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A metal fabrication company with 1,000 total employees worldwide

The Situation

The management of this privately-held company wanted to ensure that it was paying the appropriate compensation levels for its executive and selected management positions vis-à-vis the external competitive market. The annual incentive plan had both a cash component and an equity component. 50% of the award was paid in cash and 50% in phantom stock units (PSU). The equity component had a 5-year vesting schedule. Management felt that not everyone understood the Plan. Some executives and senior managers felt that the 5-year vesting schedule created a loss of income that they had already earned if they left the Company. There was some sentiment that the PSUs did not create any kind of handcuffs to retain executives.

The Deliverables

  • Assessed the strengths and limitations of the current management incentive plan based on the inventory and analysis of the current program, as well as the feedback from the interviews with management and its directors and external benchmark data.
  • Using external published survey and proxy data, the review also included an in-depth analysis and review of the company’s approach to compensating the executive positions compared to the market with respect to base salaries, annual and long-term incentives.
  • Developed an assessment of the company’s incentive program compared to industry benchmarks and best practices. Developed a model of key success determinants for the incentive plan design – both annual and long-term. Performed a gap analysis.
  • Developed some initial alternative plan design concepts for consideration.
  • Prepared recommendations to increase the value of the company’s management incentive plan including: type of plan design; incentive targets; degree of leverage; mix; performance measures and range of award opportunities; weighting of performance components; payout formulas and mechanics; timing of payouts; etc. A cost/sensitivity analysis was also provided that compared the current plan designs with the proposed plan designs.

The Results Achieved

  • Two plans were developed: a management incentive plan focused on annual results and paid out in cash, and a new long-term incentive plan that was focused on Phantom Stock Units. Only the company’s top management was eligible for this plan.
  • The Board and management were very pleased with the project results and the design of the new plans.