Page 52 - Initial Public Offering - An Introduction to IPO on Wall Street

whom transparency was given except for the condition that these persons were not executives
at the end of the financial year.

For EGCs, this will be the three highest paid executives. Proving that compensation is fair
relative to market standards and appropriate for the objective and success of the business is
important. Unjustifiably low pay attracts recruiters, while absurdly high pay draws undesirable
scrutiny from analysts and investors.

The accountability for compensation for executives must be shifted to an independent board
committee. A public organization’s board of directors has a fiduciary obligation for the
executive compensation levels and services. Public corporations also have separate
compensation boards that review decisions related to the pay of executives.

Another important tip for aspiring IPOs would be to prepare for increased scrutiny from both
the media and the shareholders. While shareholders support the coordination of shareholder
and executive interests, they closely track executives' compensation practices to guarantee
performance compensation.

There is more criticism of compensation policies for executives with "say on compensation"
advisory shareholder votes rising at different organizations. Institutional Shareholders Services
(ISS) and other organizations that advise shareholders released voting guidelines
recommending that the executive compensation be in line with the growth of the business and
the return of shareholders.

Questions on both the rationality and the effectiveness of the new total rewards program can
be raised. But an organization should be able to explain pay policy and activities.

4.3.6 Governance and Leadership

The IPO readiness evaluation requires organizations to assess governance and leadership in
order to build an effective management team. Broadening their management capabilities is
necessary for organizations preparing for an IPO. The potential shareholders want to be certain
that the public company they will be investing in is not a ‘one-man show’.

This necessitates the inclusion of personnel with marketing, administration, finance, and
development experience in the public sector experience. Also some businesses would want to
appoint a CFO who has previously been through the IPO process. The management team must
be coherent and express a long-term vision for the company in order to achieve the highest
possible financial return and appreciation.

When assessing governance and leadership for IPO readiness, an important thing to do is to
gain an understanding of the basic requirements for governing a company in the public sector.

There are several requirements for companies in the public sector that influence their
governance practices and the composition of their board, as well as the duties, and structure of
their board members. Therefore, it is necessary to begin by understanding the fundamental
guidelines that will apply once an organization goes public.

A variety of guidelines on governance are given by the SEC. For instance, autonomy, power
and selected duties are addressed by unique criteria for compensation committees and audit
committees.

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