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Linkedin Case

In: Business and Management

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BU663: Advanced Corporate Finance
Instructor: Dr. A. Shkilko
Group 5 – Case Solution
Submitted: April 3, 2013

Braddock Industries Inc.
Long-Term Incentive Compensation System Evaluation

Darren Bahadur
Barima Peprah
Daniel Niedra
Hubery Zhao
Historical Plans
Plan 1 (1998-2002) Although Braddock was a privately held company during this time, the long-term incentive plan involved a stock-based component (case Exhibit 4) and as well as an annual performance bonus based on the matrix illustrated in case Exhibit 6.
The good * Since management compensation is tied to firm performance, managers are incentivized to keep costs under control and maintain profitability. However, it is important to balance cost-controls with long-term growth. * The 5-year measurement cycle provides an adequate horizon for management decision-making and should motivate managers to take on projects that add long-term value to the firm. * Although the exact calculation of the performance factor was not described in detail, the plan appears to be fairly straightforward and easy to understand for both managers and stakeholders. Furthermore, the inputs of the performance factor are common metrics and its calculation is likely a weighted average of these factors.
The bad * With respect to the valuation of equity securities of a private firm, the American Institute of Certified Public Accountants has established guidelines for private firms using stock-based compensation plans to derive market value of equity. The guideline recommends three approaches: a market or relative valuation approach; an income or DCF-based approach; and, an asset replacement cost approach. Instead of hiring a third-party valuation specialist, or using this guideline themselves, Braddock management estimated the market value of equity by multiplying the book value per share (BVPS) by a

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