getting left at the altar. Successfully navigating this period requires resolve, enthusiasm, openness, and some luck.

The De-SPAC process usually runs from 3-5 months. During this time both parties work to convince current and potential shareholders that the union will work. Regulatory bodies like the SEC also get involved and provide their opinions on the impending marriage. The companies involved may also look to bring in additional funding via a PIPE transaction. There is a ton of work and if things go wrong, the deal falls apart.

Much of this is out of the hands of compensation professionals, but there are areas where comp pros must be on point.

First, you must communicate with your employees. The De-SPAC process starts when the world knows about the deal, this means your employees will know. They will be curious, anxious, excited, confused, and looking to the company to fill in the blanks. This is a GREAT time to use communication professionals. Get some help!

Next, everyone will be watching to see if the company is performing well. This means no major snafus in the execution of incentive plans and no major employee relation issues. If there are important compensation issues on your “to-do” list, you need to get the support you need to quickly address them. In today’s environment, this may mean addressing Diversity, Equity, and Inclusion issues. It may include clean-up work on equity awards, better clarity and automation of your annual or sales incentive plans, and reworking of your 401K and other benefits plans. Get some help.

If the De-SPAC process is successful, current and potential shareholders will support the deal. Regulatory bodies and auditors will find the facts acceptable, and employees will remain supportive and enthusiastic. You will become a publicly traded company and your stock price will rise.

If the De-SPAC process fails shareholders will redeem their investments, basically demanding a refund before the deal is done. Your company will not become publicly traded and there is a real risk that your company will not survive at all. Being left at the altar of a SPAC deal can make it hard to find new investors as a private company.

For those people who have gone through an IPO, the De-SPAC process can feel familiar. The excitement of potential is balanced with the palatable risk of failure. The big difference is that failed IPOs usually have much softer landings.

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.

SPAC Attack: The Emperor’s New Clothes?

SPACs (Special Purpose Acquisition Companies) have, for the past year or so, been the hottest thing since fidget spinners. They are a cost-efficient and rapid method for turning privately held companies into publicly-traded companies. They are also a way for founders, executives, and employees to extract some of the value from their efforts in building a company. And, of course, investors do pretty darned well too. It is a symbiotic relationship that seems to benefit everyone involved. What could possibly go wrong?

This morning it has been widely reported that the SEC has opened an inquiry into SPACs. This may be the precursor to a formal investigation. Some may ask why the SEC is concerned when everything seems to be going well. The fact is that when investors see something great, they often turn it into a controllable snowball rolling down a steep hill. This has tended to result in destruction (and some great movies). Look back at the collapse of financial firms a decade ago, or the now almost forgotten “Dot-com” crash at end of the 1990s. In both examples, it became difficult to separate the real value from the fake. When this happens, trust is lost and we lose access to both the real and the fake value.

In a sense, the SEC is asking if the Emperor is wearing any clothes. Many SPAC transactions have been completed successfully. Some have seriously less successful. This is to be expected and is not dissimilar from the traditional IPO market. Some succeed, some fail. But the SEC has seen overexuberance lead to disaster in the past and knows it does not have the processes and controls in place to avoid the same with SPACs. It sounds like they are trying to make sure the Emperors isn’t naked before we all need to be involved in cleaning up a mess.

What does this mean for compensation professionals?

First, it means we may in store for a bumpy ride on the stock market. You need to review your equity compensation granting practices and ESPP plans to ensure that you will not accidentally run out of shares if the stock price drops precipitously. ESPPs in particular are notorious for burning through their allotted shares when stock prices fall.

Second, it means you make need to look at where you have spent extra on compensation. Maybe you have built for a future that will be delayed or turn out differently than expected. There is no need to panic at this point, but a bit of research and planning can go a long way to averting something bad over the next year.

Lastly, it means that some of the companies who were hoping for a “stretch SPAC” (one where the company really isn’t fully ready) may need to dial back their expectations and plan on staying private for a few more years. Your SPAC dreams may still come true, but having a back-up plan seems prudent at this point.

In my next post, I will return to a more traditional fun, and cheeky post, but I wanted to make sure you had the early-warning you needed to properly avert your eyes. You never know if SPACs will turn out to be a doughy naked guy riding proudly down the street on an unfortunate horse.

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.

SPAC Attack: Who’s On First?

