Restructuring Compensation Services
Combining our restructuring heritage, executive compensation expertise and proven techniques with forward thinking creativity, A&M’s Restructuring Compensation team helps Clients build effective pay programs that balance rewards for key employees with the concerns of stakeholders, including creditors, the U.S. Trustee and the bankruptcy court.
Executive compensation programs are one of the most important levers in a restructuring. We assist in developing and defending appropriate compensation programs to motivate and reward key executives and employees during the restructuring. Our professionals help companies with designing, benchmarking and negotiating Key Employee Incentive Programs (KEIPs), Key Employee Retention Programs (KERPs), post-emergence Management Incentive Plans (MIPs) and severance programs.
Key Employee Retention Programs
KERPs are compensation plans used to encourage key non-insider employees to remain with the company through the restructuring. As the normal-course bonus program and long-term incentives are often providing little to no retentive effect, KERPs are critical to retain the company’s most-valuable employees during a time of distress.
For company “insiders,” the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) prohibits companies from utilizing such retention programs. Rather, companies must now adopt alternative bankruptcy protection plans, such as KEIPs, for insiders.
Key Employee Incentive Programs
Since BAPCPA restricts companies from offering KERPs for insiders, many organizations choose to use a performance-based incentive plan, known as a Key Executive Incentive Plan.
The plan’s performance targets should align with company strategies and objectives and prove to be a true incentive for key employees to reach challenging goals. They’re typically tied to financial metrics, restructuring goals or a combination of both.
A&M’s expertise in crafting reasonable plans that are fair, reasonable in context of the debtor’s assets, and consistent with industry standards helps companies negotiate key employee incentive plans that can weather a bankruptcy court’s scrutiny.
Post-Emergence Management Incentive Plans
Often, equity awards granted pre-bankruptcy will have no retentive value after the restructuring. In order to provide incentive and retention in the go-forward entity, many companies exiting a restructuring reserve a portion of new equity for long-term incentive grants to employees under a MIP. Design of MIPs involves determining what amount will be reserved for initial emergence grants, how much to reserve for future equity grants, how these grants will be allocated and how awards will be structured.
Severance Programs
Severance programs can act as a retention tool and are often subject to negotiation with the post-restructuring owners. When designing a severance program, it is important to balance the overall potential cost with providing market-competitive benefits. Additionally, there are special requirements for severance payable to insiders that must be met if the restructuring results in a bankruptcy filing.
How A&M Can Help
As part of this comprehensive restructuring process, we can assist with the overall design of KEIPs, KERPs, MIPs and severance programs.
Over the past 15-plus years, we have developed a robust database of compensation programs approved since the enactment of BAPCPA that will be drawn upon in designing appropriate compensation programs.
A&M provides the following comprehensive restructuring compensation services:
- Design: We provide assistance with the overall development of KEIPs, KERPs, and MIPs and severance programs, including benchmarking the structure and potential cost;
- Examination: In conjunction with the company and legal counsel we assist in the determination of who may be considered an insider;
- Negotiation: We assist with the communication of the compensation programs with other stakeholders to help the company achieve the best possible outcome; and
- Testimony: We provide Bankruptcy Court testimony on the reasonableness of the programs in terms of design and potential payout amounts.
Why Should You Use A&M’s Restructuring Compensation Solution?
Our broad expertise working with distressed companies, coupled with our deep knowledge of market compensation trends, uniquely positions A&M to ensure Clients retain and incentivize key employees throughout the restructuring process. Rely on us for:
- Knowledge: Our database of over 1,000 companies and the compensation programs that they have put into place before, during, and after a restructuring, allows us to quickly assess market practices and ensure the programs we are recommending are reasonable from a market standpoint.
- Experience: We possess an unrivalled ability to design and deliver custom pre- and post-bankruptcy compensation solutions to maximize the chances a company can retain senior executives and key employees through the bankruptcy process.
- Strategy: We offer a thorough framework for addressing primary and tangential concerns related to the complex rules and bankruptcy code regulations governing executive pay within the context of a bankruptcy proceeding.
- Integrity: We bring integrity to the quality of the compensation programs we structure and are willing to testify in bankruptcy court on the reasonableness of the program’s design and payments.
Did you know?
A&M’s database of over 1,000 companies ensures your compensation programs are aligned with the market.
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