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The Beginning of a Succession Plan: Rewarding key employees

Opportunity 
An investment advisor wanted to reward and retain its key employees. These employees were thought to be the next generation of this private firm’s leadership, key to client retention, and were performing at a high level. The advisor was interested in learning how to accomplish this with tax efficiency and without negatively impacting their income statement.

Solution
Wolf & Company suggested amendments to the organization’s documents that provided for the purchase and redemption of ownership interests at an industry accepted valuation formula.  Interests could then be sold to the key employees at the formula price in exchange for a bona fide note. The employees would pay the note with cash from future bonuses, future profit distributions or personal funds. 

Result
The advisor was able to preserve cash, not have a share based compensation expense charged against earnings, avoid taxes on the employees for a compensation related award, and allow the key employees to begin to enjoy the benefits of business ownership.  In addition, this strategy was the start of a plan for the firm’s own succession with individuals who were incented to make the firm even more successful!