Business Law – Compensation Planning

Developing a Bonus Plan to Incent & Reward Key Employees

JT Mann, Partner

Situation

An advertising services firm in Boston’s MetroWest had two owners. They sought to establish an executive compensation plan for their top three senior employees. The firm had operated for over ten years and, as is common, did not have a formal compensation plan in place that included a bonus structure. Each year, the partners determined how the management level would be rewarded for their contributions to the firm’s success. The partners sought counsel from the Business Law practice at Wilchins Cosentino & Novins to guide them in designing a clear, documented bonus plan to incent and compensate these key employees.

Action

JT Mann, leader of WCN’s Business Law practice, met with the two business owners discussing their goals and counseling them on key considerations for establishing an executive bonus plan for the key people at their advertising firm. While the owners intended to reward the management level with equity, Mann recommended a bonus plan incentivizing them with a percentage of annual profits.

Outcome

The bonus plan was developed, documented and contracts executed with each of the three managers, providing them with a clear, contractual agreement to be rewarded with a significant percentage of the firm’s annual profits, and with a commitment to be paid if the company was ever sold to a new owner.

The two partners achieved their goals of rewarding and recognizing the contributions of their key managers, and the executives now have a documented commitment that ensures that they will be paid bonuses as the company grows – and if it is ever sold.