1

IPO Compensation Committee Checklist

Overall

Determine role of employees (HR, Finance) and consultants in developing executive compensation programs.

Assess current compensation consultant, including independence and potential conflicts of interest. Select consultant for next year.

Develop a Peer Group of comparable public companies.

Develop an executive compensation philosophy.

Review competitiveness of executive compensation.

Set competitive compensation levels (base, target bonus, equity/long-term incentive awards, perquisites/benefits).

Short-Term Incentive

Develop formalized Short-Term Incentive Plan document.

Select financial performance measures and individual / MBO goals.

Calibrate financial performance targets versus market/street expectations, internal budget, and Peer Group performance.

Long-Term Incentive

Review / develop a long-term incentive strategy including appropriate instrument use / mix.

Develop an LTI award matrix with values and participation rates for all employee levels.

Determine if an “evergreen” provision will be used. If so, determine appropriate evergreen size.

Set equity utilization (share run rate) budget for coming fiscal year.

Determine if any IPO awards will be made (“founders shares”).

Discuss and potentially implement executive and Board share holding/ownership requirements.

Employment, Severance, and Change-in-Control Arrangements

Review existing employment, severance, and CiC agreement terms and conditions and potential payouts.

Complete a competitive analysis of key terms for employment, severance, and CiC agreements and set terms going forward based on the market.

Governance

Develop or amend (as needed) Compensation Committee charter.

Draft Compensation Discussion & Analysis (CD&A) and accompanying tables for S-1 and Proxy.

Compensation risk assessment.

Review and set Board of Directors compensation for the following year.

Set equity award approval process, including what authority, if any, will be delegated to management. Formalize policy regarding award grant timing.

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Best Practices for an IPO/Public Company in Executive Compensation

Compensation Committee selects an independent executive compensation consulting firm work for it — firm that does no other work for the management of the

company and whose consultants have no personal relationships with the Board.

A named Peer Group of public company comparables (for executive compensation purposes) exists that is similar in terms of industry, revenues and market

capitalization so the executive compensation decisions can be defended if challenged by institutional investor advocacy groups.

Ideally 15-18 firms.

Company is near the median for the financial metrics.

Executive compensation levels are targeted within market norms (defined as 25th to 75th percentiles of the Peer Group and any surveys that are used).

Longer-term, CEO pay levels need to be supported by company performance, most notably TSR.

The company should adopt an “evergreen” provision in its Equity plan pre-IPO — likely the only time that this is feasible.

Ensure evergreen is large enough to support annual ongoing equity grants and any M&A activity that may occur– typically in the 4-5% range for human

capital intensive firms such as high-technology, biotechnology and alternative energy firms.

Having a 4-5% pool become available every year does not mean the firm has to use all of those shares – they simply become available for grant and may

be “banked” for future use. Implementing too small of an evergreen will cause it to have to be discarded. It is seen as an egregious compensation practice by

Institutional Shareholder Services (ISS) and they would recommend a NO vote on any stock request with such a provision.

Market (Peer Group) median annual burn rates and dilution levels will have to be achieve over time (the numbers fall as the Company gets larger/more

mature.

Remove any “egregious” executive compensation practices that may be considered “red flags” by ISS or similar advisory firms providing counsel to institutional

shareholders.

No gross-up provisions in severance/change-in-control arrangements.

Double versus single trigger change-in-control arrangements.

Excessive executive benefits and perquisites.

Firm is prepared for a Say-on-Pay vote after being a public company unless exempted by the JOBS act.

A compensation risk assessment is performed and the results included in the CD&A.

Ensure key management and other employees are “locked in” for the foreseeable future through possible equity refresh grants prior to or concurrent with the IPO.

The IPO will often mean the full vesting of equity stakes, which have no retention capabilities.

Have a succession plan in place for the CEO so management continuity is ensured should something unfortunate happen to him/her. This is becoming a market

governance best practice because it is far cheaper to promote from within that to recruit a new CEO.

300 Trade Center, Suite 3460 | Woburn, MA 01801 | T: 781.647.2739 | www.dolmatconnell.com