#336: How to Create the Best Executive Compensation Plan with Craig Rutledge from VisionLink
Intentional Growth
Designing Compensation Plans for Company Growth and Success
This chapter explores the design and alignment of executive compensation plans, focusing on value sharing plans and the importance of driving growth, attracting and retaining great people. The speakers discuss the concept of short-term and long-term value sharing plans, as well as the complexities of equity ownership in private businesses. They also explore alternatives to traditional fund operating agreements, such as tying compensation plans to equity value through synthetic or phantom equity.
Ep.#2 [THEME SEVEN]
Do you dream of being a “passive” owner while a team of A-Player executives scale your company to new heights?
Today’s episode is devoted to breaking down HOW to make this dream a reality by creating “Value Growth Partners” out of your A-Players via an executive compensation plan that aligns ownership and leadership’s short- and long-term goals.
Today, I have Craig Rutledge, Managing Director of VisionLink, back on the show to break down in crazy detail the various ways to design a compensation package for your A-Players that you don’t regret, actually works, and pays for itself.
Craig covers the spectrum of compensation plans from traditional wages/benefits, to short-term cash bonuses, to long-term value growth plans. He explains when and where each strategy is appropriate and the pros and cons of that particular strategy. One of my favorite parts of this episode is how much clarity is brought to the different types of compensation plans and the best ways to design them in order to align ownership and key executives’ goals.
Craig makes it very clear–if the plan is designed correctly–that it should not only pay for itself, it should magnify your value growth strategies by tying the plan to your desired business model, target customers, good profit (as opposed to bad profit…yes, there is such a thing), and company culture.
If the plan is designed right, it should increase your opportunity to decouple your leadership role from your ownership role, give you more time to actually work ON the business instead of IN the business, reduce your stress and anxiety, increase the value of your business, and give you options when you want to exit while simultaneously reducing the need to stay on after the sale.
After having Craig on the show for a second time, I truly believe that it is possible to build a financial roadmap to your target equity valuation and hire A-Players that are tied to a plan that is 100 percent aligned with the business. The right plan, clean numbers, and the right A-Player should actually allow you to manage the business from an island via an executive scorecard… the dream EOS© is constantly preaching.
// WATCH THE INTERVIEW ON YOUTUBE: Intentional Growth™ Podcast
What You Will Learn
- The difference between short-term incentives versus long-term value creation.
- How to design a plan that pays for itself.
- How to turn your A-Players into “Value Growth Partners.”
- The difference between good profit and bad profit.
- Why it is not necessary to use insurance in a good executive plan.
- A ton of different ideas on how to vest the key executive.
- Why the right plan can increase trust and enhance your company culture.
- When–and how–to add operational performance criteria (non-financial metrics) to a compensation plan.
- How to tie payouts to events.
- How to handle a change of ownership control.
- When scheduled redemptions might make sense.
- What it means to create a compelling future and why that is the cornerstone to get all your shareholders aligned.
- When and why it might be a good idea to have a rolling vesting and payout schedule.
- How to create an executive compensation plan based on where you want your equity value to be at a point in time in the future.
- What happens when the A-Player executive quits, dies, retires, or gets fired.
- What happens if you don’t want to sell and how the executive gets their money.
// USE YOUR FINANCIALS TO CLARIFY A PATH TOWARDS A MORE VALUABLE BUSINESS: Intentional Growth Financial Assessment
Bio:
Craig has been working with businesses and their executives in a compensation consulting role for over 25 years. He currently serves as the lead consultant on many of VisionLink’s projects, specializing in long-term incentive plans and executive benefit programs. In addition, Craig oversees the funding analysis and implementation for the long-term incentive plans VisionLink designs for clients.
Interview Quotes:
11:08 - “You have to make the reward offering fit that business strategy.” - Craig Rutledge
17:15 - “I gotta tie them to that equity value.” - Craig Rutledge
19:00 - “Use that intrinsic value along the way.” - Craig Rutledge
25:18 - “I truly believe you can get everyone aligned.” - Ryan Tansom
30:52 - “You have to have a belief, as a shareholder, that you need those people to get you there.” - Craig Rutledge
35:41 - “I actually like formula value even better that an actual third-party, formal appraisal.” - Craig Rutledge
41:45 - “Full value shares are a little more retentive because they have value.” - Craig Rutledge
48:58 - “If they’re leaving, they’re still entitled to that money.” - Craig Rutledge
57:35 - “It’s a really good way, in longer term outlooks (where it could go 10 year, or 12 years, or 15 years), is to schedule some redemptions in the plan. Use an annual reward and schedule some redemptions.” - Craig Rutledge
58:56 - “It allows you to keep giving people more shares because you’re redeeming them all the time.” - Craig Rutledge
1:04:12 - “If a guy quits, I don’t wanna pay him at all.” - Craig Rutledge
1:06:35 - “These are the happiest checks that shareholders write to people.” - Craig Rutledge
Links and Resources:
The 5 Intentional Growth™ Principles (5 Videos to Help Clarify Your Vision)
Intentional Growth™ Financial Assessment
You can also reach out to me via email at rtansom@arkona.io, or on my LinkedIn.
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