Business Valuation, Growing Value And Liquidity Realization (Part XIV Of Book Series)

Written by Michael Gilburd | Posted in TaxConnections

Compensation Studies – valuation expertise provides a platform to balance shareholder value and tax authority issues to form an opinion as to fair compensation for key employees.

Since the amount of compensation paid to key employees directly impacts shareholder value, a comprehensive approach that includes validation of stockholders’ investment is key to arriving at fair compensation.

The challenge is to determine how much compensation is fair without diminishing shareholder value.

Such studies include:
 Management compensation comparables
 Enterprise value (i.e., Business Valuation)
 Majority and minority shareholder value
 Royalty and commission arrangement impact

Examples of such studies:

 Nasdaq Public Company, Information Technology and Software. A Company seeks to evaluate the compensation a terminated CEO had been earning and the reasonableness of the compensation he was alleging he was due. The result was the CEO settled for a significant decrease.

 Private company, Wholesale Hardware Distributor. A minority shareholder seeks to show that the compensation policy bore no relationship to performance. The result was favorable to the minority shareholder, awarding him prior year dividends.

 Private company, Securities broker-dealer. A Company wants to reward its CEO who did not own any stock and seeks to determine, based upon past performance, how much stock he should be given. The result was recommendations to the satisfaction of both parties.

 Private Machine Manufacturing Company. The IRS challenged compensation on the grounds that by being in proportion to stockholdings, it was in fact dividends. The company seeks to support its compensation package and provide a study to the IRS.

 Nasdaq public Trucking Company. Two minority shareholders seek to show that the third shareholder was treating the company as if it were his personal bank account, without consideration of the best interest of the company or its shareholders. The result was an out-of-court settlement that changed the compensation package and the dividends to shareholders.

 Nasdaq public Telecommunications Provider. The Company seeks to defend a class action lawsuit by supporting the Board’s review of the compensation arrangement and obtain an expert’s opinion that is in the best interest of all the shareholders to maintain the compensation program and the management.

Have a question? Contact Michael Gilburd.

Michael Gilburd

Michael Gilburd, President of ValuCorp International, Inc., has more than forty years of experience in financial transactional services and corporate development.Founded in 1999 by Mr. Gilburd, ValuCorp is a national firm offering expert business valuation services and consulting of creating, improving and preserving value, capital markets and corporate finance advisory, transaction and fairness opinions, restructuring advisory, and management consulting. While serving many industries, ValuCorp specializes in financial institutions, healthcare companies, manufacturing and distribution, professional service firms, energy companies, construction, real estate ventures, and consumer product companies.

Prior to ValuCorp, Mr. Gilburd was:
• Managing Director of corporate finance for two American Express companies, where he assisted in raising funds for various transactions, including acquisitions and public offerings.
• National Director of Corporate Finance for BDO USA, one of the nation’s largest accounting and consulting firms, and a member of their International Corporate Finance Committee.
• Internal Revenue Agent, Manhattan District, New York

Mr. Gilburd has authored many Business Valuations, Family Limited Partnership Valuations and Loan Packages for private and confidential transactions and settlements.