On May 5, 2022, McDermott Partner Erin Turley delivered a presentation during the 2022 TEA National Conference titled “Understanding a Trustee’s Role in Management Incentive Plans.” Her presentation focused on the trustee’s role in Management Incentive Plans (MIPs), how retention and performance stock appreciation rights (SARs) impact an employee stock ownership plan (ESOP) and ways to avoid trustee pitfalls with a MIP. Erin also discussed types of synthetic equity design decisions, incentive stock options, non-statutory stock options and phantom stock/SARs.

The presentation concluded with the following fiduciary considerations:

• Since the issuance of any equity or synthetic equity can have a potentially dilutive impact on the ESOP, it is important for any plan to be in the best interest of the ESOP plan participants.
• As a result, one of the primary objectives of the plan should be to identify and select a group of people to be incentivized and rewarded to drive value for everybody.
• For example, in the case of a SAR, you are rewarding a group of individuals based only on appreciation in the value of the company stock. If the value goes up, that’s good for everybody.
• The overall compensation program should be in line with compensation practices for comparable-type positions in the industry, perhaps taking geography into account.

For questions about employee benefits matters, please contact Erin or McDermott’s employee benefits practice team.