CHAPTER 21 APPLICATIONS IN EXECUTIVE COMPENSATION PLANNING
Jeff and Alice McClain live in a small rural farming community that is home to one midsize manufacturer of farm equipment. Jeff is the company’s CFO, but he does not have an ownership interest in the business. When he was hired, the company was privately held and the owners did not think of either sharing ownership or growing their company. In the past five years, though, Jeff and his longtime friend Steve, the former CEO, implemented a new business plan and grew the business from one with $10 million of gross receipts to over $100 million.
Thanks to their success, Steve was recruited away six months ago by a hedge fund that specializes in the rehabilitation of manufacturing companies. Steve’s new job provides a generous salary, de minimis fringe benefits, and a company car, as well as an ownership stake in the businesses he rehabilitates. His role at the hedge fund is to identify manufacturing companies that he thinks can be successfully rehabilitated and turn them around, much as he and Jeff did with the farm equipment company. In this case, though, he will be able to benefit from any appreciation of manufacturing company stock, thanks to his ownership stake.
After one of the hunting trips the two have always loved to take, Steve asked Jeff to join him in the new venture. Jeff would once again act as a CFO ...