Executive Compensation
Challenge
A leading exchange engaged McLagan to assist them in their demutualization/IPO process. The exchange was in need of policies and programs relating to executive and director compensation that would allow them to compete with other public companies.
The symptoms of this problem varied:
- The absence of stock meant that there were no long term incentives to encourage executives to
- Stay with the firm, and
- Participate in the growth of the firm.
- With the lack of equity, all incentives were paid in cash, resulting in less cash available for new investments, and no ownership stake for most executives.
- The firm lacked a formal structure or benchmark against which to evaluate pay decisions.
- The directors’ compensation was uncompetitive.
Solution
McLagan interviewed key managers, human resources executives and directors to understand the firm’s business objectives, the existing culture, and forward looking compensation philosophy.
McLagan proposed an integrated total compensation structure which was market-based and appropriate for and consistent with their strategic initiatives.
Results
The Board of Directors has approved the plans pending shareholder authorization. As a result, management is fully engaged and enthusiastic about the transition.
The Board and shareholder representatives were also pleased that there was a new framework and formal process against which all compensation related decisions could be made.
This process should result in a more cost efficient and effective total compensation process at fiscal year-end.
