Compensation Programs Need to Support a Company’s Succession Plan

Irvine, CA, May 03, 2013 --(PR.com)-- Business owners need to institute pay strategies that can facilitate and even support their transition plans, according to Tom Miller, president of The VisionLink Advisory Group, a compensation consulting firm headquartered in Irvine, CA. This is especially true when it comes to developing long-term incentive plans, the firm leader said.

“I often get questions from business owners such as: ‘Can I use phantom stock as a way to transition myself out of the business?’” Miller explained. “Their intuition is correct but several questions have to be answered before determining whether phantom stock is the best approach for what they want to achieve. The problem is, too many companies don’t think about how these issues should be coordinated, and it’s critical they are.”

Given the importance of this topic to so many businesses, VisionLink will be broadcasting a free webinar on May 21, 2013 entitled, “Compensation and Succession Planning: an Integrated Approach.” (More information and registration for this event can be accessed at: http://www.vladvisors.com/business-growth-strategies/event-details.aspx?ID=113.)

According to Miller, some businesses try to look at compensation independent from their succession plan. As a result, there is no integration between the two and multiple problems can emerge.

“A person that owns a business needs to anticipate what the succession plan will be long before the anticipated sale of that company,” the compensation expert said. “First of all, for any long-term rewards strategy to be meaningful—such as phantom stock, stock options or deferred compensation—participating employees are going to want to know what the plans are for the business. How long does the owner plan to keep the company? What is his or her exit strategy? These things matter if someone has been promised a benefit payout years down the road.”

VisionLink’s president went on to explain that, in addition to their impact on key talent, the right compensation strategies can ultimately help the owner make a smoother transition out of the business and facilitate a potential buyer’s acquisition of the enterprise. “Just one example is the use of deferred compensation,” Miller added. “If the owner anticipates selling the business in say five to 10 years, he or she could set up a deferred compensation plan now to generate an income stream at departure. That can be an efficient way to get value out of the business on a tax deductible basis (to the company) and lessen the price a buyer has to pay for the acquisition.” Miller was quick to add that this isn’t a formula solution for everyone; just one of many strategies that can be employed if owners plan ahead.

The pay consultant went on to say that business owners should get assistance with this kind of planning. “There are a lot of moving parts and you’ll want to get expert advice to ensure all of the legal, tax, design and structural issues are coordinated and addressed properly.”