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6Ways to Reward Long-Term Performance
without sharing stock
22
Today’s Presenter:
Ken Gibson
SeniorVice President
(949) 265-5703
kgibson@vladvisors.com
7700 Irvine Center Drive, Suite 930 ⬧ Irvine, CA 92618 ⬧ 949-852-2288
www.VLadvisors.com ⬧ www.PhantomStockOnline.com
33
We’re happy to provide a copy of today’s slides.
To open or close
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Click the red arrow
For questions during
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Use the question area
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Webinar
Q: Are the slides available?
A: Yes, more info will be provided at the end
44
Webinar Survey
Request a copy of our slides
and complimentary
consultation.
We value your input.
Those who complete the survey
will be entered in a drawing for
set of Apple Air Pods.
(Drawn from pool of names of those who
participate in the survey.)
55
Take advantage of a half-hour
consulting call with a VisionLink
principal at no charge.
Indicate interest on final survey.
Complimentary Consultation
66
Post Webinar Intro
5 Minutes:
 Who We Are
 What We Do
 How We Do It
77
7700 Irvine Center Dr., Ste. 930
Irvine, CA 92618
(888) 703 0080
www.vladvisors.com
www.phantomstockonline.com
www.bonusright.com
 Headquartered in Irvine, CA
 Founded in 1996
 Over 500 clients throughout North America
VisionLink’s Focus: Help Business Leaders Build and
Sustain a High Performance Culture
Accelerate performance through pay strategies that
transform employees into growth partners.
If you do that…
• Quality of talent will improve.
• Employee engagement will expand.
• Performance will be magnified.
• Business growth will be accelerated.
• Shareholder value will increase.
1010
Framing Today’s Topic
“ Can I have equity?”
1111
Owner Mindset
 I really need this person.
 Willing to share stock if bigger
pie is created.
 What if bigger pie isn’t created?
 How much will satisfy this
person?
 What will this do to my value?
 Am I opening a Pandora’s Box?
 What will trigger liquidation?
 What will it “cost” me?
1212
CEO Talent Concerns
One of the biggest headaches for CEOs
is making sure that the organization has
the right people to cope with what lies
ahead. There’s the basic question of
planning for the skills that are needed
now and in the future: Which roles will
be automated? What new roles will be
needed to manage and run emerging
technology? What skills should the
company be looking for, and training
their people for? Where will we find the
people we need?
PwC’s 18th Annual Global CEO Survey
1313
But more importantly, CEOs need to be
sure that the business is fit to react
quickly to whatever the future may
throw at it – and that means filling it
with adaptable, creative people, working
in a culture where energy fizzes and
ideas spark into life. If they can’t be
found, they must be created.
PwC’s 18th Annual Global CEO Survey (continued)
1414
Do You Really Need to Worry?
“A January 2018 survey of 1,000-plus C-suite executives found that
attracting and retaining talent is their number-one concern, outranking
anxiety over the threat of a global recession, trade war, and even
competitive disruption.” (Moneyball for Business, Fast Company, September 2018,
Austin Carr)
1515
Do You Really Need to Worry?
“Nearly 70% of business leaders participating in a new global survey said the
current talent pool is shrinking. As a result, the competition for talent has
increased, forcing employers to change their recruiting strategies.” (“Study: Shrinking
Talent Pool Has Recruiters shifting Strategies,” HR Dive, October 5, 2018, Valerie Bolden-Barrett)
1616
Key Talent Trend
By 2020, the worldwide shortage of highly
skilled, college-educated workers could
reach 38 to 40 million, or 13% of demand.
(Source: McKinsey Global Institute, 2014)
1717
2020 is Here
“The conversations overheard at
every Chief Executive Group event
this year undoubtedly echo the
conversations you’re having with
…the heads of every division in your
organization: how to deal with the
skills gap that has made it so
difficult for companies throughout
America to fill available jobs,
increase often-stalled productivity,
navigate change, and fuel the sort
of disruptive activity that is
essential for survival in this
economy.”
(Chief Executive Magazine, July 25, 2017)
1818
Why Long-Term Long-Term Value
Sharing Matters
1919
Why Long-Term Value Sharing
Matters
#1 Value sharing
attracts and retains
the best talent and
magnifies results
2020
Why Long-Term Value Sharing
Matters
#2: Value sharing
plans reinforce the
company’s business
model
2121
Why Long-Term Value Sharing
Matters
#3: Value sharing protects
against bad profits and
promotes good profits
2222
Why Long-Term Value Sharing
Matters
#4: Value sharing
promotes an
ownership mindset
2323
Why Long-Term Value Sharing
Matters
#5: Value sharing builds
trust and accelerates
results
2424
What High Performers Want
 There is a philosophy that
guides pay decisions and I
relate to it.
