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

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Types of Private Equity Transactions • The structure of the transaction and objectives of the principal investors will have a significant impact on design of incentive compensation arrangements – resulting in differences from public company equity and incentive compensation arrangements 4 Types of Private Equity Transactions (cont’d) • Most common are leveraged buyouts of target (or portfolio company), often with the participation of management • Transaction may be structured as a takeover bid, court-approved plan of arrangement, amalgamation or sometimes as an asset sale 5 Types of Private Equity Transactions (cont’d) • In some cases, a private equity fund or firm will take a minority equity position in the portfolio company or invest in debt of the company with the possibility of taking a longer-term equity stake Sources: Getting the Deal Through: Private Equity 2011, David I. Walker, Executive Pay Lessons from Private Equity, Boston Law Review May 2011 (survey of 144 U.S. portfolio companies) and September 2011 Blakes Study Recent Developments in Canadian Private Equity and Private Equity: 2012 Trends 6 2
Types of Private Equity Transactions (cont’d) • After initial investment by private equity fund or firm in portfolio company, there will often be “follow-on” investment that is intended to raise further capital to facilitate additional growth of the portfolio company’s business 7 Types of Private Equity Transactions (cont’d) • The private equity fund will also often recapitalize the business of the portfolio company by re-leveraging and taking out invested funds - those funds can then be distributed to investors in the private equity fund, deployed by the fund to make new investments or even redirected to other portfolio companies in which the private equity fund invests 8 Corporate Governance Considerations • Private equity fund or manager will often prefer to be the majority shareholder so that it retains ultimate decision-making power over the portfolio company 9 3
Page 1 and 2: Strategies for Executive Compensati
Page 3 and 4: April 10, 2012 Strategies for Execu
Page 5: Incentive And Stock Compensation Ar
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 and 26: Non-Portfolio Company Incentives (c
Page 27 and 28: Acquirer (Buyer) Priorities in a Co
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
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