Seeking Guidance: Structuring Compensation for a Key Operator Role

searcher profile

November 04, 2024

by a searcher from Ben-Gurion University of the Negev in Pittsburgh, PA, USA

I'm working on an independent sponsor acquisition of a profitable professional services firm. The company has around a dozen staff, with the current owner-operator planning to exit over the next three years. We need to recruit a strong operator who can relocate to a geography that might be challenging for talent attraction and eventually take over leadership. The role also requires a specialized professional license.


Compensation Considerations:

Base Salary: To make the opportunity compelling, I’m considering a base salary in the $200K to $250K range, which is above the typical $170K-$200K for similar roles.

Equity Incentives: I’m thinking of offering traditional options that could vest up to 2-3% of the company over five years. However, I’d appreciate insights on structuring these options to align well with long-term commitment and company success.



Independent Sponsor Context: Since my economics are much more highly tied to the company’s performance (through a deal fee and carried interest/promote structure), aligning the operator’s incentives to drive success is crucial.


I’d love your input on:

1. Structuring traditional options in a way that supports retention and performance.

2. Creative ideas for incentivizing relocation, especially given the challenging location and licensing requirements.



Any advice or experiences you can share would be incredibly helpful!

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commentor profile
Reply by a professional
from Dartmouth College in Los Angeles, CA, USA
On the relocation point, you will likely have to offer a longer severance period if things don't work out. From the operator's perspective, if they are going to move to an unsexy place, they probably need comfort that they have a large safety net if you or the board decide to cut ties. Typically would be 6-12 months but maybe you go to 18 months. And a pro rated bonus. And a tighter definition of Cause so they get comfort on that piece as well. You may also consider a shorter vesting period on their share of the promote. My guess would be that the operator is going to need to see a reasonable time horizon in which they can make good money, and then hopefully once you get them in there they like it and want to stay. Perks like a travel allowance to go visit their family if they don't also move right away also go a long way towards building goodwill, even if not economically that significant.
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Reply by a searcher
from University of Florida in Miami, FL, USA
Hi ^redacted‌ - congrats on the acquisition! I'm setting up a program where I would act as a sort of integrator/operating partner for deals of this size and structure.
The idea is to help searchers like you recruit industry-experienced operators and then work with them (and you) over 6-12 months to help build the playbooks and structures necessary to take the acquisition to the next level.
The idea is to increase the pool of available talent by lowering the managerial requirements of the role, and instead building everything they need during their first few months in the position - as well as ensuring they're aligned with your interests.

Would love to chat further if you're interested in learning more!

Thanks!
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