Restructuring Compensation – Reasonable Compensation Case Study
About the Company
Recently, NFP Compensation Consulting was engaged by a Fortune 500 telecommunications company for a project based on the compensation payable to the executive team through a restructuring. The noteholders believed the compensation recommended by the debtor advisors to be unreasonable relative to performance expectations outlined in the restructuring business plan.
Project Description
NFPCC was retained by the noteholder’s and bondholder’s counsel to serve as the expert on the reasonableness of the restructuring compensation package recommended by the debtor’s advisors. NFPCC took exception to the debtor’s analysis where there was:
- No risk or time adjustment applied to the long-term incentives being converted to annual cash compensation, and
- The per-participant amounts were well above the 75th percentile.
Utilizing the same peer group recommended by opposing advisors, NFPCC underwent a detailed analysis including base salary, annual incentives, and long-term incentives. There was a significant methodological and philosophical divergence between NFPCC and debtor’s (management’s) advisors. The old adage “numbers don’t lie but liars use numbers” resonated throughout this engagement, creating some ambiguity around the actual truth. The numbers in this case, and how they were interpreted were key.
Benefit to Client
NFPCC was able to save the client millions of dollars in what would have been guaranteed compensation, by building an incentive program which enhanced the motivation of management to achieve increasingly greater levels of performance in order to benefit all parties concerned (management and equity holders).
Benefit to Corporate America
It is absolutely imperative that corporate America not be motivated to go into restructuring with the temptation/promise of making more money as an executive team, than if you would have fought to stay a going concern. Creating a motivational compensation package where all constituents benefit as well as preserving long-term reputational equity for both executives and advisors is paramount!
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