Equity-Based Remuneration

Equity-based remuneration programs are an extremely important tool for the organization. For the most part, they are formed for senior executives in public or private companies in all sectors. Equity-based remuneration programs facilitate the creation of a sense of partnership between the employees and the company owners. The program helps consolidate the link between the company’s long-term performance and in particular the performance of the company’s share, and the actual remuneration paid to its employees.

Equity-based remuneration is a kind of forward-looking remuneration. It is derived from the future expected appreciation of the company or from the change in the share price relative to the set exercise price. This is a program which opens an avenue for substantial potential remuneration of the employee in case there is an improvement in the company’s long-term performance, looking forward 3-5 years.  

Options, restricted stock, RSU (restricted stock units), performance-based options, phantom units – are all commonly-used tools in share equity-based programs.

The selection of the remuneration tools has a major influence on the remuneration amount, on the perceived value of the program in the eyes of the employees, on the dilution rate, the accounting expenditure level, etc. Organizations therefore devote considerable thought when selecting the right remuneration tool for them.

THE BOTTOM LINE IS - EQUITY-BASED REMUNERATION PROGRAMS PROVIDE TWO MAIN BENEFITS:

The first: creating correlation between the stockholder’s interests in the long term and the interests of the employees

The second: an important advantage from the employee’s perspective – the possibility of a special taxation track relative to a cash remuneration.

At the same time, in case of remuneration being given according to the share value, there is one main disadvantage to the equity-based remuneration, which has to be pointed out. This disadvantage is due to the fact that the link between the executives’ performance and the share value sometimes is not aligned,

It is therefore possible that an accounting expenditure will be entered in the books despite the fact that in reality no remuneration was paid to the program participants.

In order to emphasize the clear advantages of equity-based remuneration, it is recommended that a detailed program be built, individually-tailored to the nature of the company, its employees and executives.

WHY IS IT WORTHWHILE TO IMPLEMENT EQUITY-BASED REMUNERATION PROGRAMS?

  • They help companies carry out their business strategies
  • They bring about an improvement in the business results over time
  • They consolidate the link between the company’s performance and the remuneration of its employees and senior executives
  • They increase the employee’s motivation and identification with the company
  • They advance long-term employee retention within the company

WE AT COMPVISION HAVE BEEN SUPPORTING COMPANIES AND ORGANIZATIONS FOR OVER 15 YEARS. WE CREATE DETAILED PROGRAMS, HELPING TO MAXIMIZE THE ADVANTAGES OF THE METHOD.

WHAT DOES THE PROCESS OF BUILDING THE EQUITY-BASED REMUNERATION PROGRAM INCLUDE?

  • Definition of the partners to the process within the company: beginning with the owners down to the person responsible for putting the program together and implementing it.
  • Forming the prevailing remuneration concept within the company: conversations with representatives of the owners and senior executives to understand their philosophy on awarding equity-based remuneration within the company.
  • Review of the existing remuneration tools and market trends: a comprehensive market survey to check what is being done in structurally similar organizations and companies and what the different trends are in this field.
  • Building alternatives for a remuneration model: according to the decision as to the participants in the program, the world view of the owners, the Board of Directors and management, the corporate culture and other relevant details.
  • Setting the parameters for the selected program: taking into account parameters such as the remuneration tool, the vesting terms, options’ (or shares’) lifetime, exercising price, how the options (or shares) should be handled following termination of employment, ownership change event.
  • Building simulation to evaluate the effect of changes in the various parameters – vesting period, exercise price, dilution percentage, distribution of the remuneration amount among the employees, the accounting expenditure, etc.
  • Formation of a final model and approval of the program at the relevant executive levels.
  • Intra-organizational dissemination and assimilation – as an integral part of the program’s effectiveness.
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Equity-based remuneration raises many questions among senior executives and influential players within companies and organizations. Through a structured process of examining the feasibility, market survey and by building a detailed action plan, these questions can be addressed and the process can proceed without interruption.

Compvision’s experts support you in building this plan and in receiving the relevant answers along the way.

לפרטים נוספים ולקביעת פגישה – צרו איתנו קשר ונחזור אליכם בהקדם.