 There is a mechanism for
sharing value with those who
help produce it.
 I have some control over how
much I can earn if I produce.
 I feel a sense of partnership
with ownership.
2525
Financial “Hierarchy of Needs”
Cash Flow & Living Standard
Risk Protection
Retirement Planning
Value Sharing
Wealth Accumulation
Qualified & Executive
Retirement Plans
Comprehensive, Flexible
Benefits Plan
Short & Long-Term Incentive
Plans
Salary & Bonus
Wealth Multiplier Philosophy
Clear Pay Philosophy
1
2
3
4
5
2626
9 Long-Term Value-Sharing Plans
Stock Option
Performance Shares
Restricted Stock
Phantom Stock
Option
Performance
Phantom Stock
Phantom Stock Profit Pool
Performance Unit
Strategic Deferred
Compensation
2727
6 Non-Stock Value-Sharing Alternatives
Phantom Stock
Option
Performance
Phantom Stock
Phantom Stock Profit Pool
Performance Unit
Strategic Deferred
Compensation
2828
Grant Equity or
Not Equity?
Full Value or
Appreciation Only?
Yes
Appreciation
Stock Option
Full Value
Performance Based?
Yes
Performance Shares
No
Restricted Stock
No
Reward for Value
Increase or Financial
Performance?
Value Increase
Full Value or
Appreciation?
Appreciation
Phantom Stock
Option
Full Value
Performance Based?
Yes
Performance
Phantom Stock
No
Phantom Stock
Financial
Performance
Appreciation-
Performance Based or
Employee Directed?
Performance
Based
Reward for Profit/Cash
Flow or Other Metrics?
Profits
Allocation or
Objectives Based?
Allocation
Profit Pool
ObjectivesOther Metrics
Performance Unit
Employee Directed
Strategic Deferred
Compensation
2929
Do You Want to Share Equity?
In a Private Company,
when does it make
sense?
Key Questions
 Competing against public
companies for talent?
 Need to attract or retain vital
contributors?
 Employees have earned an
ownership stake?
 Means exist for transferring or
repurchasing stock?
 Can accept the immediate
dilution of your equity?
3030
If Considering Stock Options
 Employees should participate
in future growth only?
 Can employees fund the
purchase?
 Means exist for transferring
and repurchasing stock?
3131
Grant Equity or
Not Equity?
Full Value or
Appreciation Only?
Yes
Appreciation
Stock Option
Full Value
Performance Based?
Yes
Performance Shares
No
Restricted Stock
No
Reward for Value
Increase or Financial
Performance?
Value Increase
Full Value or
Appreciation?
Appreciation
Phantom Stock
Option
Full Value
Performance Based?
Yes
Performance
Phantom Stock
No
Phantom Stock
Financial
Performance
Appreciation-
Performance Based or
Employee Directed?
Performance
Based
Reward for Profit/Cash
Flow or Other Metrics?
Profits
Allocation or
Objectives Based?
Allocation
Profit Pool
ObjectivesOther Metrics
Performance Unit
Employee Directed
Strategic Deferred
Compensation
3232
No Stock ● Reward For Value Increase
Full Value ● Not Performance-Based
Phantom Stock
3333
Phantom Stock
 Company establishes a phantom share value
(formula or valuation)
 Employees given an award that has current value
essentially equivalent to company stock value
(subject to vesting schedule)
 No rights of ownership
 Rewards for past contributions and future growth
 Payments will be made in cash (or stock) at pre-
determined dates
 Full value awards create a direct link to ownership
3434
Grant Equity or
Not Equity?
Full Value or
Appreciation Only?
Yes
Appreciation
Stock Option
Full Value
Performance Based?
Yes
Performance Shares
No
Restricted Stock
No
Reward for Value
Increase or Financial
Performance?
Value Increase
Full Value or
Appreciation?
Appreciation
Phantom Stock
Option
Full Value
Performance Based?
Yes
Performance
Phantom Stock
No
Phantom Stock
Financial
Performance
Appreciation-
Performance Based or
Employee Directed?
Performance
Based
Reward for Profit/Cash
Flow or Other Metrics?
Profits
Allocation or
Objectives Based?
Allocation
Profit Pool
ObjectivesOther Metrics
Performance Unit
Employee Directed
Strategic Deferred
Compensation
3535
No Stock ● Reward For Value Increase
Full Value ● Performance-Based
Performance Phantom Stock
3636
Performance Phantom Stock
 Employees given the promise to receive phantom
shares upon fulfillment of pre-determined (often
annual) financial goals
 Shares can be full value or appreciation
 “Double” pay-for-performance concept
▪ You earn shares based on performance
▪ Share values go up based on performance
3737
Grant Equity or
Not Equity?
