<i>Dear Workforce</i> What Impact Will Our IPO Have on Human Resources?
June 13, 2011
Public companies are under intense scrutiny by Wall Street analysts, shareholders and the public, and it is critical that human resources understand the significant ramifications of being a public company, particularly in the following areas:
There are many requirements of the U.S. Securities and Exchange Commission relating to compensation and benefits. Companies file many public documents with the SEC, starting with the S-1 public offering filing, which requires business and financial data as well as a detailed executive compensation section.
The SEC revised its proxy disclosure rules in 2006, and again in 2009, to require multiple tables that apply to public companies and those going public, as well as the compensation discussion and analysis, or CD&A, detailing the company's compensation philosophy. Private companies do not ordinarily draft a CD&A, and many will not have a compensation philosophy.
Once public, the company must file the following documents containing compensation-related information:
Public companies also must comply with provisions of the Sarbanes-Oxley Act of 2002, including documentation of appropriate internal controls. Usually the HR department must conduct a thorough review to ensure compliance.
Impact on company culture
The most significant impact relates to how public-company executives communicate with employees. It remains vital to keep people informed; however, executives must be careful in what they say—and when and how they say it. It is common for the CEO to hold employee meetings either live or via video feed, to enable viewing by employees on the day quarterly earnings statements are announced.
HR needs to be cognizant of employee-morale implications of a rising or falling stock price. With executive compensation in the public eye, there can be morale issues based on perceptions of high levels of compensation during negative events such as layoffs.
Equity-based compensation plan design
Publicly traded stock provides a new form of "compensation currency" that can be used as an incentive and retention tool for top performers who are not necessarily part of senior management. Clearly, this needs to fit with the company's overall compensation philosophy and must be affordable. Conversely, equity-based programs previously offered might be curtailed if the number of shares available is more limited because of dilution concerns.
Clearly, HR in a newly public company assumes significantly greater accountability, and HR leaders need to prepare their staff to accept this accountability.
SOURCE: Larry Schumer, Principal, compensation, Buck Consultants, Boston