May 12, 2016 Executive Compensation Executive & Director Pay Design Articles

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Executive & Director Pay Design

Seeing Beyond the IPO Tips Compensation Committees Can Use to Avoid Unintended Outcomes and Ensure Effective and Durable Compensation Programs

Leading up to an IPO, compensation planning and strategy often take a backseat to the immediate business demands and actions that are required to take the company public. With so many new requirements, the focus of the Compensation Committee is often on the work needed to prepare for the IPO event, and not on the tomorrows that follow.

These challenges are exacerbated for companies where the internal infrastructure is still being built. This short-sightedness can lead to reactive pay decisions, result in inequities (internally or versus the market), and expose a company to negative shareholder perceptions once the IPO halo has faded.

The compensation dynamics for a public company are wildly different from those of a private company. Going from one state to the other brings significant change and attendant challenges. There are different stakeholders, new regulatory and governance-related requirements, and a host of new and often unanticipated issues. In planning for an IPO, Compensation Committees would be well served to take a proactive, long-term view of compensation, and have a strategy and structure in place to guide the company through the transition.

We’ve developed five tips from our work with Compensation Committees before, during, and after an IPO. The extent to which these apply will vary by situation, but we’ve found they form a strong starting point for most Compensation Committees.

View the full article as it was originally published.

Seamus O’Toole

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