Full Value or
Appreciation Only?
Yes
Appreciation
Stock Option
Full Value
Performance Based?
Yes
Performance Shares
No
Restricted Stock
No
Reward for Value
Increase or Financial
Performance?
Value Increase
Full Value or
Appreciation?
Appreciation
Phantom Stock
Option
Full Value
Performance Based?
Yes
Performance
Phantom Stock
No
Phantom Stock
Financial
Performance
Appreciation-
Performance Based or
Employee Directed?
Performance
Based
Reward for Profit/Cash
Flow or Other Metrics?
Profits
Allocation or
Objectives Based?
Allocation
Profit Pool
ObjectivesOther Metrics
Performance Unit
Employee Directed
Strategic Deferred
Compensation
3838
No Stock ● Reward For Value Increase
Future Value Only
Phantom Stock Option
3939
Phantom Stock Options
 Employees given a promise of cash payment at a
future date
 The value will be based on the appreciation in stock
price from the date of award to the date of redemption
(like stock appreciation rights)
 Like stock options but without the need to pay for
shares
 Rewards employees for contributing to the increase in
enterprise value
 Can be part of the employee’s annual pay package
4040
Grant Equity or
Not Equity?
Full Value or
Appreciation Only?
Yes
Appreciation
Stock Option
Full Value
Performance Based?
Yes
Performance Shares
No
Restricted Stock
No
Reward for Value
Increase or Financial
Performance?
Value Increase
Full Value or
Appreciation?
Appreciation
Phantom Stock
Option
Full Value
Performance Based?
Yes
Performance
Phantom Stock
No
Phantom Stock
Financial
Performance
Appreciation-
Performance Based or
Employee Directed?
Performance
Based
Reward for Profit/Cash
Flow or Other Metrics?
Profits
Allocation or
Objectives Based?
Allocation
Profit Pool
ObjectivesOther Metrics
Performance Unit
Employee Directed
Strategic Deferred
Compensation
4141
No Stock ● Reward for Financial Value
Financial ● Allocation-Based
Profit Pool
4242
Profit Pool
 Employees given a right to participate in an annual
distribution from an accumulating profit pool
 A percentage of profits is credited to a pool that is to
be distributed to selected participants in future years
 Each participant is allocated a percentage of the pool
 Typically, distributions may begin at the end of year 3
and recur annually
 Productivity Profit concept calls for a reduction in pool
for “capital profits” attribution
4343
Grant Equity or
Not Equity?
Full Value or
Appreciation Only?
Yes
Appreciation
Stock Option
Full Value
Performance Based?
Yes
Performance Shares
No
Restricted Stock
No
Reward for Value
Increase or Financial
Performance?
Value Increase
Full Value or
Appreciation?
Appreciation
Phantom Stock
Option
Full Value
Performance Based?
Yes
Performance
Phantom Stock
No
Phantom Stock
Financial
Performance
Appreciation-
Performance Based or
Employee Directed?
Performance
Based
Reward for Profit/Cash
Flow or Other Metrics?
Profits
Allocation or
Objectives Based?
Allocation
Profit Pool
ObjectivesOther Metrics
Performance Unit
Employee Directed
Strategic Deferred
Compensation
4444
No Stock ● Reward for Financial Value
Financial ● Objectives and Performance-
Based
Performance Unit Plan
4545
Performance Unit Plan
 Employees given award units (PUPs) with a current value
 Units redeemable in a future year (3 years most common)
 Payment is made in cash at the end of the period
 The value of the PUP at redemption will depend on
improvement in 2 (or 3) performance metrics
 New PUP cycle starts each year, thus ultimately resulting
in an annual payout
4646
Grant Equity or
Not Equity?
Full Value or
Appreciation Only?
Yes
Appreciation
Stock Option
Full Value
Performance Based?
Yes
Performance Shares
No
Restricted Stock
No
Reward for Value
Increase or Financial
Performance?
Value Increase
Full Value or
Appreciation?
Appreciation
Phantom Stock
Option
Full Value
Performance Based?
Yes
Performance
Phantom Stock
No
Phantom Stock
Financial
Performance
Appreciation-
Performance Based or
Employee Directed?
Performance
Based
Reward for Profit/Cash
Flow or Other Metrics?
Profits
Allocation or
Objectives Based?
