Session IV of Smart M&A Growth Strategies spotlights experiences and lessons learned from the real-world success story of IMPAQ International, LLC–global policy research, analytics, and implementation firm and Blank Rome client that experienced growth for nearly 20 years and was acquired in 2020 by The American Institutes for Research in the Behavioral Sciences.
3:12 – Can you talk about the big picture, why you chose the path you chose?
5:26 – Say you want to hire a chief growth officer, and they are looking for some sort of call on the equity ownership of the business. How did you go about this?
8:15 – Tell us about your overall employee incentive plan strategy.
12:10 – Tell us about how you decided on what type of percentage or amount to give an employee.
18:20 – Thinking back, do you ever feel like you missed out on anyone that you wanted to hire or feel like you failed to retain anyone?
22:15 – Any advice or suggestions you would give on employee retention, compensation, etc?
Connect with the guests:
Avi’s LinkedIn: https://www.linkedin.com/in/avi-benus-11abbb19/
Connect with the hosts:
Dan Doran 0:15
Hi everybody. I’m Dan Doran with Quantive, founder of Quantive, a mid-market, mid-market investment banking group. I am here with Dean Nordlinger from Blank Rome. Today we’re talking about employee incentive plans, and specifically how they might fit into a potential ownership transition or an eventual exit, change of control type situation. So excited to be talking about this. Dean over to you.
Dean Nordlinger 0:40
Great. Thanks, Dan. So I’m Dean Nordlinger with Blank Rome. I’m a partner in our firm’s DC office. Mine is a business and corporate practice. As a firm one of our disciplines is aerospace, defense and government services, industry-focused. I spend a lot of time representing clients buy-side and sell-side through their lifecycle, startup to exit. And today we have with… proud to tell you we have with us today, a client, a good guy, who is an individual that is highly experienced in government contracting, well-embedded in the government ecosystem. He’s an owner and executive whose roots began in small business government contracting, and then he successfully operated and navigated his company beyond small to successfully traverse the chasm from small business to full and open and then ultimately successfully sold the company. So with that, Avi, I’m gonna turn it over to you to introduce yourself and give a quick background.
Avi Benus 1:35
Sure, thank you very much, Dean and Dan, as well. My name is Avi Benus. I am the former CEO of IMPAQ LLC, government contractor focusing on research and evaluation in social programs, health care, education, labor, workforce, international development. And yeah, as Dean mentioned we had the company, ran it for roughly 20 years as a family owned, privately held business. And ultimately, in 2020, sold the company, so… but it’s a pleasure. It’s a pleasure to be here.
Dean Nordlinger 2:13
Great. So. So I mean, let’s, let’s put a little more context here. He said, IMPAQ was a closely-held family business, you guys did have a robust, aggressive, organic and inorganic growth strategy. We all know that in the GovCon ecosystem, there’s definitely a not-so-quiet war for talent. How do you…How do you retain the right people, attract and keep them? And we happen to know that, you know, for you and your path, in terms of what you didn’t want to [unintelligible], you really pursued a path of bringing people into the fold, but doing it without issuing actual equity. So can you talk to us a little bit about big picture? Why you chose the path you chose?
Avi Benus 3:03
Sure. Um, big picture, we, we really, you know, we ran a government contractor where, you know, our business model was really building out people’s time. And so we win projects. And you know, we had a mix of cost plus fixed fee, time and materials, firm fixed price contracts. But ultimately, the business was hiring strong talent that the government wanted to work on their projects. And so how do you do that? You have to compensate people competitively, you know, and generously and enough to make it worth their while to come and join your business.
But I think the real thing that maybe differentiated IMPAQ from some of our competitors was our, our general philosophy that we don’t hire for specific projects. I think a lot of government contractors out there would say, you know, they work either, you know, the crass kind of a butts in the seat model, or, you know, wouldn’t hire ahead of actually winning the project. We would hire talent that we thought would we would be able to essentially leverage in order to win more work. And so we would go out in front of those projects, which sometimes can be scary, because now you’re carrying a salary that you don’t have the revenue backing it up, right, you know, on day one to cover, but we would hire based on this kind of idea that you’re going to go out and either win work or be a part of a team that wins work and more than pay for yourself.
Dan Doran 4:59
So, Avi, with that said, you know, in this war for talent, you hear lots of stories about I want to go out and hire a chief growth officer, and they’re looking for a slice of equity or options or, you know, some sort of call on on the, you know, the equity ownership of the business. How did you guys approah this? What, tell us a little bit about what you either did or experience there?
