Overview
In a management buyout, companies often use financial incentives to motivate future owners to increase the business value. A popular incentive plan, when phantom or restricted stock is not suitable, is a deferred bonus plan that can only be used to buy company stock. To qualify for the award, employees must be employed at the company at the time of payout. This ensures that they cannot walk away with the funds and further strengthens the connection between the employee and the company.
Transcript
Hi, this is Byron. I want to share with
you today some ideas on how to go about
making your management team bankable at
your exit. And the planning tip is what
we call a single purpose must be present
to win deferred bonus plan.
Let me break that down for you. The
single purpose refers to when the money
would actually be available to the
participant management member key
employee and that when you offer them an
opportunity to buy stock. Then, the plan
would vest and be payable and they could
use those funds to purchase the stock.
The second that must be present to win
means just that if they leave the
company prior to you offering them an
opportunity to buy, then that account
balance is forfeited and stays in the
company for other use. And then the third,
deferred bonus, refers to you creating
some form of incentive based on company
performance that would be paid in a
bonus at a later date, not in the year in
which it was earned, so therefore it’s
deferred.