Allocation
Profit Pool
ObjectivesOther Metrics
Performance Unit
Employee Directed
Strategic Deferred
Compensation
4747
No Stock ● Reward for Financial Value
Financial ● Employee Directed
Strategic Deferred Compensation
4848
Strategic Deferred Compensation
 Employees earn a credit to a nonqualified
retirement account
 The amount based on pre-set company
performance achievements (e.g., revenue
and/or profit goals)
 The funds in the account are “self-directed
 Vested account paid in cash upon termination
or retirement
 Employee may add voluntary deferrals
4949
Grant Equity or
Not Equity?
Full Value or
Appreciation Only?
Yes
Appreciation
Stock Option
Full Value
Performance Based?
Yes
Performance Shares
No
Restricted Stock
No
Reward for Value
Increase or Financial
Performance?
Value Increase
Full Value or
Appreciation?
Appreciation
Phantom Stock
Option
Full Value
Performance Based?
Yes
Performance
Phantom Stock
No
Phantom Stock
Financial
Performance
Appreciation-
Performance Based or
Employee Directed?
Performance
Based
Reward for Profit/Cash
Flow or Other Metrics?
Profits
Allocation or
Objectives Based?
Allocation
Profit Pool
ObjectivesOther Metrics
Performance Unit
Employee Directed
Strategic Deferred
Compensation
5050
What Direction Should You Take?
Value Tied To
Total Value or
Appreciation
Only?
Awarded or
Earned?
When Redeemed
(Typically)?
Executives or
Broad
(Typically)?
Phantom Stock
Options
Share Price Appreciation Awarded 3-7 years Executives
Full Value
Phantom Stock
Share Price Total Awarded 6-10 years Executives
Performance
Phantom Stock
Share Price Either Earned 3-10 years Executives
Profit Pool % of Profits Either Earned 3 years Broad
PUP 2-3 Key Metrics Either Awarded 3 years Broad
Strategic DCP
1-2 Annual
Financial Metrics
Either Earned Retirement Executives
5151
Steps (after selecting your plan type)
1. Determine eligible group
(allow for future
participants)
2. Build a financial growth
model
3. Assess new value being
created for shareholders
4. Determine the
percentage or amount of
the future value (or
increase in value) to be
shared
5. Select a grant schedule
(typically annual) and
begin illustrating the
grants
51
5252
Steps (after selecting your plan type)
6. Test the model for Base,
Target and Superior
standards
7. Determine vesting
schedule
8. Allow for turnover and
future employees
9. Test cash flow (and
determine if pre-funding
is appropriate)
10. Document and launch
52
5353
Market a Future that’s Relevant
 Here’s our future
 Here’s how we’re going to
get there
 Here’s the role we picture
for you
 Here’s how we encourage
our people to grow and
contribute
 Here’s our
philosophy about
pay and rewards
 Here are our specific
pay programs
 Here’s how our pay
programs could
work for you if we
achieve our plan
5454
Employee Value Statement
Year 1 2 3 4 5
Targeted
Results
100% 100% 100% 100% 100%
Salary $160,000 $166,400 $173,056 $179,878 $187,177
STVS $64,000 $66,560 $69,222 $71,991 74,871
LTVS
(EOY)
-- $74,000 $186,000 $311,000 $448,000
401(k)
@7%
$17,120 $36,123 $57,169 $80,428 $106,086
Total
Cash
$224,000 $232,960 $242,278 $251,970 $262,048
Wealth
Accrual
$17,120 $110,123 $243,169 $391,428 $554,086
Total
Value
$241,120 $567,083 $942,407 $1,342,636 $1,767,343
5555
Therefore, What?
 A long-term value-sharing plan
is an essential incentive
arrangement for growth
companies
 These plans create a
differentiating edge that
satisfies the expectations of
top producers
 They are not difficult to
implement if you follow a
careful process
 You don’t have to share stock
to share long-term value
5656
Webinar Survey
Request a copy of our slides
and complimentary
consultation.
We value your input.
Those who complete the survey
will be entered in a drawing for
set of Apple Air Pods.
(Drawn from pool of names of those who
participate in the survey.)
5757
Take advantage of a half-hour
consulting call with a VisionLink
principal at no charge.
Indicate interest on final survey.
Complimentary Consultation
5858
www.BonusRight.com
www.bonusright.com
5959
 New SaaS tool
 Build and manage
your bonus plan
online.
 Indicate on survey
if you would like
to schedule a
demo.
6060
www.phantomstockonline.com
www.vladvisors.com
Subscribe to our blog!
6161
Free Report:
What is an Employee Value Proposition?
Request your copy on the final survey.
6262
Post Webinar Intro
5 Minutes:
 Who We Are
 What We Do
 How We Do It
6363
Q&A
6464
Today’s Presenter:
Ken Gibson
SeniorVice President
(949) 265-5703
kgibson@vladvisors.com
7700 Irvine Center Drive, Suite 930 ⬧ Irvine, CA 92618 ⬧ 949-852-2288
www.VLadvisors.com ⬧ www.PhantomStockOnline.com
ThankYou!
