SPAC Attack: Unwieldy Expectations, Proxy Time
Being a company involved in a SPAC is kind of like being a genius 6-year old or an incredibly tall 13-year old. While you are clearly able to do some amazing things, you are not yet fully ready to address all of the challenges of the grown-up world. But, unlike a kid, you don’t get the benefit of the doubt or have advocates arguing for people to give you a break while you mature. Maybe being in a SPAC transaction is more like those movies where a kid wakes up after a dream to find themselves a fully grown adult with all of the benefits and problems that it entails.
With about 300 SPAC Acquirors on the prowl for the perfect company to bring public, the SPAC wave has not yet crested. Many of you reading this post are either working for a company or being recruited by a company where a SPAC transaction is a real possibility. Most of those companies are not truly ready for that intensity of the spotlight but will need to perform on stage regardless.
Let’s start by discussing a couple of the new things where you will need to help. Publicly-traded companies need to produce a Compensation Discussion and Analysis (CD&A) and a Summary Compensation Table as part of their public filings. The CD&A is a narrative document that tells the story of your executive compensation program. The Summary Compensation Table details the prior three years of compensation for your Named Executive Officers (the Top 5 paid officers including your CEO and CFO.)
There are great guides and templates for your CD&A all over the internet, but you will still need to become a storyteller to get the job done. At the minimum, you must explain the objectives of your compensation programs as a whole, and each program as an element of that whole. You will need to cover:
An overview of every element in your pay program
The reason you chose those elements, and the specific way each is awarded to individuals. This included formulas, discretionary considerations, determination of amounts, etc.
How each pay element fits into the overall compensation objective and how its efficacy is measured.
If you are like the compensation professionals at many private-held companies, that uses pay approaches to try to boost employee satisfaction, you may have a general idea about the answers to these questions. You have probably never had to put things into words that will be scrutinized by investors and the media outside of your tight circle of “friends.” Writing a first concise and compelling CD&A is critical. It becomes the first chapter in a series of annual CD&As as your company matures.
As for the Summary Compensation Table, you may be at a company where the “clean-up” of historical records has been on your “to-do” list for a couple of years. With a SPAC transaction, you have a few weeks to wrap that up. You need to understand every employment agreement, every weird one-off offer letter. You need the details behind every pay element given to Joe or Sally because they “demanded” it, or were somehow related to the CEO or founder. Once you have all of this you will need to put it into a very prescriptive table with footnotes explaining every unusual or interesting number. None of this is impossible, but all of it will feel very foreign if you haven’t done it before. On top of all of this, you will be working with Legal, Finance, and a bunch of outside consultants and attorneys. It is a good idea to make a friend or two on the team. Things will be bumpy at times.
Once again this is a cliff-hanger because I have run out of room! If you have been through a recent SPAC feel free to comment on anything that you found particularly difficult or surprising about getting prepared and making yourself look good during the challenging process. My next post is in March, so feel free to reach out if you want information before then!
Dan Walter is a CECP, CEP, and Fellow of Global Equity (FGE). He works as Managing Consultant for FutureSense. Dan is also a leading expert on incentive plans and equity compensation issues. He has written several industry resources including a resource dedicated to Performance-Based Equity Compensation. He has co-authored ”Everything You Do In Compensation is Communication”, , “Equity Alternatives” and other books. Connect with Dan on LinkedIn. Or follow him on Twitter at @DanFutureSense.
About FutureSense
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