Bud Abbott: Well, let’s see, we have on the bags, Who’s on first, What’s on second, I Don’t Know is on third…

Lou Costello: That’s what I want to find out.

Bud Abbott: I say Who’s on first, What’s on second, I Don’t Know’s on third.

Lou Costello: Are you the manager?

Bud Abbott: Yes.

Lou Costello: You gonna be the coach too?

Bud Abbott: Yes.

Lou Costello: And you don’t know the fellows’ names?

And that begins today’s discussion on SPAC transactions.

SPAC transactions move fast. They move so fast that it can be difficult to know who Is doing what, and when. The first thing you need to identify your team. Unless you are part of the inner circle, much of this will likely be done before you even know about the potential transaction. Once you are brought into the process you need to learn who’s on the team and what they will be delivering. Then you need to take that information and determine how many of those people will need to work with on your compensation deliverables. This sounds like a normal process, but it will all happen over a few days (if you’re lucky.)

1. You will work with legal on old and new cash incentive programs
2. You will work with HR, Finance, and Legal to gather information to complete CD&A and proxy filings.
3. You will work with outside compensation and benefits counsel to determine new equity compensation plans.
4. You will work with securities attorneys to determine the timing and details for SEC filings related to pay.
5. You will probably be asked to do research and modeling of Executive and Board compensation.
6. You will again work with Finance and Legal to answer questions about employment agreements, performance metrics, and other issues that may directly or indirectly impact pay.

And that’s just weeks 1 and 2 (maybe 3).

Smart companies will assign a very strong project manager who does little else other than herd a bunch of cats toward a common goal. I do not recommend you volunteer for this position. The amount of work that needs to be done by total rewards professionals is enormous. You will be challenged by deadlines, new issues, data inconsistencies, and questions about everything you have done for several years. You will be asked to run models of things you didn’t even know could be modeled. You will often do much of this with a fraction of the information you want or need. You will not have the time to be in control of anyone except yourself. This is a good time to not be a hero.

Your job is to do in 3 months all of the work that a typical pre-IPO company does over about 12 or 18 months. You cannot clean your data up too soon. You cannot get organized too early. If your company has had any aspiration of going public in the next two years, you should assume that a SPAC may happen before the end of 2021. In Mid-March my next post will provide a summary of the things you will want to include in your work effort. The list is daunting but achievable. In the meantime, get your rest. You're going to need it!

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.

SPAC Attack: Unwieldy Expectations, Proxy Time

Being a company involved in a SPAC is kind of like being a genius 6-year old or an incredibly tall 13-year old. While you are clearly able to do some amazing things, you are not yet fully ready to address all of the challenges of the grown-up world. But, unlike a kid, you don’t get the benefit of the doubt or have advocates arguing for people to give you a break while you mature. Maybe being in a SPAC transaction is more like those movies where a kid wakes up after a dream to find themselves a fully grown adult with all of the benefits and problems that it entails.

With about 300 SPAC Acquirors on the prowl for the perfect company to bring public, the SPAC wave has not yet crested. Many of you reading this post are either working for a company or being recruited by a company where a SPAC transaction is a real possibility. Most of those companies are not truly ready for that intensity of the spotlight but will need to perform on stage regardless.

Let’s start by discussing a couple of the new things where you will need to help. Publicly-traded companies need to produce a Compensation Discussion and Analysis (CD&A) and a Summary Compensation Table as part of their public filings. The CD&A is a narrative document that tells the story of your executive compensation program. The Summary Compensation Table details the prior three years of compensation for your Named Executive Officers (the Top 5 paid officers including your CEO and CFO.)

There are great guides and templates for your CD&A all over the internet, but you will still need to become a storyteller to get the job done. At the minimum, you must explain the objectives of your compensation programs as a whole, and each program as an element of that whole. You will need to cover:

• An overview of every element in your pay program
• The reason you chose those elements, and the specific way each is awarded to individuals. This included formulas, discretionary considerations, determination of amounts, etc.
• How each pay element fits into the overall compensation objective and how its efficacy is measured.

If you are like the compensation professionals at many private-held companies, you may have a general idea about the answers to these questions. You have probably never had to put things into words that will be scrutinized by investors and the media outside of your tight circle of “friends.” Writing a first concise and compelling CD&A is critical. It becomes the first chapter in a series of annual CD&As as your company matures.