6565
Post Webinar Intro
5 Minutes:
 Who We Are
 What We Do
 How We Do It
6666
6767
6868
7700 Irvine Center Dr., Ste. 930
Irvine, CA 92618
(888) 703 0080
www.vladvisors.com
www.phantomstockonline.com
www.bonusright.com

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6 Ways to Reward Long-Term Performance Without Sharing Stock

  • 1. 6Ways to Reward Long-Term Performance without sharing stock
  • 2. 22 Today’s Presenter: Ken Gibson SeniorVice President (949) 265-5703 kgibson@vladvisors.com 7700 Irvine Center Drive, Suite 930 ⬧ Irvine, CA 92618 ⬧ 949-852-2288 www.VLadvisors.com ⬧ www.PhantomStockOnline.com
  • 3. 33 We’re happy to provide a copy of today’s slides. To open or close the control panel: Click the red arrow For questions during today’s presentation: Use the question area on your control panel Webinar Q: Are the slides available? A: Yes, more info will be provided at the end
  • 4. 44 Webinar Survey Request a copy of our slides and complimentary consultation. We value your input. Those who complete the survey will be entered in a drawing for set of Apple Air Pods. (Drawn from pool of names of those who participate in the survey.)
  • 5. 55 Take advantage of a half-hour consulting call with a VisionLink principal at no charge. Indicate interest on final survey. Complimentary Consultation
  • 6. 66 Post Webinar Intro 5 Minutes:  Who We Are  What We Do  How We Do It
  • 7. 77 7700 Irvine Center Dr., Ste. 930 Irvine, CA 92618 (888) 703 0080 www.vladvisors.com www.phantomstockonline.com www.bonusright.com  Headquartered in Irvine, CA  Founded in 1996  Over 500 clients throughout North America
  • 8. VisionLink’s Focus: Help Business Leaders Build and Sustain a High Performance Culture Accelerate performance through pay strategies that transform employees into growth partners.
  • 9. If you do that… • Quality of talent will improve. • Employee engagement will expand. • Performance will be magnified. • Business growth will be accelerated. • Shareholder value will increase.
  • 10. 1010 Framing Today’s Topic “ Can I have equity?”
  • 11. 1111 Owner Mindset  I really need this person.  Willing to share stock if bigger pie is created.  What if bigger pie isn’t created?  How much will satisfy this person?  What will this do to my value?  Am I opening a Pandora’s Box?  What will trigger liquidation?  What will it “cost” me?
  • 12. 1212 CEO Talent Concerns One of the biggest headaches for CEOs is making sure that the organization has the right people to cope with what lies ahead. There’s the basic question of planning for the skills that are needed now and in the future: Which roles will be automated? What new roles will be needed to manage and run emerging technology? What skills should the company be looking for, and training their people for? Where will we find the people we need? PwC’s 18th Annual Global CEO Survey
  • 13. 1313 But more importantly, CEOs need to be sure that the business is fit to react quickly to whatever the future may throw at it – and that means filling it with adaptable, creative people, working in a culture where energy fizzes and ideas spark into life. If they can’t be found, they must be created. PwC’s 18th Annual Global CEO Survey (continued)
  • 14. 1414 Do You Really Need to Worry? “A January 2018 survey of 1,000-plus C-suite executives found that attracting and retaining talent is their number-one concern, outranking anxiety over the threat of a global recession, trade war, and even competitive disruption.” (Moneyball for Business, Fast Company, September 2018, Austin Carr)
  • 15. 1515 Do You Really Need to Worry? “Nearly 70% of business leaders participating in a new global survey said the current talent pool is shrinking. As a result, the competition for talent has increased, forcing employers to change their recruiting strategies.” (“Study: Shrinking Talent Pool Has Recruiters shifting Strategies,” HR Dive, October 5, 2018, Valerie Bolden-Barrett)
  • 16. 1616 Key Talent Trend By 2020, the worldwide shortage of highly skilled, college-educated workers could reach 38 to 40 million, or 13% of demand. (Source: McKinsey Global Institute, 2014)
  • 17. 1717 2020 is Here “The conversations overheard at every Chief Executive Group event this year undoubtedly echo the conversations you’re having with …the heads of every division in your organization: how to deal with the skills gap that has made it so difficult for companies throughout America to fill available jobs, increase often-stalled productivity, navigate change, and fuel the sort of disruptive activity that is essential for survival in this economy.” (Chief Executive Magazine, July 25, 2017)
  • 18. 1818 Why Long-Term Long-Term Value Sharing Matters
  • 19. 1919 Why Long-Term Value Sharing Matters #1 Value sharing attracts and retains the best talent and magnifies results
  • 20. 2020 Why Long-Term Value Sharing Matters #2: Value sharing plans reinforce the company’s business model
  • 21. 2121 Why Long-Term Value Sharing Matters #3: Value sharing protects against bad profits and promotes good profits
  • 22. 2222 Why Long-Term Value Sharing Matters #4: Value sharing promotes an ownership mindset
  • 23. 2323 Why Long-Term Value Sharing Matters #5: Value sharing builds trust and accelerates results
  • 24. 2424 What High Performers Want  There is a philosophy that guides pay decisions and I relate to it.  There is a mechanism for sharing value with those who help produce it.  I have some control over how much I can earn if I produce.  I feel a sense of partnership with ownership.
