Ep. #222 - Aligning Short- and Long-Term Incentives to Value Creation

Today’s episode is all about designing the most effective executive compensation structures while avoiding the most common mistakes. Craig shares how to come up with the perfect formula (designed off the financials and not some insurance product) that rewards employees in the short- and long-term, increases the value of your company, and pays for itself. WHAT WILL YOU LEARN: -What phantom stock or stock appreciation rights (SAR) plans are and how to make them work for you. -How to transform employees into valuation growth partners. -The importance of setting a par value for your business’s equity value before you finalize comp plans. -Why it’s important to discover the exact strategies your employees’ can control in order to design the ideal compensation structure. -The benefits of using long-term planning when looking at appreciation awards and why normalized EBITDA is often the best evaluation metric. -How to transaction-proof (plan for both a transaction OR keeping the business) your compensation plans. -How to plan for every triggering event that can lead to a payout. -The strength of an abundance mindset over a scarcity mindset. -How to account for phantom stock liability and protect all parties, as well as learn the difference between funded and naked liability. -The value of communication and transparency during planning to draw in the most qualified people who will help you smash through your ceiling. -How to build and sustain a high-performing culture while getting your executives to pay for themselves. -The most common valuation metric for compensation plans is EBITDA x multiple - debt + cash. PODCAST INTERVIEW QUOTES: 13:03 - “How does this business create value? And then ultimately you can develop plans that share that value.” - Craig Rutledge 26:20 - “Our philosophy is that there is one plan with two performance periods.” - Craig Rutledge 28:40 - “The annual incentive plan speaks to driving annual profitability, revenue growth forth and it speaks to those things.” - Craig Rutledge 30:17 - “The perfect formula for these plans are EBITDA times a multiple, minus debt, plus cash. You know? So pretty common valuation metric for the plan.” - Craig Rutledge 46:00 - “In theory if we’ve got our formula value, conservative to the market value, and we based it on EBITDA, I should have the value to pay that person.” - Craig Rutledge ABOUT CRAIG: Craig Rutledge is a Partner with The VisionLink Advisory Group (“VisionLink”). Since 1995, VisionLink has been helping transform rewards systems to become key results drivers. Craig has been working with businesses and their executives in a consulting role for over 20 years. He currently serves as the lead consultant on many of VisionLink’s projects, specializing in short and long‐term incentive plans and executive benefit programs. In addition, Craig also oversees funding analysis and implementation for the long‐term incentive plans VisionLink designs for clients. Craig graduated from University of California, Los Angeles in 1987 with a bachelor’s degree in Political Science.