Avi Benus 5:22
Yeah. Well, we did have, we had several conversations and thoughts about whether or not we ultimately would want to issue equity to employees. And reality is, we never got to that juncture. And I mean, part of it might have been, hey, if we held the company for another 5-10 years, maybe we would have, but we try to, we try to avoid it in a couple of different ways. One, it doesn’t pay anything, right, it gives you kind of that option for future value one day, but you know, trying to explain to people, hey, this doesn’t mean… it’s hard to go out and use the in the equity in IMPAQ to go and buy, you know, a new car, because…
Dan Doran 6:08
I can’t put beer on the table.
Avi Benus 6:09
It has no real intrinsic value, um, until until ultimately, the sale. Second is… we looked for ways in order to, to come save people more directly. And so we had a, you know, say we had a competitive salary structure for people, obviously, we had annual bonus, which, which was 100%, in cash, we had a 401k plan, and then we established a supplemental Employee Retirement Plan, which, which to us was the closest thing we ever got to kind of issuing equity, to equity rewards, if you will, to employees, because that money would be, you know, obviously earmarked for that employee. But on a vesting schedule, that was both, you know, incentivize the employee to stay, hopefully, but also boosted up their retirement, the retirement plan.
Dean Nordlinger 7:11
So, you know, we is, as you know, we spend a lot of time with clients working on bigger picture corporate strategy, and this is one of the things. And so at the highest level, when you think about employee incentives and what you’re doing there, there’s not a one-size-fits-all there things you do, as you noted, hey, look, let’s reward people in the moment, right? There’s no retention in that. There’s some things you can do in the midterm. That are, hey, we recognize you, we’re going to put some money here for you that you’ll earn over time. And then in the more in the long term is, hey, if and when we sell, there’ll be something for you as well. So with that context, can you, to the extent you did, can you talk about in whatever way you dovetailed, your overall employee incentive plan strategy, with IMPAQ’s growth strategy and the thought that hey, at some point, we are going to sell. Did you in any way sort of look to make those two work together in tandem?
Avi Benus 8:09
Yeah, um, we did, we had you know, so the first part is kind of the basic part is the, um salary increases and bonus structure were tied to performance and we, you know, we dabbled with, do you make it a specific formula? I never loved those specific formulas because A, you’re gonna have good years and bad years, and you still want to get compensated or you’re going to be carrying your your colleague, your office mate one year and, and hopefully sharing the spoils. Ultimately, it’s better for everybody longer term. And those formulas get. They’re always, the couple of times we put a formulaic method in for employee compensation. There’s always that unintended consequence that you don’t you don’t quite realize when you create that, I’m tying it to revenue. Well, now we have all this low-margin revenue, I’m tying it to margin but we’re not going after the things that could help grow the business. There’s always something that you didn’t intend that that has this perverse kind of reward.
Ultimately, the cert plan that we gave to employees was paid out on the day on the last day of, before sale. And so that was an incentive kind of, to your question tying employee relations or employee compensation to the ultimate exit. And we also did put for for several key employees a change of control document in place where they got some extra compensation upon that, upon that transaction. You know, it’s a, in this world, like I said, it’s a consulting business, right? So the so anybody that was going to buy the company was really buying it for the employees. And so we wanted the employees to be obviously happy with the transaction and ultimately want to stay on for the new Co.
Dean Nordlinger 10:21
Right? Yeah. Hey, I wanna, I… Dan, I’m gonna jump in just because it is an important topic. And it worked out well for you in what you ultimately did. And there’s this notion we talk to clients all the time about whether we’re on the buy-side or the sell-side, yep, buyers do not pay twice. And what we mean by that is, if a buyer comes and sizes up a potential target company, they’re obviously concerned about the stickiness of people, will they hang, will they stay? Pay… gotta pay the seller or sellers money, but I also need money. Unless, unless the seller has done something to create that post-sale stickiness, the buyer is going to have to solve that problem. So it’s going to get solved one way or the other. And really the the all important question there is, have you proactively answered this, so you don’t have to take a purchase price haircut based on a subjective determination of a buyer about how much money they have to redirect away from you to sprinkle over the key people to make them stay. And so can you, can you with that context, can you talk a little bit about that because as you said, you did provide for that stickiness. So can you just shed a little light on how you decided what type percentage amount, you know, prospectively? How did that factor in your mindset?