As for the Summary Compensation Table, you may be at a company where the “clean-up” of historical records has been on your “to-do” list for a couple of years. With a SPAC transaction, you have a few weeks to wrap that up. You need to understand every employment agreement, every weird one-off offer letter. You need the details behind every pay element given to Joe or Sally because they “demanded” it, or were somehow related to the CEO or founder. Once you have all of this you will need to put it into a very prescriptive table with footnotes explaining every unusual or interesting number. None of this is impossible, but all of it will feel very foreign if you haven’t done it before. On top of all of this, you will be working with Legal, Finance, and a bunch of outside consultants and attorneys. It is a good idea to make a friend or two on the team. Things will be bumpy at times.

Once again this is a cliff-hanger because I have run out of room! If you have been through a recent SPAC feel free to comment on anything that you found particularly difficult or surprising about getting prepared and making yourself look good during the challenging process. My next post is in March, so feel free to reach out if you want information before then!

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.

Cafe Classic: Time to Work Out Your Chicken Legs

Editor's Note: Top heavy pay plans and design emphasis? Missed opportunities for investment in your broader workforce? Might be time for your company to work out its chicken legs, as Dan Walter notes in his Classic post.

We have all been to the gym or have seen this guy walking down the street (here’s an example). He’s the guy with those big arms, broad chest, and a narrow waist looking like a cartoon superhero. The guy is impressive in a t-shirt but carried around by skinny chicken legs. It’s obvious he puts in the work. It’s also noticeable what he likes to do and what he doesn’t.

More and more companies have compensation programs that look like this guy. Pay for executives is muscular and impressive. It has outpaced pay at lower levels for a long time. Despite how strong and impressive these companies’ pay look, the truth is they are vulnerable to a competitor kicking their legs out from under them. Heck, some of these companies have such weak foundations that they could easily trip themselves, tumbling straight to the ground.

Money spent on pay innovation, research, and consulting is first focused on executives. If there is anything left it trickles downward and disappears quickly. These chicken leg companies seem to believe that performance is based on a strong upper body. Any athlete will tell you this isn't true.

Great athletes in almost every sport first have incredibly strong core muscles. The middle supports and directs every movement while allowing for long-term growth above and below. Next, come powerful legs. These are the foundation of any great performer. They create stability, speed, and maneuverability. Only after these components are working at peak condition does it make sense to build the upper body. Even then the goal is lean usable strength not gaudy restrictive size.

Doing squats and sit-ups isn’t much fun. The results from these efforts are far less visible in everyday activities. Convincing management that the rank and file should receive a bigger percentage raise than the executive is even less fun. The results are also unlikely to be as immediately visible as a great executive incentive plan. But, once the effort has been made consistently for awhile, you will not only see a difference but, it will allow you to be better at a wide array of other things. The path of least resistance is undeniably seductive when you are already swamped with other projects. And, the people who need to approve your ideas are the same people who will feel the most negative Impact. Try it anyway.

Look at your company in a mirror and determine if you are this guy. Tell your executives you read about this on the Internet. Tell them other companies are looking into it (and they are). Heck, use me as the bad guy. But, mostly tell them that you are passionate about doing the best you can to help the company succeed. Right now, that means doing the tough legwork.

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.

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?

Oops, ran out of space!

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.

SPAC Attack – 5 Critical Equity Compensation Issues

SPACs are going to be here for a while. I guess that means it’s time for all of us to learn what that means to compensation professionals. In a recent post I explained the basics of a SPAC, or Blank Check transaction, and emphasized why this recent phenomenon has received so much press (hint, it’s the money.) In my next few posts, I want to drill into some key considerations for compensation and HR professionals. Since I started my career working with equity compensation plans, it seems right that it's where I will also start this series of posts.

Let’s start with a basic fact. When it comes to equity compensation, nearly everything will change. Your company will literally become a new company! This means everything related to your equity compensation will need to be converted or grandfathered, and it’s almost always the former. So, let’s dig in a bit

