Strategies for Executive Compensation: Design and Tax Issues for a ...

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Incentive Compensation Issues in Corporate Transactions David Crawford Bill Sutherland April 10, 2012 © 2012 Towers Watson. All rights reserved. Introduction • A thorough assessment of incentive compensation programs is often overlooked during corporate transactions • At times, a thorough assessment does not get completed until well after the transaction has been completed • Our discussion today will aim to highlight some of the issues that can materialize for organizations that put themselves in play and for organizations looking to make an acquisition towerswatson.com 2 1
Acquirer (Buyer) Priorities in a Corporate Transaction Specific focus related to incentive compensation includes: Identifying and quantifying key issues that could impact the value of the transaction or the profitability going forward Identifying key issues that could impact business sustainability Identifying and quantifying any potential reputational risks Retaining key resources required to ensure success Limiting distractions towerswatson.com 3 Acquirer (Buyer) Perspective • A full review of the compensation programs needs to be completed concurrent with all other assessments during the due diligence phase, • The goal is to identify key issues that could impact the value of the transaction or the profitability going forward. Personal terms/contracts Formal plan documentation review Quantify the Potential financial impacts Who has contracts What are the separation liabilities that will be triggered as per change of control agreements, or as a result of future departure scenarios Are all long-term incentive awards immediately accelerated as a result of the transaction Does the plan include roll-over provisions What have the historical incentive payments/awards been What is the value of all outstanding equity holdings What are the financial obligations owed - in aggregate and for key executives towerswatson.com 4 2
Page 1 and 2: Strategies for Executive Compensati
Page 3 and 4: April 10, 2012 Strategies for Execu
Page 5 and 6: Incentive And Stock Compensation Ar
Page 7 and 8: Types of Private Equity Transaction
Page 9 and 10: Participation of Target/Portfolio C
Page 11 and 12: Exit Strategies and Investment Hori
Page 13 and 14: Key Design Considerations and Commo
Page 15 and 16: Stock Options - Rules for Canadian-
Page 17 and 18: Stock Options - Rules for Canadian-
Page 19 and 20: Share Purchase Loans • Management
Page 21 and 22: Cash-Based Long-Term Incentive Plan
Page 23 and 24: Cash-Based Long-Term Incentive Plan
Page 25: Non-Portfolio Company Incentives (c
Page 29 and 30: Program Treatment - Equity Compensa
Page 31 and 32: Dollar Amount Converted to RSUs/DSU
Page 33 and 34: U.S. Statutory Clawbacks (cont’d)
Page 35 and 36: Type and Relative Prevalence of Cla
Page 37 and 38: Potential Tax Relief for Later Year
Page 39 and 40: Conclusion • Clawbacks in Canada
Page 41 and 42: Long Term Incentive Plan Clawbacks:
Page 43 and 44: - 3 - are subject to recoupment. It
Page 45 and 46: - 5 - U.S., a wide range of incenti
Page 47 and 48: - 7 - review our policy to assure t
Page 49 and 50: - 9 - Cash and Earnings Bonus Unit
Page 51 and 52: - 11 - underway or contemplated at
Page 53 and 54: - 13 - operate, the terminated part
Page 55 and 56: - 15 - use of the provision where a
Page 57 and 58: - 17 - interest paid or payable the
Page 59 and 60: - 19 - right is to postpone tax pay
Page 61 and 62: - 21 - taxpayer under subsection 7(
Page 63 and 64: Bill Sutherland Bill is a Senior Co

Strategies for Executive Compensation: Design and Tax Issues for a ...

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