Synergy-Based Incentive Plan

  • Executives have a synergy-based incentive target on top of the current annual incentive plan (AIP)
  • Department heads will have the ability to allocate discretionary pools to other employees
  • Management plus other employees involved in workstreams are eligible
  • The synergy plan target would be prorated. If paid at six months, then 37.5% of base salary would be paid. If paid at 18 months, 112.5% of base salary would be paid.
  • Allocated pools would be distributed on a discretionary basis to those employees facilitating the achievement of synergy goals
  • Regular AIP payments in Year 2 would only be made if synergy goals are achieved

Current Annual Plan
Target Award % of Salary: 75%
Company Performance: 60%
Individual Performance: 20%
Teamwork Skills: 20%

Plus

Synergy Based Plan
Synergy Plan Target (% of Base Salary): 75%
 

Incentive Plan Funding

  • Synergies must reach a certain threshold before the plan will fund
  • For example, if synergy guidance of $100 million was communicated to investors, there would be no synergy-based incentives available until at least $100 million in synergies were achieved
  • Incentives are based on a percentage of incremental dollars saved that exceed public synergy goals
  • Pools of discretional funds would be allocated to each management team based on headcount responsibility
  • The total value of the pools would be the difference between the management team target awards and total funded value of the plan
  • For example, if the total funded value of the plan is $15 million, and the management target awards total $12 million, then $3 million would be allocated to discretional pools
  • Discretionary awards would be given to only those employees with the most direct and significant impact on realizing synergies  
     

Advantages of Plan

  • Provides significant level of focus on achieving synergy-based goals
  • Approach is not difficult to implement
  • Funding levels and target award opportunities can quickly be determined
  • Holds management directly accountable for synergy results
  • Eliminates difficulty associated with different time horizons of the annual current incentive plan and synergy objectives
  • Provides the ability to distribute awards to employees below the management team who have significant impact on achieving synergy goals

Related Presentations