Compensation Cafe

Professional Unions in 2031

It has been ten years since we finally escaped the ravages of the COVID-19 pandemic. We try not to talk about it much, not only because of the human losses but also because of how we allowed people to separate us into factions that were delineated by what each of us seemingly didn’t have. One of the most interesting things was how it changed the way we work and get paid. I sometimes wonder how it could have been today if different choices had been made, but there’s no turning back now.

As the pandemic raged, many of us moved out of cubicles and into our dining rooms and guest bedrooms. We learned of the benefits of working without commutes and someone constantly watching over our shoulders. We also learned that many of us thrived in the social community that our workplace offered us. Most importantly, we finally started to realize what our companies had been trying to tell us (but not show us) about work-life balance.

Many of us were able to pick our kids up from school without the guise of a doctor’s appointment. Some of us no longer missed Friday night football games that we were unable to attend because of our long drive home. Many of us came to embrace our newfound flexibility and, yes, freedom, even as we struggled to figure out how to keep them if our companies called us back into the office.

We adapted more quickly than we would have guessed. By the end of the second year, the 50 and 60 hour work weeks and hour-long commutes that were the hallmarks of success in the 1990s and 2000s seemed pretty dumb to many of us. We had grown up in a world with no middle ground. Either you worked a million hours, answered emails on the weekends, and made your job your “family” or you weren’t successful.

When the call came to return to the office our employers seemed more than happy to return to the old paradigm. We asked for better pay AND more reasonable hours. They sometimes offered the former, but their business and staffing models depended on us working 9 or 10 hours a day. We asked for more time and better equipment to work from home, but many companies would not move away from the “command and control” structure built over 80 years of post-WWII results.

When our requests were not answered some of us refused to work, others demanded change. When our demands accomplished nothing we, for the first time as skilled professionals, rose up and organized. We saw how pay for other “professional” fields like pilots and baseball players raised wages and protected time off. We realized the pact between companies and their professional staff had been broken. We were no longer upper-middle class. We no longer took relaxing, work-free vacations. We no longer worked “full-time” we worked “all the time.” So we organized.

It is funny to look back at how short-sighted and self-interested the leaders of those companies were. It would have been so easy for them to adjust their model to deliver more pay and balance to employees and slightly lower returns to the market and executives. They swore the changes we wanted could not be done. It turns out the success they wanted couldn’t happen with us. In the end, they lost that battle and lost even more in the long term.

Sadly, we also lost in the long term. The current world may provide more balance, but it no longer provides the leveraged upside that some of has had from equity compensation. It is now nearly impossible to start a new company without tons of money in advance. Yes, we have more in some areas, but we all have less in many. It would have been so easy for companies to have made the right moves in 2022 and 2023 to avoid all of this. But we are where we are and it’s time for me to head off to my kid’s baseball game.

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.

It’s 2021, Do You Know Where Your Employees Are?

It’s 2021, Do You Know Where Your Employees Are?

Remote and hybrid work will never go away. How we deal with them will continue to evolve. Do you use a local geographic differential? Do you keep paying home office rates? Should you design a more modern approach that understands that expanding the talent pool across regions should also add to pay equity across those regions? Great questions, but let’s start with something more fundamental.

To properly pay people in this new “movable employee” environment we need to know where they are and how that may drive the total rewards package that works best for them. The unspoken issue is this: Once someone has become untethered from their required office location, it becomes possible for them to move more often and less predictably. Even if your employees never leave the US this movement can create challenges you may have never faced before.

Each state has its own income tax rules, workers' compensation rules, and some now have compensation reporting rules. Most states have some sort of “time in state” requirement for tracking income and tax obligations related to the work performed in that state. Your company may need to set up health insurance or other benefits programs that can operate beyond your traditional “borders”. Since remote and hybrid work is not going away, we all need to navigate very new waters.