  • 25. 2525 Financial “Hierarchy of Needs” Cash Flow & Living Standard Risk Protection Retirement Planning Value Sharing Wealth Accumulation Qualified & Executive Retirement Plans Comprehensive, Flexible Benefits Plan Short & Long-Term Incentive Plans Salary & Bonus Wealth Multiplier Philosophy Clear Pay Philosophy 1 2 3 4 5
  • 26. 2626 9 Long-Term Value-Sharing Plans Stock Option Performance Shares Restricted Stock Phantom Stock Option Performance Phantom Stock Phantom Stock Profit Pool Performance Unit Strategic Deferred Compensation
  • 27. 2727 6 Non-Stock Value-Sharing Alternatives Phantom Stock Option Performance Phantom Stock Phantom Stock Profit Pool Performance Unit Strategic Deferred Compensation
  • 28. 2828 Grant Equity or Not Equity? Full Value or Appreciation Only? Yes Appreciation Stock Option Full Value Performance Based? Yes Performance Shares No Restricted Stock No Reward for Value Increase or Financial Performance? Value Increase Full Value or Appreciation? Appreciation Phantom Stock Option Full Value Performance Based? Yes Performance Phantom Stock No Phantom Stock Financial Performance Appreciation- Performance Based or Employee Directed? Performance Based Reward for Profit/Cash Flow or Other Metrics? Profits Allocation or Objectives Based? Allocation Profit Pool ObjectivesOther Metrics Performance Unit Employee Directed Strategic Deferred Compensation
  • 29. 2929 Do You Want to Share Equity? In a Private Company, when does it make sense? Key Questions  Competing against public companies for talent?  Need to attract or retain vital contributors?  Employees have earned an ownership stake?  Means exist for transferring or repurchasing stock?  Can accept the immediate dilution of your equity?
  • 30. 3030 If Considering Stock Options  Employees should participate in future growth only?  Can employees fund the purchase?  Means exist for transferring and repurchasing stock?
  • 31. 3131 Grant Equity or Not Equity? Full Value or Appreciation Only? Yes Appreciation Stock Option Full Value Performance Based? Yes Performance Shares No Restricted Stock No Reward for Value Increase or Financial Performance? Value Increase Full Value or Appreciation? Appreciation Phantom Stock Option Full Value Performance Based? Yes Performance Phantom Stock No Phantom Stock Financial Performance Appreciation- Performance Based or Employee Directed? Performance Based Reward for Profit/Cash Flow or Other Metrics? Profits Allocation or Objectives Based? Allocation Profit Pool ObjectivesOther Metrics Performance Unit Employee Directed Strategic Deferred Compensation
  • 32. 3232 No Stock ● Reward For Value Increase Full Value ● Not Performance-Based Phantom Stock
  • 33. 3333 Phantom Stock  Company establishes a phantom share value (formula or valuation)  Employees given an award that has current value essentially equivalent to company stock value (subject to vesting schedule)  No rights of ownership  Rewards for past contributions and future growth  Payments will be made in cash (or stock) at pre- determined dates  Full value awards create a direct link to ownership
  • 34. 3434 Grant Equity or Not Equity? Full Value or Appreciation Only? Yes Appreciation Stock Option Full Value Performance Based? Yes Performance Shares No Restricted Stock No Reward for Value Increase or Financial Performance? Value Increase Full Value or Appreciation? Appreciation Phantom Stock Option Full Value Performance Based? Yes Performance Phantom Stock No Phantom Stock Financial Performance Appreciation- Performance Based or Employee Directed? Performance Based Reward for Profit/Cash Flow or Other Metrics? Profits Allocation or Objectives Based? Allocation Profit Pool ObjectivesOther Metrics Performance Unit Employee Directed Strategic Deferred Compensation
  • 35. 3535 No Stock ● Reward For Value Increase Full Value ● Performance-Based Performance Phantom Stock
  • 36. 3636 Performance Phantom Stock  Employees given the promise to receive phantom shares upon fulfillment of pre-determined (often annual) financial goals  Shares can be full value or appreciation  “Double” pay-for-performance concept ▪ You earn shares based on performance ▪ Share values go up based on performance
