Great question. We work with a lot of ESOP clients, and are actually one ourselves. What I've typically seen is having bonuses based on EBITDA. For instance, it could be a percentage of EBITDA, or you could have an EBITDA target, say $1 million, and the percentage is based off the target.
A quick example to demonstrate: your bonus program is 10%, based off an EBITDA target of $1 million. If EBITDA came in at 900,000, you would increase the percentage by %.01, so bonuses would be 9.9%. If EBITDA was $1.1 million, the bonus would be 10.1%.
This incentivizes the bonus pool to truly think like owners, and not just employees, which aligns great with the ESOP structure.
Hope that helps!
Corey McSweeney, CPA Manager Katz, Sapper & Miller
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202 West Berry Street, Suite 600 Fort Wayne, IN 46802 ksmcpa.com
We basically left all bonus programs in place but we do a 2nd P&L that backs out all the ESOP costs (and adds back in any savings). So we essentially recreate the P&L as what it would have looked like if we didn't do the ESOP at all. Extra interest charges, insurance costs, TPA expenses, etc. are deducted out and savings from switching to the ESOP are added back in for our bonus calculations.
John R. Newlon, CCIFP
Chief Financial Officer
Employee Owned, Employee Operated
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