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IDear Workforce-I How Do I Handle Dot-com Compensation

Pre-IPO comp has changed.
July 19, 2000
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Related Topics: Compensation Design and Communication, Dear Workforce, Compensation
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Q

Dear Workforce:

My banking company has just spun off a dot.com company, which as in any dot.com company, the staff are given independence, are allowed to dress differently (dress down) etc, etc. The dot.com is currently treated as a subsidiary of the parent bank, but much support still comes from the parent company.

In fact, the dot.com staff are still employees of the parent company, seconded to dot.com. They still share the same compensation programs, including share options of the parent company. There are--owever--plans to offer the staff under the dot.com company their own share options when it eventually is listed on the stock exchange (as is quite usual with dot.com companies).

Parent company staff are getting jittery and we see the beginnings of envy--as they have to provide the IT, financial accounting, and other support to the people working in dot.com but will not see the fruits of the valuable share options of dot.com when it eventually is listed…and all sit within the same building.

What are some of the compensation implementation issues which have to be carefully addressed to make the compensation changes successful?

--Patricia, VP of HR, Singapore

A Dear Patricia:

Traditionally, compensation for entities awaiting IPO was set very low and very simple, in order to improve the pro-forma financials for the underwriting. The lure for employees would be stock and stock options.

However, it seems that recently no one cares much about pro-formas when doing an underwriting (no profits, no foreseeable profits, very little revenue), and I have also observed high cash compensation as well as options to attract the employees.

There are also some technical issues. I don't think "secondment" answers the crucial question of common law employment. Presumably these employees are common law employees of the dot.com. Offering options to these people in the dot.com stock prior to the underwriting has been causing SEC issues recently (this is assuming we are dealing with a U.S. offering, and the employees are protected by U.S. securities laws).

 

SOURCE: Jim Klein, an attorney and partner with Deloitte & Touche.

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