Dear Workforce How Should HR Prepare for an IPO

By Staff Report

Dec. 4, 2007

Dear Ready and Willing:

Public companies are under intense scrutiny by Wall Street analysts, shareholders and the public, and it is critical that HR understand the significant ramifications of being a public company, particularly in the following areas:

  • Compliance

  • Impact on company culture and communications with employees

  • Compensation program direction


There are many Securities and Exchange Commission requirements relating to compensation and benefits. Companies file many public documents with the SEC, starting with the S-1 public offering filing, which requires business and financial data as well as a detailed executive compensation section.

The SEC revised its proxy disclosure rules in 2006 to require multiple tables that apply to public companies and those going public, as well as the compensation discussion & analysis (CD&A) detailing the company’s compensation philosophy, which private companies often do not have.

Once public, the company must file the following documents containing compensation-related information:

  • Annual report (10-k): Data on stock-based compensation and stock plans, including stock options and relevant stock-based compensation under Financial Accounting Standard No. 123R.

  • Annual proxy: Extensive executive compensation disclosures similar to the S-1 filing, including the CD&A.

  • Forms 3, 4 and 5: Ad-hoc forms filed for every stock-related transaction for company officers and board members.

  • 8-k filings: Ad-hoc filings reporting important company news that must be divulged to shareholders as soon as it occurs, e.g., an executive or board director joining or leaving the company; any significant executive compensation matter.

Public companies also must comply with Sarbanes-Oxley, including documentation of appropriate internal controls. Usually the HR department must conduct a thorough review to ensure compliance.

Impact on company culture

The most significant impact relates to how public-company executives communicate with employees. It remains vital to keep people informed; however, executives must be careful what they say—and when and how they say it. It is common for the CEO to hold employee meetings either live or via video for viewing by employees on the day quarterly earnings statements are announced.

HR needs to be cognizant of employee-morale implications of a rising or falling stock price. With executive compensation in the public eye, there can be morale issues based on perceptions of high levels of compensation during negative events such as layoffs.

Equity-based compensation plan design

Publicly traded stock provides a new form of “compensation currency” that can be used as an incentive and retention tool for top performers who are not necessarily part of senior management. Clearly, this needs to fit with the company’s overall compensation philosophy and must be affordable. Conversely, equity-based programs previously offered might be curtailed if the number of shares available is more limited due to dilution concerns.

Clearly, HR in a newly public company assumes significantly greater accountability, and HR leaders need to prepare their staff to accept this accountability.

SOURCE: Larry Schumer, director, compensation, Buck Consultants, Boston, October 5, 2007.

LEARN MORE: In July 2007, software vendor SuccessFactorsbecame the latest HR services firm to file an IPO.

The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion. Also remember that state laws may differ from the federal law.

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