Carrots, Handcuffs, & Parachutes Carrots, Handcuffs, & Parachutes Compensation Best Practices Compensation Best Practices

in Times of Changein Times of Change

Chris CrawfordChris Crawford(281) 378-1353(281) 378-1353

crawfordc@longnecker.comcrawfordc@longnecker.com

The Evolution of RewardsThe Evolution of Rewards

ComponentsComponents• Hourly • Salary

• Benefits• Salary• Variable pay• Equity• Benefits

• Salary• Variable pay• Equity• Retirement Benefits• Employment Agreements• The work experience• Perquisites

1930-50s 1950s-1970s 2000s1980s-1990s

Unparalleled Compensation LandscapeUnparalleled Compensation Landscape Sarbanes Oxley - 2002Sarbanes Oxley - 2002 409A409A IRS AuditsIRS Audits FAS 123RFAS 123R SEC Proxy DisclosureSEC Proxy Disclosure Unfunded/Underfunded Pension LiabilitiesUnfunded/Underfunded Pension Liabilities Media attention on Executive CompensationMedia attention on Executive Compensation 70 Million Retiring Baby Boomers70 Million Retiring Baby Boomers Tremendous growth in Texas Energy & Banking Tremendous growth in Texas Energy & Banking

marketsmarkets

Support Business Strategy

Externally Competitive

Attract, Retain and Motivate

Cost-effective

Internally equitable

Objectives of Employee RewardsObjectives of Employee Rewards

Business Life Cycle ChangesBusiness Life Cycle Changes

Compensation Best Practices: Compensation Best Practices: Start-upStart-up

Amount of PayAmount of Pay Target Compensation 3-4 years outTarget Compensation 3-4 years outMix of PayMix of Pay Low emphasis on Base Salary, High emphasis on short term Low emphasis on Base Salary, High emphasis on short term

incentive, Highest emphasis on long-term incentiveincentive, Highest emphasis on long-term incentive Utilize actual stock (restricted stock, stock options) when Utilize actual stock (restricted stock, stock options) when

possiblepossible Multiple year, long-term incentive awardsMultiple year, long-term incentive awards Short-term incentives: formula + discretionShort-term incentives: formula + discretion Employment Agreements: Non-solicitationEmployment Agreements: Non-solicitation Emphasize Work Experience, Being able to affect changeEmphasize Work Experience, Being able to affect change

Compensation Best Practices:Compensation Best Practices:GrowthGrowth

Amount of PayAmount of Pay Target Compensation 1-3 years outTarget Compensation 1-3 years outMix of PayMix of Pay Market Base Salary, Market Benefits, High emphasis on Market Base Salary, Market Benefits, High emphasis on

short-term and long-term incentiveshort-term and long-term incentive Utilize actual stock (restricted stock, stock options) when Utilize actual stock (restricted stock, stock options) when

possiblepossible Deferred compensation: Restricted Stock and/or Company Deferred compensation: Restricted Stock and/or Company

MatchMatch Employment AgreementsEmployment Agreements

Compensation Best Practices:Compensation Best Practices: M&A M&A

Retain, Retain, RetainRetain, Retain, Retain

Acceleration of stock vesting – Be Wise!Acceleration of stock vesting – Be Wise! Transition/Transaction BonusesTransition/Transaction Bonuses Change of Control/Termination Payouts: Multiple of Base + Change of Control/Termination Payouts: Multiple of Base +

BonusBonus Employment AgreementsEmployment Agreements Non-Solicitation AgreementsNon-Solicitation Agreements

Compensation Best Practices: Compensation Best Practices: Tight Labor MarketTight Labor Market

Attract & RetainAttract & Retain

Sign on AwardsSign on Awards 1 Time Retention Awards: Stock & Cash1 Time Retention Awards: Stock & Cash Deferred Compensation + Company MatchDeferred Compensation + Company Match Recognition, RecognitionRecognition, Recognition Diversify the long-term incentive awardsDiversify the long-term incentive awards Tailor compensation programsTailor compensation programs

Questions Questions