subject: The IPO (Incentive Plan Opportunity) for IPOs [print this page] The IPO (Incentive Plan Opportunity) for IPOs
Last year saw positive economic growth in a number of areas, one of which was U.S. IPO activity. According to investment bank Renaissance Capital, there were 154 IPOs completed last year, and although that number was down 29% from 2004's numbers, it was a 144% leap from 2009's numbers. The performance of those 154 IPOs was also positive: according to Renaissance, the average U.S. IPO rose 25% last year, marking the best returns since 2006.
And it seems 2011 is carrying out the IPO momentum, with many companies on the IPO docket this year. There has also been a great deal of speculation lately about high-profile social networking companies Facebook and LinkedIn undergoing IPOs later this year, and Internet radio firm Pandora Media Inc. filed a US $100-million IPO in February.
What does this mean for the financial services industry? There are many considerations companies must take into account when considering going public, including what to do with existing equity plans during and after the transition, or how to design equity plans that will complement their new status as a public company. If you are a company in this position, going public requires you to think about or re-think the design, administration and applications of your equity plans.
If you haven't already introduced incentive plans, this is a component you'll need to add as you transition to a public company. The three most common types of incentives are stock options, restricted stock units (RSUs) and share purchase plans. Talk to an industry consultant to understand what type of instruments are most adequate to ensure your company's competitiveness in the marketplace, and to determine which plan types would be the best fit for your company's specific needs and culture.
If you already have incentive plans in place, you will need to take into account the impact on your employees of being market-based. For example you'll need to find ways to offer your employees a convenient method of exercising/selling shares in the market. One of the best ways to do this is by enlisting an administration provider that allows for cashless exercises/real-time sales and that offers your participants a simple and user-friendly equity plan experience.
Whether or not your company already has incentive plans in place, you'll need to consider that there will be disclosures related to plans and financial reporting, and other regulatory requirements (such as insider filings) that will come into play once the IPO is complete. You will also need to consider how you will deal with public and shareholder scrutiny post-IPO about executive compensation, by designing plans that align company and shareholder goals as well as long-term corporate agendas.
In any case, it's important to contact a consultant who can help you design plans customized to your company's specific needs. Contact one of Solium's Solutions Consultants for more information.
