Designing Retention and Transaction Incentives to Support a Strategic Sale

Background

A mission-driven, not-for-profit organization was exploring a potential sale of its for-profit subsidiary. The Board engaged Southlea to review compensation and recommend improvements and retention awards.

Challenges

Current compensation was not aligned with a successful transaction outcome; executives were being asked to work towards their own termination. Further, given the not-for-profit nature of the organization, executives would not benefit from a liquidity event, unlike in traditional equity-based compensation programs.

The Board requested practical and effective options to motivate the executive team during the strategic review, incentivize them to achieve the best deal, and retain them through to a potential transaction closing date.

Results

Southlea held interviews with the leadership team and the Board, reviewed existing compensation arrangements, employment agreements, and termination provisions. At the deliverable stage, Southlea:

• Proposed clear alternatives
• Modelled participant experience (including treatment of outstanding incentives and severance provisions)
• Tested scenarios (range of transaction values, no transaction)
• Created aggregated costing analyses
• Compared to generally accepted market practices (including sharing rates and private company context)

The insights enabled the Board to select a preferred and defensible approach to manage talent risk, especially in a not-for-profit context.