N.R. Gordon & Company, Inc.

Liquidity Matterstm

N.R. Gordon & Company offers a broad range of value-added, peer-to-peer, financial advisory and strategy consulting services. Representing not only the client, but the client's point of view, N.R. Gordon & Company differentiates itself from other advisors.


An Effective Incentive Plan Focuses on Shareholders' Objectives

Management and shareholder interests must align for a company to achieve its strategic objectives. The link between shareholder value and management remuneration in the form of incentive compensation is the critical element that rewards those who run the company for protecting the interests of those who own it.

To be effective, incentive compensation must reward management for achieving objectives that serve the interests of the owners. Because an increase in shareholder value is almost always the ultimate objective, management is often given an equity interest in the company. Particularly in public companies, management and shareholder interests are aligned by providing incentives in the form of stock options or other forms of equity. Providing compensation in the form of equity also conserves a company's cash and can provide capital with which to fund ongoing growth. For senior executives in particular, equity incentives have been a path to significant wealth.

Case study:

Client: Family owned service company.

Situation: Client was about to consummate an acquisition and would be incurring a substantial amount of debt.

Objective: Encourage growth, the aggressive repayment of debt and the creation of substantial shareholder value.

Solution:  The plan we designed provided management with incentives for achieving targeted levels of cash flow and returns on invested capital. To provide a longer-term incentive, amounts earned were partially deferred and were subject to a vesting schedule. A substantial equity equivalent was provided through the creation of restricted stock and stock option equivalents which increased in value as earnings increased and as debt was repaid. As the company remained private, earned incentives are deferred until the managers' retirement from the company, providing the company with a substantial cash flow benefit while providing its employees with a tax deferred supplemental retirement benefit. A provision of the plan will convert the benefits into shares of common stock if the company goes public.


Back to Compensation and Benefits

Follow us on Twitter

Home