17. Executive Compensation Issues in Spin-Offs, Divestitures
and IPOs

This final chapter focuses on another important special topic in
executive compensation; anticipating and addressing the executive
compensation issues that arise when a company is either spun-off,
divested, or goes public.

The authors begin with important background explaining
some of the intricacies of the different kinds of corporate restructurings
and also briefly examining the accounting, tax and
securities law issues that are relevant in such transactions.
The core of the chapter is devoted to a discussion of the variety
of compensation issues, and implications, that arise as a result of
these organizational changes. Because the effects of these changes
are so far-reaching, the authors make a clear case for the need
for a fundamental and systematic reexamination of just about
everything; from total rewards philosophy, to pay levels and mix,
to plan design, and to a number of special one-time issues.

There is considerable attention paid to both severance plans
and retention incentives, as both can become very important in a
major corporate restructuring. The authors also discuss the variety
of issues surrounding the treatment of outstanding equity, and how
to think about initial-year equity grants in a new entity. Divestiture
incentives are also discussed in regard to situations where it is in
the parent company’s best interest to make certain that executives’
interests remain clearly aligned with the goal of achieving a timely
and successful divestiture.

This chapter is important for all compensation professionals as
it highlights not only the key issues that need to be anticipated and
addressed at the time of a corporate restructuring, but also plan
design and philosophical issues that should be set well in advance
of such a change. —Editors



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