Using a deferred bonus plan to fund a stock purchase


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.


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


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