1. Your general approach to equity compensation will need to change
   Equity compensation for publicly traded companies requires a new frame of mind. Legacy outstanding equity will magically become tradeable. Grants that you viewed as motivating and retentive may become big-ticket ATMs. You will find that there is a new expectation for new grants on an annual basis. Plans that focused on the long-term holding of shares will need to address the easy ability to sell shares. The list goes on and can be overwhelming. Many companies work more on equity in the several months of a SPAC transaction than they did in the prior several years. And this all will happen while you are working on other, possibly more critical, projects!
2. How you use equity for executive compensation will need to change
   Your equity compensation plan practices and history will be disclosed to the world. Weird secret grants become hard to hide. Your peers are suddenly other publicly traded companies. Your grants will be scrutinized by people you have never met. You will learn who Glass Lewis and ISS are. It’s a lot.
3. It’s probably time to get an Employee Stock Purchase Plan (ESPP) into the mix
   ESPPs are like magic candy for compensation professionals. They provide a unique blend of attraction, motivation, retention, and engagement in a single package that your employees will love. But they are also the equity compensation with the most bells and whistles. This means learning a bunch of new things, then quickly teaching them to your staff. Most important? You really want your new ESPP to launch simultaneously with the SPAC. This requires a sprint to get things right.
4. You need to select and implement new vendors…fast
   Your pre-public stock administration system may, or may not, be able to work in a publicly-traded world (assume it won’t work great.) You will need to engage with a stockbroker or two and arrange to have them support executive and employee transactions. Your stock transactions will be managed by an external transfer agent. All of this requires demos, contracts, and the establishment and documentation of entirely new processes.
5. The data clean-up!
   This can be a doozy. I will cover just one of the many critical tasks. Your company’s stock will go through a conversion to bring your stock price in line with the SPAC’s stock price. SPACs normally start at $10, so you will need to do a forward or reverse split on all of your equity before the transaction occurs. The better stock administration systems handle this fairly well (but don’t assume yours is a “better” system). Even when the math is done perfectly, the communications can be a bear.
   If your stock price is $2 before the deal, you need to get the price to $10. To do this, you need to reduce the number of shares outstanding by 500%. This means a grant of 1000 shares will become a grant of 200 shares, and a grant price of $0.84 per share will become $4.20. Fewer shares, higher price. You can imagine how confused people will be. Woohoo! If you are lucky, your current stock price will be higher than $10. In this case, the math goes the other direction. Most people are excited about more shares at a lower strike price!

This list is by no means exhaustive. In fact, it barely scratches the surface of equity compensation in a transaction. Over the new few posts, I will try and cover other “big ticket” topics for compensation professionals. Of course, you can always contact me directly if you have questions. Good luck on the wild ride!

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.

Cafe Classic: HELP! Was I Just Arrested or Incentivized?

Editor's Note:  There are a lot of reward terms out there and they aren't always universally understood. Leave it to Dan Walter to illuminate this challenge with his Classic humor!

We all wish we were better at communicating. We create presentations (decks) and plan summaries (SPDs). We carefully choose our words and have our colleagues review things before sending them. Our efforts need to be understood by people with wide ranges of experiences, education and levels of interest. But what if our best efforts were making things worse?

Fill in the blank from the selections below:

Today I was _______ for my collaboration in a scheme.

1. Incentivized
2. Arrested
3. Confused

The correct answer, in our industry, is A. In the United States the word “scheme” generally has negative connotation. In Europe it is a common used word to describe an incentive plan. The word plan has less of a link to incentives and more association with architecture or a crime.

In an attempt to be inclusive (“what if the person isn't an employee?”) many of us prefer to use the word participant instead of employee. We want individuals to know that being a participant in a plan is how we bring them all together. Unfortunately, participant quickly translates to outsider in many countries.

Several years ago I wrote an article that discussed the word “compensation.” The most basic term that describes what we do, what people get and why they should be happy, doesn’t translate well. In our efforts to create a language around our confusing and changing industry we have coined terms, found new uses for old ones and sometimes simply invented words to suit our needs. We may not be helping ourselves with these efforts. Our presentations are cleaner and prettier than ever. You know the rules: 3 bullets or less per slide, less words per bullet is better, cool pictures communicate better than a bunch of words. This doesn't leave much room to explain complex terms.

You need a glossary. Many of us no longer include glossaries at the beginning of a presentation. But, your glossary shouldn't be more than five or six words. If you have a laundry list (another mistranslated phrase) of terms you may need to readdress the language. Or, you may need a few smaller glossaries, each beginning the section where those terms are used for the first time.

Think about the short list of words below and how they can be used in other, often unsavory, ways. Then ask yourself if the people who truly need to understand your hard work can possibly be expected to do so.

Tranche

Spread

Exercise

Release

Option

Statutory

Now carefully add your own questionable industry words in the comment section.

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.