More importantly, many individuals care more about their email address than their physical address. How will you know when Sally has spent 2 months at her sister’s house in North Carolina, instead of the Colorado address in your HRIS? How will you track Charlie’s time in California if you never even knew he was there? All of this explodes further if your staff can work from other countries.

Forbes reports that there are over 10 million “digital nomads in the US. Surveys show that their biggest concern is great WIFI. Is a super-speed WIFI connection a benefit you should be offering in lieu of additional pay? Should your company buy a long-term fuel contract and offer “gas cards” as a form of compensation to people living and working from vans and RVs? We do not yet know the answers, but I can guarantee your competitors for talent are already working on new solutions.

The simple act of knowing where people are in today’s working world is a challenge we gave never faced in such a volume. The old school manager looking across their team of cubicles for missing staff is no longer a reality for many companies. If we are ever going to evolve compensation and total rewards into the new world of work we are first going to have to figure out how to keep track of where our employees are. What is your plan?

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.

The Great Resignation: 3 Quick Thoughts

The Great Resignation has been building since at least April. People are voluntarily leaving their jobs in numbers not seen in a long time. The best thing is the number of companies that are hyping up the issue and using it to scare you into needing their services. I do not profess to have all the answers, but let’s delve in a bit and discuss what is probably happening. This is a quick article so I won’t bury the lead.

1. “Everyone” isn’t discontent with working from home. Firms that depend on you using their office space, relocation, in-person training, etc. would like you to believe that people are resigning in droves because they are sick of working from home. They say that stopping the resignations is dependent on you immediately using their services. Working from home isn’t ideal for some, mainly earlier career professionals. But it is certainly not the whole, or even the main, story.
2. “Everyone” isn’t quitting because returning to the office is become a reality. The purveyors of WFH solutions and consulting practices would like you to believe that asking people to return to work will make them quit. Demanding that people return to the office is probably a bad strategy, but making the office a welcoming place to have a better workspace, not be hounded by kids or pets, have access to IT help and faster internet (and friends and coffee) are things that will resonate with many people.
3. We Knew This Would Happen. The 800-pound elephant in the room is that the Great Resignation is not that impressive, and it isn’t a surprise to anyone who has been tracking resignation patterns in the past (basically economists, HR, and compensation professionals). During the last 18 months, resignations in most industries have been lower than in prior periods. People with safe jobs tend to stay during risky periods.

If the Great Resignation is mainly a multi-faceted marketing hype, what is a better way of looking at things? For all of 2020 and half of 2021, there were three kinds of workers.

1. The essential workers were working risky jobs on the frontlines and dealing with scared and/or angry customers and patients. Their jobs were fairly secure and their pay really didn’t increase the way a traditional “supply and demand” economy might have predicted. These people include nurses and doctors, grocery store workers and janitors, and tons of other jobs that our consumer economy needs to keep going. (These people really deserve a material raise.)
2. There were people who lost their jobs or could consistently make enough (and stay safer) being on enhanced unemployment. These people are quickly looking for new jobs as safety returns and unemployment benefits expire. Sadly, these people returning to the workforce will give many companies an excuse not to give their former essential workers their earned raises.
3. There were the people who had decent jobs. People with decent jobs resign all the time to get slightly more decent jobs. These people moved from expensive metro hubs. They worked from home, helped teach their children, and cared for kids or infirm relatives. They stopped driving in rush-hour commutes. They damaged their backs (and sofas) working in free space they could find. They updated their LinkedIn profiles, but they did not tend to resign.

The jobs market has been like a giant hairball clogging a drain. The reopening of society is like a big blast of Liquid Plumr clearing the clog. The so-called “Great Resignation” is just the kick-start to things going back to some version of a new normal. Resignations will slow down quickly, but our issues will remain.

Pay still needs to be adjusted to reflect the new reality of both the remote and hybrid workforce. Incentives need to be better designed, communicated, and managed to flex and evolve with unpredictable times. Essential workers finally need to get the respect they have earned in the form of better paychecks. And, mostly, we need to accept the fact that there is no time like the present to start fixing things.

