Everything Equity

Join SRG’s webinar, Everything Equity, presented by Nicole Frey, CFP®, where you’ll learn everything you need to know about equity sharing. In this information-packed webinar, you can expect to learn: Key components of equity sharing Identifying the best plan for you and your company Differences between phantom equity to real equity Who should participate in equity sharing plans Tax considerations and implications Expert insights into rewarding key employees Retaining top talent Developing the next-generation ownership plan Don’t miss out on this opportunity to learn from an expert in the field. Fill out the form to watch the webinar on demand! Watch Recording

SRG Off Script: Succession & Equity Sharing Q&A

https://youtu.be/L87GvTcmIeg In the latest monthly webinar series titled SRG Off Script, David Grau Jr. answers your questions surrounding succession planning best practices, equity-sharing strategies, and other ways to attract and retain top talent. Submit your question(s) at registration or live during the webinar! SRG Off Script is a monthly webinar series hosted by SRG President David Grau Jr. David along with other industry experts provide insight and address questions related to all stages of managing a financial practice. Have a request for future SRG Off Script session topics? Let us know at registration or email marketing@successionresourcegroup.com Learn more about SRG’s services: Succession Planning & Equity Sharing. Schedule your free consultation today! Presenters David Grau Jr., MBA President/Founder

What is Phantom Equity and How is it Used?

As an incentive to motivate hard-working key employees, private employers can issue phantom stock, also known as “shadow stock,” as equity compensation. While the value of these phantom shares will rise and fall in line with the company’s stock, the employee will not gain any actual ownership over the company or minority shareholder rights. Privately held businesses can retain talent for their chosen vesting period as the phantom stock appreciates, and also ensure that their key employees are personally invested in the company’s performance. This arrangement can be very beneficial for both managers and employees, but there are several things to know before deciding if a phantom stock program will work for your business.   How Does Phantom Equity Work? Once an employee makes a big enough contribution to the company’s performance, their employer may choose to give them a number of phantom shares based on the significance of the contribution. The employer is able to dictate the terms of the program and will present the employee with a vesting period. The length of this period is established by the employer at the time of grant and most attorneys would tell you the vesting is often set at five years, which is when the employee is “vested” and could receive a payout. The challenge with vesting is related to taxation of the phantom equity plan for the employee. Yes, it is great to create a plan that vests quickly and is perceived as more “liquid” by the employee. Unfortuantely, once the equity is vested and there is no longer a risk of forfeiture, the employee will need to pay taxes on the non-cash compensation, which is likely to force them to liquidate some/all of their phantom equity, even if they otherwise wouldn’t.  For example, if the employer is growing quickly, and the employee vests in year five, even if the employee doesn’t exercise the phantom equity to be paid out, the risk of forfeiture is gone and the taxes are due from the employee as if they had been paid out. To avoid this, the plans Succession Resource Group helps establish with clients typically have vesting tied to a specific triggering event, and not a moment sooner. By pushing the vesting out and connecting it to a triggering event (such as a sale, the founder’s retirement, or the employee’s retirement), the employer can now control when the employee has to pay taxes – pushing the tax liability out until the employee would expect to receive cash. In the meantime, the plan can continue to appreciate in value as the employer grows without generating a short-term tax liability, and the phantom equity plan can act as intended – as a form of “golden handcuffs.” Once the vesting period is completed or based on the agreed-upon payout schedule, the employee is paid based on the appreciation of the company’s actual stock price. As there is no buying or selling of real shares, this bonus is considered regular income for tax purposes, not as capital gains. It is also possible for some phantom stock programs to convert the cash payout into the real equity along with voting rights, the details of which would depend on what the employer is willing to offer.   Types of Phantom Stock While the specifics of these programs are decided by each individual employer, there are generally two kinds of phantom stock awarded to key employees. These are called “appreciation rights” and “liquidation rights” plans. While similar in many respects, the two types have key differences. Appreciation Rights Appreciation-rights allow employees to benefit from the increase in value of the company following a grant, but does not give employees any perceived value at the time that the program begins. Instead, the amount awarded is actually the difference between the actual stock price at the time of the program’s payout and the price at the start of the vesting period. This type of phantom stock plan is more beneficial for the company, as it still encourages the employee to improve company performance without being as significant a cost for the company. That said, employees stand to gain nothing if the company’s actual value does not increase. Liquidation Rights This version of a phantom equity plan does grant employees the full value of the equivalent number of actual shares. Employees would still need to remain with the company for the entirety of the vesting period, but they would not have to run the risk of completing the program empty-handed. Liquidation Rights plans work really well when an employer is using the plan initially to reward past performance, such as showing appreciation for key staff that may have accrued some “sweat equity” in the business. That said, the company would need to be prepared to pay out that full amount on time or at least convert the value to actual ownership in the business, no matter how high the actual share price may have risen on the market.   Shortfalls and Benefits Like any venture in any business, phantom stock-based compensation plans come with their share of possible issues, but plenty of positives that outweigh the other considerations. Shortfalls Some of these potential issues have been reviewed already, but it is critical that any employer considering implementing this kind of equity sharing plan bear them in mind. As stated previously, when employees do vest, employers must ensure that they have enough cash to pay out the amount when the vesting period is over. Offering more phantom shares than you will be able to payout could be detrimental, so it is important to take that into consideration. Again, plans provided by SRG have some failsafe mechanisms built-in to ensure this isn’t possible, but it is important to run pro format scenarios to calibrate the plan before use. The company is also required to report any phantom stock plans to the real shareholders of the company as well as the DOL. It is also important to start have an annual third-party valuation