Avi Benus 11:42
Yeah, you’re right. I mean, I probably should’ve had this conversation with you before the deal. But yeah. The, the way we thought about it was sort of, we’re a closely-held business with really, four family members that were owners of the altered equity that would be compensated upon the transaction or paid for paid for the equity. What we talked to the employees about and kind of put in place with employees was, you know, once we got to this place, we’re okay, we’re selling we’re, we’re in bed with an investment banker, we’re going down this path, and it’s now no longer kind of, it’s hard to keep that secret, you know, with these key employees at a certain point, um, the idea of being, hey, kinda we need X dollars for the equity coming into the equity owners hands, but we’re happy to pay y dollars to key staff and to incentivize them to perform, you know, up to the last day and then beyond. And the reality is, it’s not a linear relationship. Because while you know, the family wants to make, you know, wants to make it as lucrative of a transaction as possible for them. We didn’t need a one to one ratio in increase in sales price that would come either to employees or to, or to shareholders, and so I’m doing some dancing around it, but you know, if I don’t have… we don’t need… The family didn’t need the same percentage of $100 that they do out of $1,000 to feel like they were getting, you know, compensated accordingly for the for the equity. And so that changed kind of the, that incentivized almost the employees to help work towards as high a number as possible.
Dan Doran 13:53
So, Avi, in hindsight, would you have done any of this portion differently? Either from a timing perspective, you know, from structuring or instrument any, any do overs that you’d take?
Avi Benus 14:08
Yeah, I probably I would, I would, I would have been earlier about, about all of it. You know, I kind of waited until I was really convinced that we were going towards this this sales process before I put some of these agreements in place. And so while I think, you know, and it’s like any agreement, right, one side might think they’re being generous, the other side thinks they’re being ripped off if you have that kind of upfront, and are very forward about it. And I felt like I was always you know, one of my I think one of my positive characteristics is kind of my transparency in my communication. I think I could have been more so in this upfront. I don’t know how that would have changed behaviors, necessarily. But it would have probably changed a couple of relationships.
Dan Doran 15:03
So just real quick, can you speak to the rough timing there? You know. So if you think from backwards from day of transaction to day of engaging investment bank to this sort of decision, what sort of timeframes are we talking? Or would you be talking about there, best case? And I’m thinking about this in terms of advice for the next founder that is running down this path?
Avi Benus 15:27
Yeah, I mean, I, I, I guess I’m questioning why I didn’t do it for, let’s say key employees on day of hire, and say, Hey, ultimately, we’re trying to create this value, I want you to feel like you’re part of creating that value. Here’s what you would get, if ever, if a transaction ever occurred.
Dan Doran 15:51
So what’s really interesting there, when we are…as the investment banker, in this process, running the transaction process, we always struggle with, who are we reading into the deal? And at what, you know what point in time? And what you just said, you know, at time of hire, I am… cats out of the bag, we are selling this company at some point in the future. I think most employees know that, but ringing that bell early potentially obviates a bunch of problems down the road for the transaction process and the auction process and confidentiality.
Avi Benus 16:27
Right? It does. I think looking back on it on it, that would have been a very interesting technique for us to have used, I think we were scared of it because we didn’t you know, we didn’t want… it’s like a prenup almost right? We don’t want to hire somebody be like, Oh, the company might get sold tomorrow, and we weren’t selling the company when we hired, you know, all of these employees, it just… the right opportunity arose. And so you don’t. So that’s kind of why we didn’t do it. Now, in hindsight, I’m wondering if that was a that was the wrong concern that we had. And you know, if I ever do start a new company, I would, I would think long and hard about kind of starting the relationship with that agreement.
Dan Doran 17:14
Dean Nordlinger 17:15
So, let me ask this this this other question. If you think back across your tenure, the 10 years, you hired a lot of people. Talk about, to what extent if at all, you feel like with the employee incentive plans that you did use as opposed to… Actually, do you feel like you ever missed out on hiring anybody that you really wanted to bring in? Or that you failed to retain any key employees? Based on the plans that you have?
