Alumna Susan Schroeder (’88), a member of UCLA Anderson’s Alumni Association board, discussed key compensation issues faced by family-owned businesses at the Anderson Steinbeck Family Business Seminar in April. In a session titled How Does Compensation Evolve as Leadership of the Family Business Transitions from One Generation to the Next? she shared insights about leading effective and profitable family-owned businesses.
By Susan Schroeder (’88)
The CEO sitting across from me needed some expert advice. This was the first time that the company would promote a non-family member to the same position. How should he pay the person who would eventually lead his family business? How could the employee acquire company equity so that he would be aligned with the family’s interests, without diluting the family stock holdings? These are the types of issues I address in my role as an executive compensation consultant.
Blending the disciplines of finance, strategy and human resources, executive compensation consulting emerged in the mid-1980s. I was well-situated to get into this emerging professional field because of my time spent at UCLA Anderson. During the management field study project (now known as Applied Management Research), I found that I enjoyed consulting a great deal. This interest, combined with the strong financial analysis skills I learned in my finance curriculum, led me to work with larger consulting firms. About 14 years ago, I branched off to co-found Vivient Consulting, a boutique executive compensation consulting firm based in Los Angeles. In Latin, vivient means to motivate and incent, and we specialize in designing incentive plans.
There are various reasons that an organization engages a compensation consultant. Generally, organizations will retain a consultant when a major change is underway (such as the transition of a CEO or management team), or when the client has a difficult time attracting or retaining talent, wants to instill a performance-based culture, or has other concerns regarding value-creation or organizational changes.
As an example, Vivient Consulting recently helped a professional services firm transition from private to a public company. We helped with the compensation issues relating to its Initial Public Offering and helped the client restructure their pay levels and pay mix to compete in the public realm and transition from having an internal market for stock transactions to a market with real liquidity. We also helped the client answer the question of how they might redistribute stock to ensure that the next generation of executives had sufficient stock to successfully lead the company forward.
When consulting for family-owned businesses, the compensation recommendations and considerations become more varied and often more complex. For the same family-owned professional services firm, Vivient Consulting helped with the transition to a non-family member CEO. While there was a need to provide the executive with real, value-based incentives, there was also a need to safeguard the interests of the family. In order to accomplish this, we developed a combination pay plan that included a stock option grant with performance vesting, a required stock purchase by the employee, and an outright grant of stock.
As each family-business is unique and the interests of each family vary, we are tasked with coming up with creative solutions in order to reach the desired outcome.