How Does Equity Compensation Work?

  Companies offer a wide range of employee compensation methods. Generous salaries, healthcare plans, and PTO are among the most common, but many companies also offer compensation that doubles as an incentive for high performance and long-term commitment. Equity compensation is just one example — but it takes a lot of different forms that are worth exploring.

Intro to Equity Sharing – Best Practice for All Company Sizes

As a business professional, I have no doubt you have met a colleague or two that has told you all about the horrors of having business partners. I too have heard these stories, and they are vivid reminders about the weight these types of decisions should command. With that as my disclaimer, I want to share with you some of the benefits of having junior partners and go beyond the obvious potential benefits like collaboration, sharing work, infusion of capital, or synergies.

Advisor to CEO: Best Practices for Your Growing Enterprise

https://youtu.be/-rL2IYZ0PKE The transition from advisor to how to be a CEO Your first job as a new advisor was to understand the industry and products, then get clients. Here you are, years later – you have great clients, you’re growing, and you’ve hired a good team. Whether by design or by default, you now find yourself in the role of both advisor AND CEO. This webinar will walk you through some tips on how to make that transition and prepare you on how to be a CEO. Now that you’ve gone from advisor to business owner, there are new best practices to consider to ensure you continue to be successful. Join us as we talk about the most interesting and compelling topics for successful business-owner advisors: Equity sharing strategies for your key people How to set up and properly leverage an entity and organizational structure How your organizational structure impacts value, employment agreements and restrictive covenants The right way to compensate your team Employment Resources Join David Grau Jr. from Succession Resource Group as he shares mission-critical considerations that will either drive or detract from the value of your enterprise.   About David Grau, Jr., MBA:David Grau Jr. is the founder and CEO of Succession Resource Group. He is currently one of the leading speakers in the financial services industry on mergers and acquisitions of independently owned financial services firms, as well as valuation strategies and practice continuity issues, with over 200 presentations to his credit. In the past five years, he has spoken at variety of the industry’s leading firms, including LPL Financial Services, Wells Fargo, Ameriprise Financial, MetLife, ING, AIG, Fidelity, Jackson National, Prudential, FSI and at many FPA chapters around the country. As an expert on advisor valuation, acquisition and succession planning, David has assisted hundreds of advisors and other professionals buy, merge, sell, and craft their transition plan for the sale of their business over the last decade.

Leveraging Your Growth: Equity Compensation Strategies for Advisors

Most financial advisors are aware that a succession plan is important to their business and clients. Based on the last study done by InvestmentNews in 2012, 94% of respondents acknowledged the need for a plan, yet only 7% of those respondents actually had a plan.