By Wade Myers

Q: When and how should I give equity or other incentives to my senior managers in order to retain them? I’m considering giving them equity, but not sure how to do that.

A: While I absolutely understand the need to retain key management staff, I would be careful about giving up ownership to them and the manner in which you do so. In order to create an incentive for managers to stay with an organization and to give them some “upside,” there are basically the following options:

* Form a corporation and issue stock options – This is the typical way of giving equity to your key employees in the most tax efficient manner. This is also an expensive prospect as you would need to incorporate and create an options plan that is properly structured, meaning a fair amount of legal fees. You will also have an issue of how to structure an exit that facilitates liquidity for the optionees.

In a typical stock options situation, the company is either a public company that already offers liquidity for the optionee or is a venture-backed company that is planning either an Initial Public Offering or a strategic sale of the company in order to create liquidity.

* Value sharing agreements – These are usually more complicated than a deferred compensation plan and less complicated than a stock options plan, but this can still be difficult to structure in that there must be strict agreement on how to value a company and the participants’ share of the value accretion. Value-sharing agreements can be used in a situation where the company is not publicly traded.

* Deferred compensation – This is often referred to as a long-term incentive plan (commonly referred as an LTIP). The concept of deferred compensation plans is to reward employees for staying with the company because the bonus associated with the plan is paid out over a certain number of future years, thus providing “golden handcuffs.”  Deferred compensation plans can easily be used in a company that is not publicly traded.

Originally posted 1/7/2014.

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My three-year-old daughter’s birthday party brought a surprise lesson on integrity. As Rebekah opened the big attractive box, with a beautiful red ribbon, you could see the excitement dance in her eyes as she viewed the new American Girl doll. This finely crafted piece of workmanship was definitely the hit of the party.

As I examined the contents of this box I became keenly aware as to why this company has been so successful in selling expensive dolls. Not only was the doll created with excellence, but it also came with a miniature bear and a book explaining the story behind this doll.

What caught my attention, however, was the level of thought that went into the packaging. The box’s purpose was to house the doll until it arrived at its new home. It was much heavier stock than normal, making it almost indestructible. It also had a special color scheme and ribbon to match the American Girl theme. Every detail of this gift had been addressed to assure total satisfaction. Even the service of this organization was extraordinary.

Perform with excellence

As I pondered the lesson to be learned from this experience, I remembered Proverbs 22:29, “Do you see a man skilled in his work? He will serve before kings; he will not serve before obscure men.” Providing quality products and services in our vocation reveals our commitment to integrity. Performing with excellence is part of the journey towards integrity.

Does your work measure up to the standard of kings? If not, consider the following actions.

* Survey the end users of your products or services for recommendations.

* Write down what excellence would look like in your work.

* Develop time-specific action plans.

* Implement.

* Return to step one.

Diligently following these steps may someday allow you the pleasure of serving as a role model for others, like American Girls was for me.

Rick Boxx is the President of Integrity Resource Center (IRC), a nonprofit ministry providing biblically-based resources, training and counsel to business and ministry leaders. You can learn more about IRC by visiting their web site at IntegrityResource.org or by emailing.

Originally posted 8/16/2013.

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When purchasing my current home, I met with a mortgage lender who, as standard procedure, had pulled my credit report. To my dismay, there appeared on the list numerous credit accounts that I had closed years earlier. There were others that I forgot I even had (remember that time you were offered a 20 percent discount on your Macy’s purchase if you would agree to charge it to your new Macy’s credit card?).

Who can access my credit report?

In addition to the active and closed accounts, there was a list of everyone who had looked into my credit over the past two years (most of which were credit card companies who later sent me unsolicited “special” offers). The credit agencies had used my credit history to “pre-qualify” me to various companies (such as banks, car dealers, credit card companies, mortgage lenders) who were looking for new customers. So there were several inquiries on my report that made it look as if I had been applying for credit with wild abandon!

Our credit report showed us in a very positive light. We haven’t a mark against us. But there were accounts open that I didn’t use, let alone need, and I was energized by the fear that they could, in any way, hinder my ability to close my home purchase on schedule (or get other credit I may need down the road). So that began my mission to tidy up my credit report. My research began with a few questions. First, how did the credit agency get my private information and what does a credit rating ultimately mean? It seems that periodically my creditors (banks, credit card companies, etc.) provide this information to the leading credit reporting agencies — Equifax (www.Equifax.com or 800-685-1111), Experian (www.Experian.com or 888-397-3742), and TransUnion (www.TransUnion.com or 877-322-8228).

Over the years, as I traveled the credit highway, taking out and then paying off car loans, student loans, credit cards, etc., my creditors reported my activities to these agencies. This information is used to establish a “credit scoring” method which gives points based on the weights of various credit experiences such as bill-paying history, late payments, age of accounts, and so on. (Interestingly, counter to what you might think, the shorter you keep credit accounts, the worse it affects your rating.) Each lender assigns “points” and “weights” according to its own criteria. You’ll never know quite where you stand until the lender has obtained your credit report and gone though this process. This was very unnerving to me.

Request your credit report

To remedy these kinds of problems, your first task is to get copies of your credit reports. A law was passed by Congress in 2003 that requires each of the three major credit-rating agencies to provide consumers with one free copy of their credit report annually. In order to get your free credit reports, you’ll need to visit www.AnnualCreditReport.com or any of the three agencies listed above.

The first thing I needed to decide was which of the three agencies to contact for my information. They all have credit data on me, and presumably, it’s similar in each case. You can also add your credit score for an additional fee for reports that don’t already include it.

The law entitles you to receive one free credit report from each agency every 12 months, but it’s your choice whether you order all three at the same time or order one now and others later. The advantage of ordering all three at the same time is that you can compare them. However, you will not be eligible for another free batch for 12 months. The advantage of ordering one now and others later (for example, one every four months) is that you’ll become aware of any inaccurate or potentially damaging information more quickly.

Close old accounts

After entering all the information, voilà! My report was displayed on my computer monitor for my perusal. You can also order a report for mail delivery if you’d rather. After printing out my report, I began looking it over. My main area of concern had to do with what I found in the “revolving credit” section of my report. I had only one credit card…that I was aware of. But my credit report said I had three additional credit cards — two retail store cards and one Visa card. This was leftover debris from my earlier adventures in using credit. I called the two retail companies (using the telephone number provided on the credit report) and had the accounts closed effective that day. I also asked them to send me a confirmation letter as well as send a letter to the credit reporting bureau. Next, I called the Visa company. I thought I had closed this account over two years ago! Indeed, they told me my Visa account was “technically” closed (whatever that means), but promised to send the appropriate documentation to Experian to let them know the account was officially closed.

It’s important to clean up these old accounts because they are considered to represent available credit. Even if you never use the cards, potential lenders get the impression that you have a large amount of credit at your disposal. In their eyes, this makes you a higher-risk borrower.

The reports are pretty easy to understand once you’ve read the instructions and picked up on what the many abbreviations and codes mean. Along with the credit report, the agencies provide information on how to report mistakes, handle disputes, or report fraudulent activity. As these things go, my experience in cleaning up my credit report was relatively hassle-free. Hopefully, yours will be also.

© Sound Mind Investing

Published since 1990, Sound Mind Investing is America’s best-selling financial newsletter written from a biblical perspective.

Originally posted 8/6/13.

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