Areas of the world will see lockdowns again in the Fall or Winter. How will your company pre-act? Some workers are never going to want to return to the office full-time. How will your policies and tools reflect this new reality? The Great Resignation is more like the Great Wake-up Call. How will you compete in the new days ahead?

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.

7 Current Post-Pandemic Compensation Developments

The past couple of weeks have shown us that compensation in a post-pandemic world may be less predictable than predicted. Mask mandates have loosened. Businesses that have been closed are starting to get back to work. Businesses that have been fully remote and beginning to explore hybrid and return-to-work models. Companies are addressing talent acquisition challenges with better pay. Equity compensation vesting schedules may finally be changing. ESG (Environmental, Social, and Governance) goals are getting more than lip service. DEI (Diversity, Equity, and Inclusion) metrics are becoming what we thought they would be before COVID-19 began. And executives somehow continue to be paid well despite some less than stellar results. Here’s a quick round-up of what we’re seeing and what we aren’t.

1. Businesses are getting back to work. Restaurants, theaters, live music venues, and other businesses shut down by social distancing needs are finally starting to reopen in earnest. This will invariably create pay pressure in hourly service positions and might be the first step in a new battle for hourly talent.
2. Employees are going back in to work. Many companies are bringing people back to the office. Some are using a soft touch to entice people back, others… not so much. PacifiCorp tells Portland employees to return to the office in less than 2 weeks or take pay cut
3. Pay rates may be starting to reflect the new market. I have had several clients tell me that it is harder than ever to hire key talent. They also argue that survey data is not reflecting the actual talent market. In addition, some banks have raised their minimum wage to $25/hour. We may finally be seeing the compensatory impact of changing how people work.
4. Equity Compensation vesting schedules are changing to correct a well-known problem. I have discussed before that equity compensation vesting schedules have basically not changed in more than 25 years. Basically, 3 or 4 years for RSUs and stock options. We are not seeing companies use 6 and 7-year schedules to align with long-term goals. We are also seeing equity plans with 1 and 2-year schedules to reflect the “bonus” intent for those companies. Stripe and Lyft Speed Up Equity Payouts to First Year
5. ESG goals and being a better company is kind of a “thing.” Environmental, Social, and Governance goals are the current buzzwords for executive compensation. According to Barclays, sustainability is leading the pack. The goals are growing in popularity around the world, nearly everywhere at the same time. It will take several years for companies to figure out the “formula” to cynically do just enough to get credit and not so much that it actually impacts change. Until then, we are likely to see some positive and interesting changes!
6. Treating all employees with the respect they deserve is seeing continued growth. DEI (Diversity, Equity, and Inclusion) has been on the radar for several years, but we’re seeing more companies actually do something about it. Executive pay is being linked to DEI, and more companies are finally getting their data and processes to see real movement. But check out this article about Starbucks questioning its motives, and this article on their disclosed program. 
7. Executives are still somehow being paid a lot even when performance may not fully justify it. I won’t rehash the following articles, but they are worth a quick read. CEOs are getting big bonuses, even when their entire industries have been basically shut down during the past year (CEO Pandemic Pay: ‘Heads I Win, Tails I Win Almost as Much’). CEOs are getting big bonuses even after cutting front-line employee pay, or even shutting down stores to avoid paying people. Kroger CEO Cut Workers’ COVID-19 Hazard Pay, Grabbed Record $22.4 Million Package Himself.

I know it is a lot to absorb. We are seeing changes. Some in the compensation profession are actually driving changes. We will have a lot to discuss as this year progresses and figure out what the New New Normal looks like. Until then, have a great week!

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.

Want Fewer Compliance Headaches? Stop Using FLSA Status as a Reward Criteria!

