b'(continued from page 1) Either requires focus on operational efficiencies, valuecreation. Three of them are ways to share equity, enhancement and training/recruitment of key talent.three are different types of phantom stock plans and Each, more critical than ever.three are reward approaches that are tied to other Owners looking to hire an integrator, to take thefinancial measures (which impact business value). company to the next level, or to motivate oneMany organizations need help determining which internally, to focus on desired results, may betype of plan is suitable for their companies. This is wondering what they need to do now. Especially sincethe role of an independent consultant hired to direct there is more of this talent available, given the flip inthe process and see it through implementation. And talent demand. Salary, short term bonuses, benefits,to keep plan construction simple. culture, enthusiasm, etc. are important. However, owners looking to recruit/retain key talent today need3.Meaningful & Deferred Payout to focus on innovative Long-Term Incentive PlansIncentive award must be meaningful, if not compel-(LTPL).ling. When it comes to value-sharing opportunities, owners need to adjust their thinking if they expect to A New Paradigmattract/retain great talent and treat them like partners. The new paradigm in Long Term Incentive Plan designTodays marketplace indicates that incentive award requires a shift in perspective and focus.potential must reach at least 25% of key performers salary. With 50%+ being commonplace, after a fair return on shareholders capital. Less than these 1.Focus on Value-Creationthresholds are more consistent with discretionary or First, instead of key talent being hired to fill a position,periodic cash bonuses. Which elude the growth they are now being recruited to perform a role, i.e.partner mentality necessary to influence behavior integrator. As such, they are not being paid for theirand/or recruit key performers. Mentality where behavior (time spent, duties fulfilled, actions accom- owner and key performers are working in sync plished), rather they are being paid for achieving atoward a shared financial vision. And as partners, desired resultfor producing a targeted outcome. Thisapply an ownership mindset toward all their decisionhas led to a shift away from the idea of incentivizing- making. towards a philosophy of value-sharing.Ideally, your key performers compensation package Value-sharing is directly linked to value creation. Onceis made up of short term (ST) incentive-based pay, key performers understand how value creation isalong with long term (LT) incentive-based pay. Both defined for the business and what their role is intied to the attainment of predetermined financial creating and sustaining it, they understand how rewardbenchmarks. Benchmarks that again, reflect metrics is earned. And the more they help create, the more theyan owner wants to focus on. Those benchmarks may share in what they produce. They become growth- even be identical, with a portion of the annual award partners. They develop a sense of stewardship aboutpayed in cash (ST) and the balance (a majority in this protecting shareholder interests and apply an owner- authors opinion) at some point in the future, deter-ship mindset towards decision making. A mindset shiftmined by the owner. Time for a reality check. If that creates a unified financial vision for growing thegiven the choice, most key performers would prefer company. Thereby negating the familiar entitlementcash to a future promise of compensation. Here is mentality that often accompanies il-designed incentivewhere an owner must share a compelling vision for plans.the companys future. As a retention tool, long term incentive plans (4+ years) are critical. A design ele-2.Simplicity is a Mustment often overlooked. The incentive plan must be easy to understand first and foremost. For long term plans, paid for annual perfor- 4.Communication mance, reward should be tied primarily to profit. ThisAs important as previous design elements are, this is the measurement that not only aligns everyonesone is likely even more so. How an owner communi-efforts toward the only variable that fuels growth, butcates both the purpose of their incentive plan as well also has a direct link to enterprise value.as the mechanics, cannot be There are nine different incentive plan types thatunderestimated. If plan benchmarks and performance owners can employ to reward long-term valueexpectations are not understood or believable, the (continued to page 6) 5'