  • 37. 3737 Grant Equity or Not Equity? Full Value or Appreciation Only? Yes Appreciation Stock Option Full Value Performance Based? Yes Performance Shares No Restricted Stock No Reward for Value Increase or Financial Performance? Value Increase Full Value or Appreciation? Appreciation Phantom Stock Option Full Value Performance Based? Yes Performance Phantom Stock No Phantom Stock Financial Performance Appreciation- Performance Based or Employee Directed? Performance Based Reward for Profit/Cash Flow or Other Metrics? Profits Allocation or Objectives Based? Allocation Profit Pool ObjectivesOther Metrics Performance Unit Employee Directed Strategic Deferred Compensation
  • 38. 3838 No Stock ● Reward For Value Increase Future Value Only Phantom Stock Option
  • 39. 3939 Phantom Stock Options  Employees given a promise of cash payment at a future date  The value will be based on the appreciation in stock price from the date of award to the date of redemption (like stock appreciation rights)  Like stock options but without the need to pay for shares  Rewards employees for contributing to the increase in enterprise value  Can be part of the employee’s annual pay package
  • 40. 4040 Grant Equity or Not Equity? Full Value or Appreciation Only? Yes Appreciation Stock Option Full Value Performance Based? Yes Performance Shares No Restricted Stock No Reward for Value Increase or Financial Performance? Value Increase Full Value or Appreciation? Appreciation Phantom Stock Option Full Value Performance Based? Yes Performance Phantom Stock No Phantom Stock Financial Performance Appreciation- Performance Based or Employee Directed? Performance Based Reward for Profit/Cash Flow or Other Metrics? Profits Allocation or Objectives Based? Allocation Profit Pool ObjectivesOther Metrics Performance Unit Employee Directed Strategic Deferred Compensation
  • 41. 4141 No Stock ● Reward for Financial Value Financial ● Allocation-Based Profit Pool
  • 42. 4242 Profit Pool  Employees given a right to participate in an annual distribution from an accumulating profit pool  A percentage of profits is credited to a pool that is to be distributed to selected participants in future years  Each participant is allocated a percentage of the pool  Typically, distributions may begin at the end of year 3 and recur annually  Productivity Profit concept calls for a reduction in pool for “capital profits” attribution
  • 43. 4343 Grant Equity or Not Equity? Full Value or Appreciation Only? Yes Appreciation Stock Option Full Value Performance Based? Yes Performance Shares No Restricted Stock No Reward for Value Increase or Financial Performance? Value Increase Full Value or Appreciation? Appreciation Phantom Stock Option Full Value Performance Based? Yes Performance Phantom Stock No Phantom Stock Financial Performance Appreciation- Performance Based or Employee Directed? Performance Based Reward for Profit/Cash Flow or Other Metrics? Profits Allocation or Objectives Based? Allocation Profit Pool ObjectivesOther Metrics Performance Unit Employee Directed Strategic Deferred Compensation
  • 44. 4444 No Stock ● Reward for Financial Value Financial ● Objectives and Performance- Based Performance Unit Plan
  • 45. 4545 Performance Unit Plan  Employees given award units (PUPs) with a current value  Units redeemable in a future year (3 years most common)  Payment is made in cash at the end of the period  The value of the PUP at redemption will depend on improvement in 2 (or 3) performance metrics  New PUP cycle starts each year, thus ultimately resulting in an annual payout
  • 46. 4646 Grant Equity or Not Equity? Full Value or Appreciation Only? Yes Appreciation Stock Option Full Value Performance Based? Yes Performance Shares No Restricted Stock No Reward for Value Increase or Financial Performance? Value Increase Full Value or Appreciation? Appreciation Phantom Stock Option Full Value Performance Based? Yes Performance Phantom Stock No Phantom Stock Financial Performance Appreciation- Performance Based or Employee Directed? Performance Based Reward for Profit/Cash Flow or Other Metrics? Profits Allocation or Objectives Based? Allocation Profit Pool ObjectivesOther Metrics Performance Unit Employee Directed Strategic Deferred Compensation
  • 47. 4747 No Stock ● Reward for Financial Value Financial ● Employee Directed Strategic Deferred Compensation
  • 48. 4848 Strategic Deferred Compensation  Employees earn a credit to a nonqualified retirement account  The amount based on pre-set company performance achievements (e.g., revenue and/or profit goals)  The funds in the account are “self-directed  Vested account paid in cash upon termination or retirement  Employee may add voluntary deferrals