Avi Benus 17:53
Um yeah, I would say that we probably probably both, to some extent, is very competitive out there for talent, not, you know, not only in government contracting, but in every field, it feels like these days. And, you know, you run into situations where you think somebody is getting paid the wrong number, right, versus you know, you’ve done the math, you figured out what this person is, is worth to you either from a billable perspective, or larger than that, you know, or leverageable perspective, from an indirect standpoint, and sorry for speaking and kind of government contracting-ese. The other thing is, it’s hard as a small-to-medium-sized business, especially in government contracting, to compete with the larger guys that have this big pool of GNA dollars, overhead dollars, to utilize. While a smaller, a smaller company is always thinking about, you know, what my billability ratios are so that I can pay for these, for these people. So, yeah, I mean, I think we think we were competitive. Do I think we ever lost anybody over it? I’m sure we did.
Dean Nordlinger 19:19
The one thought the one thought I would put on here because I think this is really important, you know, you as a former owner, and for our audience, again, I go back to a couple of themes, you know, in this territory, one is the fact that there’s no one solution. There’s no perfect solution. And the reality is, there are highly, highly effective ways to put in place, um, agreements without giving people actual equity, whereby you give them the essence of the experience that they really desire, which is to say, Hey, I’m going to come to you, I’m going to be loyal to you. I’m going to help build, grow. And when you sell, I just want to feel good and comfortable, that there’s something in writing that it’s got me earmarked to win with you, as opposed to the absence of anything like that, where there could be a faint distant, and, you know, not well remembered, you know, mental history of the owner, the owners of the company, there’s nothing in writing, and now they’re not getting it. So I, which I think is an important point for our audience overall, that it’s, you know, whether it’s actual equity, or these types of plans that we talk about as synthetic equity, whether or not real equity is highly effective. And it really does come down to as you said, Avi, you’re the type of company you are the type of work you’re doing. How ephemerally? How often do people come? How often do they go? Got it really? So anyway, the point is, I don’t think you need to be so hard on yourself. Yeah. Because of who we have the company bill.
Avi Benus 20:51
No. And I’m also thinking through and, sorry to use government contracting, as my example. But the world that I know most recently. Those fruit, those bonuses, the 401ks, the cert plans are you can essentially build them back to your customer via kind of a fringe expense. Can you build back an equity compensation? I don’t think you can. So it’s costing the owners something, but they can’t get any reward from… you can’t charge a customer more for it. So it’s a hard it’s a hard equation to solve. For an owner of agovernment contracting business.
Dean Nordlinger 21:41
No doubt. No doubt.
Dan Doran 21:43
So, Avi, keeping the clock here… Maybe one final question here, unless Dean’s gonna jump in with another but, if you are sitting here, think about our audience, a founder that is not quite to your point. Somewhere along this curve of trying to get through growth to that point of transaction, any advice, any suggestions when it comes to employee retention, compensation, etc.
Avi Benus 22:09
So I had a, I heard of one radical compensation idea that I wanted to institute and I got shut down by family members, key executives, and I always wanted to try it. And I haven’t and I wonder if any of the listeners have tried, and I would love to hear their responses. But it’s every employee, let’s say it’s, you can either do it once a year, and you can do it once a quarter you can do it maybe even every day you do it. Every employee has the option to come into the boss’s office and say, This is the number that I need. And the boss has to then make the determination either pay me that number, or show me the door.
Dan Doran 22:56
This is like a movie script.
Avi Benus 22:57
I love it.
Dan Doran 22:58
This is like a culling.
Avi Benus 23:00
And everybody’s like, No, that is way too cutthroat. No, it’s It’s the the best way I can think of to get to what the underlying value of any employee is. Now, do I have the guts to pull something like that off? Does it say something about me that I’m too cutthroat? I’m not sure. But I would I be interested in maybe the next business giving some, some variation of that a try.
Dean Nordlinger 23:28
But it’d be interesting when you start that next business, if anybody watches the tail end of this episode, what your applicant pool starts to look like, how that interview process starts to unfold.
Avi Benus 23:38
I mean, think about it from the employee standpoint, how would you, you don’t have to come into my office and demand anything you can just you guys keep getting paid this? How much do you believe in yourself that you’re willing to risk getting shown the door? I don’t think you’re worth that number. I don’t know. It’s an idea.
Dan Doran 23:53
High stakes, man. Yeah. All right. Well, Avi, thank you so much for your time today. This has been a pleasure listening to your experience and your knowledge having gone through this journey once in highly successful fashion. So thank you kindly for for agreeing to spend some time with us and our audience today.
Dean Nordlinger 24:13
Avi Benus 24:14
Thank you. I enjoyed it.