Perpetuation Stock Incentive Plan A Perpetuation Stock Incentive Plan is a plan that could put an independent insurance agency on the right track.
The plan is a checklist for ownership criteria, a mechanism to mold shareholder attributes, a process for producers to acquire stock, and a vesting schedule to glue producers to the agency.
The example plan, below, assumes that an agency provides a stock bonus, subject to five-year vesting, equivalent to 30 percent of the value attributable to growth in a producers book of business above a 15 percent net growth goal.
If the percentage shared with producers is crafted properly, the dollar increase in agency value achieved by the existing shareholders will more than offset the resulting percentage dilution in ownership.
To ensure that participants have some skin in the game, the plan calls for the recipient of the stock bonus to match the bonus with a purchase of stock from the agency. Those who forgo the stock bonuses will send a clear signal that they are not willing to buy out a primary shareholder when the day comes for a large ownership transfer.
Under the example plan, agents must meet ten objective and subjective criteria to be eligible.
Such a plan will not suffice as a complete perpetuation plan and may not be the most tax friendly. However, it does tie ownership to performance, provide a coherent definition of what it takes to become an owner, and can put an independent agency in a position to attract and retain the staff willing to take the risk to make perpetuation a reality.
The benefit of this plan is it takes the mystery out of a question on the minds of many agency principals: "Will our producers be willing to pull a dime out of their pocket when it is time for my buyout?"
Reproduced from National Underwriter Edition, June 9, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.
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