It is challenging enough to appropriately classify positions as to their FLSA (Fair Labor Standards Act) status, so there is no reason that I can think of to make life even more difficult for ourselves by doing things like the following:

• Making exempt status a criteria for incentive plan eligibility.
• Providing a higher level of benefits (e.g., more vacation or PTO days) to exempt employees.
• Creating an artificial salary ceiling for nonexempt employees (e.g., reserving certain salary grades - such as Grades 10 and up, for exempt positions only).

Many of us already face pressure from employees and their managers who see the awarding of the "exempt" designation (despite our best educational efforts) as a status thing, an acknowledgement of professionalism, or - ironically - a way to get more money.  But we make the problem worse when we turn exempt status into a hurdle that must be crossed in order to participate in the company bonus plan, get better benefits, or earn a competitive salary.

My message to you, dear HR and reward friends: think and delink!  Make FLSA status solely about compliance with overtime laws.  If you have reward programs where you simply must limit eligibility, please find a different, genuinely business-related criteria to use instead.

Creative Commons image "headache" by dtasheva

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.

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: 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.

THE SPAC ATTACK

Those of you working at “pre-IPO” companies need to learn more about Special Purpose Acquisition Companies (SPACs). SPAC s are also known as “Blank Check” or “Reverse Merger” companies and provide a rapid path to becoming a publicly-traded company. This can create amazing opportunities, but not without the cost of significant effort for those involved.

What the heck is a SPAC transaction? Basically, some investors form a company (Company A) with the express purpose of collecting funds that will be used to acquire another company (Company B). The team of Company A is made up of people with the experience and expertise to find and acquire companies with significant untapped potential. After forming Company A they sell shares in a public offering and raise funds for a future merger or acquisition.

Company A then puts the money from their own IPO in a trust to find, woo, and pay for the acquisition of Company B. Normally, they must get all of this done in 18-24 months. Company A also does a separate funding round, selling warrants or units, to raise additional funds to cover the cost of their IPO and other costs like those related to finding a target company.

Finally, Company A finds Company B and works to acquire it. Once acquired Company B typically becomes the “main” company under the shell left by the already publicly-traded Company A. Presto Magic, Company B is now a publicly-traded company with all of the benefits and challenges that entails!

It sounds easy and elegant, but for finance, legal, HR, and compensation professionals the process can be overwhelming. Traditionally, I advise companies to begin preparing for an IPO at least 18 months in advance of the expected event and begin executing on their project plan 12 months in advance. With a SPAC you may have only 30 days to prepare and 3 months to execute. Yes, your to-do list is basically the same in both cases!

In a best-case scenario, you may have 6 months to build everything you need to be a successful publicly-traded company. This includes pay philosophies, reporting capabilities, transactional support, and market data to survive the scrutiny of investors in the public market. Your finance and legal teams will also have their own daunting list.

Your peers will magically transform from companies that may be known only to you, to those whose names are daily headlines. Your compensation philosophy must change to keep you competitive in this new market. Your broad-based market data will change from pre-IPO and private company data sets to more expensive and expansive survey data for public companies. Your executive compensation must be benchmarked against publicly-disclosed SEC or SEDAR filings. Your equity compensation programs must fundamentally change to allow for transactions on the open market. You will likely want to consider rolling out an Employee Stock Purchase Plan (ESPP) in coordination with your first trading day. The list goes on (and on=, and on). Luckily for you, this article must be kept short. You can always contact me directly for additional information, or just to chat about your transaction. I am sure I will also be writing follow-up articles over the next few months.

Why, you may ask, is this such an important topic now when you have heard so little of it in the past? Well, in 2016 there were 4 SPAC IBCs (Initial Business Combinations). In 2019 there were 28. In 2020 there were 64, and 2021 is looking like it will be an even bigger year. There were more than 240 SPAC IPOs in 2020. Each of these “blank check” companies is on the hunt for their own “Company B” to bring to the public market before the end of 2022! Three years from now this wild phase may have fizzled, but for the next year or two it’s looking like SPACs must be top of mind for pre-IPO companies.

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.