December 1, 2011
The True Costs of Being Public: More Than You Think
– Broc Romanek, CompensationStandards.com
This recent CFO.com article notes how going public can be costly for shareholders, particularly the hike in executive pay. Here is an excerpt:
Being public adds about $2.5 million, on average, to a company’s cost structure, with $1.5 million of that devoted to higher compensation for CEOs, CFOs, and others in the finance function, such as investor-relations professionals, according to the survey. That figure also covers increased board costs, as more than 80% of companies had either added new members to their boards of directors or increased director compensation prior to their IPO.
Indeed, Angie’s List, which went public this week, notes in its S-1 filing that it boosted executive cash compensation to hit the 75th percentile, based on a study of other pre-IPO companies, in advance of its offering. “As part of the compensation committee’s comprehensive review of executive compensation levels during July 2010, we found that our base salaries generally fell significantly below the median in both of our pre-IPO and public companies studies,” according to the S-1. As a result, Angie’s List made “significant increases in recognition of both the growth of our company over the last few years and the efforts that would be required of all our executive officers as we began to move toward becoming a public company.”