  • 49. 4949 Grant Equity or Not Equity? Full Value or Appreciation Only? Yes Appreciation Stock Option Full Value Performance Based? Yes Performance Shares No Restricted Stock No Reward for Value Increase or Financial Performance? Value Increase Full Value or Appreciation? Appreciation Phantom Stock Option Full Value Performance Based? Yes Performance Phantom Stock No Phantom Stock Financial Performance Appreciation- Performance Based or Employee Directed? Performance Based Reward for Profit/Cash Flow or Other Metrics? Profits Allocation or Objectives Based? Allocation Profit Pool ObjectivesOther Metrics Performance Unit Employee Directed Strategic Deferred Compensation
  • 50. 5050 What Direction Should You Take? Value Tied To Total Value or Appreciation Only? Awarded or Earned? When Redeemed (Typically)? Executives or Broad (Typically)? Phantom Stock Options Share Price Appreciation Awarded 3-7 years Executives Full Value Phantom Stock Share Price Total Awarded 6-10 years Executives Performance Phantom Stock Share Price Either Earned 3-10 years Executives Profit Pool % of Profits Either Earned 3 years Broad PUP 2-3 Key Metrics Either Awarded 3 years Broad Strategic DCP 1-2 Annual Financial Metrics Either Earned Retirement Executives
  • 51. 5151 Steps (after selecting your plan type) 1. Determine eligible group (allow for future participants) 2. Build a financial growth model 3. Assess new value being created for shareholders 4. Determine the percentage or amount of the future value (or increase in value) to be shared 5. Select a grant schedule (typically annual) and begin illustrating the grants 51
  • 52. 5252 Steps (after selecting your plan type) 6. Test the model for Base, Target and Superior standards 7. Determine vesting schedule 8. Allow for turnover and future employees 9. Test cash flow (and determine if pre-funding is appropriate) 10. Document and launch 52
  • 53. 5353 Market a Future that’s Relevant  Here’s our future  Here’s how we’re going to get there  Here’s the role we picture for you  Here’s how we encourage our people to grow and contribute  Here’s our philosophy about pay and rewards  Here are our specific pay programs  Here’s how our pay programs could work for you if we achieve our plan
  • 54. 5454 Employee Value Statement Year 1 2 3 4 5 Targeted Results 100% 100% 100% 100% 100% Salary $160,000 $166,400 $173,056 $179,878 $187,177 STVS $64,000 $66,560 $69,222 $71,991 74,871 LTVS (EOY) -- $74,000 $186,000 $311,000 $448,000 401(k) @7% $17,120 $36,123 $57,169 $80,428 $106,086 Total Cash $224,000 $232,960 $242,278 $251,970 $262,048 Wealth Accrual $17,120 $110,123 $243,169 $391,428 $554,086 Total Value $241,120 $567,083 $942,407 $1,342,636 $1,767,343
  • 55. 5555 Therefore, What?  A long-term value-sharing plan is an essential incentive arrangement for growth companies  These plans create a differentiating edge that satisfies the expectations of top producers  They are not difficult to implement if you follow a careful process  You don’t have to share stock to share long-term value
  • 56. 5656 Webinar Survey Request a copy of our slides and complimentary consultation. We value your input. Those who complete the survey will be entered in a drawing for set of Apple Air Pods. (Drawn from pool of names of those who participate in the survey.)
  • 57. 5757 Take advantage of a half-hour consulting call with a VisionLink principal at no charge. Indicate interest on final survey. Complimentary Consultation
  • 59. 5959  New SaaS tool  Build and manage your bonus plan online.  Indicate on survey if you would like to schedule a demo.
  • 61. 6161 Free Report: What is an Employee Value Proposition? Request your copy on the final survey.
  • 62. 6262 Post Webinar Intro 5 Minutes:  Who We Are  What We Do  How We Do It
  • 64. 6464 Today’s Presenter: Ken Gibson SeniorVice President (949) 265-5703 kgibson@vladvisors.com 7700 Irvine Center Drive, Suite 930 ⬧ Irvine, CA 92618 ⬧ 949-852-2288 www.VLadvisors.com ⬧ www.PhantomStockOnline.com ThankYou!
  • 65. 6565 Post Webinar Intro 5 Minutes:  Who We Are  What We Do  How We Do It
  • 66. 6666
  • 67. 6767
  • 68. 6868 7700 Irvine Center Dr., Ste. 930 Irvine, CA 92618 (888) 703 0080 www.vladvisors.com www.phantomstockonline.com www.bonusright.com