The Beginning of a Succession Plan – Rewarding Key Employees


An investment advisor wanted to reward and retain 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.


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.


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 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!