Executive Pay

Executive Pay Watch: The Hurdles of Remuneration For IPOs and Spin-Outs

Ken Charman, 16 August 2021

articleimage

When a business holds an IPO and goes public, so many issues change, and one of the most important is pay and remuneration. Of course, the prospect of IPOs - and the lure of offering key staff shares - is an important part of how firms incentivise staff.

Ken Charman FRSA, a regular writer on executive compensation trends, comments here on issues surrounding initial public offerings and the spin-outs of companies. These developments bring their own complexities when it comes to pay and compensation packages. Charman is chief executive of uFlexReward (more details on that business below).

Going public can be a huge deal for any company. It represents a degree of maturity and acceptance into a global market. However, the issues surrounding this change are notable, especially when it comes to remuneration for employees in light of the restructuring. Employers need to be able to strategically navigate this shift, all while communicating and coordinating with employees. Having comprehensive rewards monitoring systems don’t just stand to make the process much easier, they may be essential. Fortunately, products already available today are able to facilitate just this type of functionality.

Remuneration headaches around going public
Many successful new ventures have ambitions to accelerate their growth by gaining access to more capital. A well-understood way for a private company to facilitate this is to begin selling shares of their company to the public in an Initial Public Offering (IPO). Another option, if a business is growing faster in one department than the wider business as a whole, could be to “spin-out” that area as its own - now independent - public company.

In either event, it is this creation of a public entity out of a previously private one that can have a variety of complications for the businesses trying to make the transition. None the least of these concerns involves the increased scrutiny and regulatory oversight that is applied to public companies. Staying in line with relevant legislation is essential if the CEOs don’t want to run afoul of the government, and this means employees at all levels need to be aware of and enforcing proper company policies. 

The issue of remuneration during and after the transition is an area where many private company executives are unfamiliar with regulations and guidelines. Often their business has grown in an organic way in which highly personalised reward packages have been expeditiously agreed upon.  These deals have the potential for trouble when viewed under the microscope of gender and ethnicity pay-gap analysis and reporting. The adaptation to being answerable to a Remuneration Committee that is interested in this data can prove difficult. Anomalies, bias, variation from fair and equal pay rhetoric will suddenly become accountable. But the naughty step should not be avoided just to satisfy the regulators. The coming of age of being a public company is also an occasion to tidy up rewards that may have, unintentionally, failed to fully consider the well-being and motivation of employees in the rush and excitement of rapid growth. If compensation for workers (at all levels) isn’t handled carefully, companies risk demotivating and losing their greatest asset — the employees whose efforts were so important in their success. 

Fixing these issues once going public, can be costly and could lead to unexpected reputational liabilities. It’s far better to introduce a system beforehand that can analyse and identify any problems in reward across all forms of reward for all employees. It is not just taking account of how senior executives are compensated before and after the IPO or spin-out. It is also vital to ensure the company is paying in line with its stated policies at all levels and providing compensation that is fair and transparent to keep the best talent on board and aligned with a shared company vision.

Modern Rewards Tracking Is Becoming Essential
Considering all of these potential issues and the enormous complexity of reward that is administered in separate systems for salaries, incentives, pensions, benefits and shares. It is essential to digitise and automate the consolidation of data so that the true values can be seen for every form of reward and every employee. 

These all-inclusive platforms are finally becoming available in a form that is fast to implement and economical to operate (as low as $10 per employee per year) and they provide a means for employees to see the full value of the investment that company is making in their personal reward in real-time. This leads to greater fairness as well as satisfaction, and as mentioned having a system like this in place before the move to public offering is preferable than trying to fix things later. 

Fortunately, uFlexReward is able to help. uFlexReward is itself a spin-out company based on Unilever’s global digital reward system. The goal is to offer flexibility to employees by personalising rewards to their individual life needs, meanwhile providing employers with insight and clarity through digitisation and consolidation of all rewards into a single, real-time, integrated global environment.

By deploying just such a platform, employers can have a high degree of visibility and control over their whole organization, which is essential for navigating an IPO or spin-out endeavor. Thanks to uFlexRewards, they also don’t need to build this system from the ground up, merely integrate the work that has already been done. Even for private companies, the benefits to efficiency and employee loyalty stand to be massive. However for companies going public, these tools may prove invaluable.

About The Author

Ken Charman FRSA, CEO – uFlexReward; Visiting fellow, Institute of Ageing, Department of Medicine, Newcastle University. 

uFlexReward is a consolidated HR and rewards data platform providing organisations with a granular view of their total labour costs and a technology framework for managing the workforce of the future.
 

Register for WealthBriefing today

Gain access to regular and exclusive research on the global wealth management sector along with the opportunity to attend industry events such as exclusive invites to Breakfast Briefings and Summits in the major wealth management centres and industry leading awards programmes