{"id":125792,"date":"2021-06-03T00:00:00","date_gmt":"2021-06-02T23:00:00","guid":{"rendered":"https:\/\/gs:8890\/academy\/ipo-executive-compensation-checklist\/"},"modified":"2021-06-03T00:00:00","modified_gmt":"2021-06-03T00:00:00","slug":"ipo-executive-compensation-checklist","status":"publish","type":"post","link":"https:\/\/www.jpmorganworkplacesolutions.com\/ie\/insights\/ipo-executive-compensation-checklist\/","title":{"rendered":"From Private to Public \u2013 IPO Executive Compensation Checklist"},"content":{"rendered":"

Private companies are from Mars and public companies are from Venus.<\/p>\n

Okay, we\u2019ve exaggerated, but there\u2019s no doubt that privately held and publicly listed companies run many aspects of their business differently, including how each handles executive equity compensation plans.<\/p>\n

Our IPO executive compensation checklist lays out 8 things for you to consider when transitioning your plan from pre-IPO. But, before going through our checklist, we first need to know why this matters.<\/p>\n

Why does Executive Compensation Matter When Prepping for an IPO?<\/b><\/h2>\n

There\u2019s extensive scrutiny of executive compensation by investors, regulators, and the public. So, companies should be mindful when planning for it.<\/p>\n

If you already have an executive compensation plan in place, it doesn\u2019t mean you can skip the process since executive compensation plans for private companies won\u2019t necessarily work well for public companies.<\/p>\n

So it\u2019s important to carefully review and plan your executive compensation program early in the\u00a0IPO process<\/a>.<\/p>\n

IPO Executive Compensation Checklist<\/b><\/h2>\n

1. Set up Compensation Committee<\/h3>\n

Any company in the pre-IPO period should have a Compensation Committee in place, whose responsibility it is to consider how best to modify all relevant executive compensation plans and practices. This process should begin as early as is feasible, but it usually doesn\u2019t happen quickly and it\u2019s normal for this to continue into the post-IPO period.<\/p>\n

The Committee effectively draws up a pre-IPO checklist, with the purpose of this being to create a roadmap that will enable a company to transition its executive compensation plans over time.<\/p>\n

2. Identify Peer Group for Benchmarking<\/h3>\n

Selecting a public company peer group will allow the Compensation Committee to effectively benchmark your own executive compensation approach as a publicly listed business.<\/p>\n

Companies in such a group should be of similar size, and this can be done by reference to key indicators such as business models, revenues, assets, market cap, and industrial classification.<\/p>\n

These peers should fall into an appropriate range in terms of size, typically 0.5 to 2 times the size of the company, to be a suitable comparator. Generally, the group consists of 12 \u2013 20 companies. Some even have 20 \u2013 25 companies.<\/p>\n

Don\u2019t underestimate the time and effort involved in peer-group construction. Poorly constructed peer groups have been linked with compensation levels that are either too small or too generous.<\/p>\n

3. Build Compensation Philosophy (or Framework)<\/h3>\n

A compensation philosophy is a well-documented report that formally outlines a framework for employee compensation with the rationale. It needs to be established early on, as it will serve as the foundation for most if not all compensation-related decision-making.<\/p>\n

Among the points that need to be addressed in forming this philosophy are:<\/p>\n