#222: The Ultimate Guide to Executive Compensation Plans: Aligning Short- and Long-Term Incentives to Value Creation

November 04, 2020 01:09:43
#222: The Ultimate Guide to Executive Compensation Plans: Aligning Short- and Long-Term Incentives to Value Creation
Intentional Growth
#222: The Ultimate Guide to Executive Compensation Plans: Aligning Short- and Long-Term Incentives to Value Creation
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Hosted By

Ryan Tansom

Show Notes

Today’s episode is all about designing the most effective executive compensation structures while avoiding the most common mistakes. Craig shares how to come up with the perfect formula (designed off the financials and not some insurance product) that rewards employees in the short- and long-term, increases the value of your company, and pays for itself.

 

What You Will Learn In Today's Podcast Interview

 

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Podcast Summary

Today’s episode is all about designing the most effective executive compensation structures and how you, as a business owner, can come up with the perfect formula that rewards employees in both the short- and long-term, increases the value of your company, and pays for itself.

Craig Rutledge, alongside his company VisionLink, has been designing executive compensation plans for over two decades. He details multiple ways you can reward top performers with (phantom) equity that vests over time, based on the growth in the value of the business.

Not only will Craig’s examples highlight the incredible benefits to your business of awarding short- and long-term achievement, he’ll also talk about the potential pitfalls equity-based compensation plans open you up to, as well as how to protect yourself from them. 

The right exec comp packages will not:


An executive compensation plan done right essentially gets the employee you’re rewarding to pay for their own achievements and bonuses through value creation. It’s the ultimate win-win when all the cards are on the table and you’ve established trust. 

You can’t grow your company without the right people in place, so draw them to you with a phantom stock plan. You’ll soon find the easiest check to write is the one you give to your employees when they hit their bonuses. Plus, you can be incredibly flexible on when and how you pay out compensation structures so you don’t detract from your market value or otherwise jeopardize your ability to continue operating your business.

As Craig says, “Link the vision of your organization with the vision your people have for professional growth and reward.” If you take the time to have a frank discussion about what your employees can achieve, how they’ll be compensated for it, and what factors measure into their evaluation metrics, you can draw the best of the best to work with you and help you achieve goals currently beyond your grasp.

About the Guest:

Craig has been working with businesses and their executives in a compensation consulting role for over 25 years.  He currently serves as the lead consultant on many of VisionLink’s projects, specializing in long-term incentive plans and executive benefit programs.  In addition, Craig oversees our funding analysis and implementation for the long-term incentive plans VisionLink designs for clients.

 

Quotes:

13:03 - “How does this business create value? And then ultimately you can develop plans that share that value.” - Craig Rutledge

26:20 - “Our philosophy is that there is one plan with two performance periods.” - Craig Rutledge

28:40 - “The annual incentive plan speaks to driving annual profitability, revenue growth forth and it speaks to those things.” - Craig Rutledge

30:17 - “The perfect formula for these plans are EBITDA times a multiple, minus debt, plus cash. You know? So pretty common valuation metric for the plan.” - Craig Rutledge

46:00 - “In theory if we’ve got our formula value, conservative to the market value, and we based it on EBITDA, I should have the value to pay that person.” - Craig Rutledge

 

Links and Resources:

VL Advisors Website

Phantom Stock Online Website

Mastering Your Cash Flow Digital Course

ARKONA Boot Camp

Reach out to me if you have questions about the boot camp!

 

You can also reach out to me via email at [email protected], on my LinkedIn.

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