1. MDMN Partners S2 WORKBOOK Decisions and Notes for Modules 1 – 5 BSMARTer Business Simulation Management and Relationship Training

2. Executive Summary 2 MDMN recognizes that our firm lacks culture, community, and a commitment to each other; all of which we say are core values of our firm. We have a hunger to be greater and a desire for better collaboration, stronger partnerships, and a need for our leaders to lead by example. We plan to encourage professional development, drive accountability, and ensure that all employees’ roles are well-defined, properly managed and fairly compensated. To ensure accountability and drive the team in a common direction, we will appoint Mary Nedney as CEO. She will drive execution of the firm’s strategy. Mary has proven through her ability to build a strong, cohesive team that she has the right skills for the job. Mary will report to a Board composed of the remaining partners. With assistance from Roger, who has been appointed to CFO, and the entire MDMN, executive team, Mary’s goals for MDMN for the coming year are as follows: Create an open, sustainable, and team-based firm culture Form an external board of advisors for external accountability Design a broad organizational chart Create and execute on a new service team structure Develop and implement a fair compensation plan for both partners and staff Define and standardize performance evaluations Establish incentive compensation plans for both partners and staff Create a succession strategy for Don Draper by bringing in Pete and Lane as partners assuming they meet the firm’s criteria for partnership Create a more team-based approach – Peggy and Mary are teaming up to find ways to instill a collaborative approach across the firm by consolidating resource pools, establishing oversight committees (e.g., investment committee, board of external advisors) and expanding enterprise-wide activities

3. Organizational Structure and Compensation MODULE 1

4. PM and Ops teams managed by COO Service Team Structure 4 Draw a picture of your service team structure. Partner Jr Advisor/SPM Jr PMOps Advisory team managed by investment committee Dedicated CSA to advisor team Service team per partner/producer. Continued on next page

5. Broad Org Chart 5 Current Future -Change from silo structure to team structure with common function oversight See next page for new organizational structure

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7. Service Team Structure 7 From day 1 we recognize the need to transfer from a siloed organization to a more collaborative team-based environment with a goal of ensuring clear accountability for the partners across the firm. We believe this structure breaks the silo effect and allows us to share more collective resources. Additionally, this structure will help boost a common culture across the firm. The structure is a combination of service team and departmental structure which allows client responsiveness/attention via the advisory team while increasing team accountability and productivity with centralized/departmental pooled resources with PMs and CSAs. In addition, the new structure provides career pathing for junior employees. Each partner/producer would have a Sr Portfolio Manager which creates an advisor team. The Sr PMs are managed by the investment committee led by Don. This breaks down advisor/producer silos and provides the support Pete requests. Additional resources of CSAs and portfolio managers are overall managed by the COO. Each advisor team would have a dedicated CSA. Portfolio managers are a pooled resource and allocated/utilized as needed to create and manage portfolios, and perform research. Service organization was designed with key objectives in mind, including: -Client retention and development -Consistency in client experience/service delivery -Clear accountability for performance -Contribute to firm results -Increase productivity to serve: Current large base of clients Growing base of clients Client service – 2 models: 1.Less complex: Sr PM and Operations focus 2.More complex: Team approach with partner and Sr PM focus with Jr PM and operations support Client assignment: -Referral based on source under applicable partner. Depending on complexity, clients are placed into appropriate service model. -If client demands certain expertise, partners will work together on the relationship. Provide an explanation of your service team structure.

8. Compensation Benchmarking 8 Determine base compensation for three employees in your briefing book. Complete the task using the next two pages. PositionSalaryBonusTotal Your Lowest-Paid Employee 125,3593,641129,000 Your Highest- Paid Employee 150,4854,515155,000 Mid-range137,9224,078142,000 Benchmark Median 81,8022,19884,000 Benchmark Third Quartile 100,00037,633137,633 See Appendix A for position compensation information Source: 2013 InvestmentNews/Moss Adams Comp Study This is for Portfolio Manager

9. We found we not only need to overhaul compensation but need to institutionalize our human resources processes and become more structured with personnel and compensation. Peggy, COO, will be in charge of this effort. Peggy discussed MDMN’s challenges with Fidelity’s Practice Management Consultant, Waldemar Kohl. Waldemar provided her several suggestions and references including Manpower that could assist the firm. Peggy contracted an HR vendor(from Waldemar) to help with these initiatives including job descriptions, benefits admin, policies and procedures. From there, Peggy and the partners then defined MDMN’s vision and strategy. Then, we conducted a talent assessment. Based on this we defined our strategy. We will implement a performance management structure (incorporating performance management surveys). For each staff role we considered the following factors: tenure, performance, education (designations etc.), incentive compensation, benefits (insurances and retirement plan) and long term compensation (equity ownership for appropriate personnel). We aim to compensate competitively and provide for career advancement. We are following industry surveys from our custodians and other sources such as Moss Adams to remain competitive and realistic. Since our firm is based in West Chester County NY, we need to compensate on the higher end. We created a targeted incentive compensation that adds between 5 and 20 percent of the salary to an employee’s compensation. We decided a way to further institutionalize our processes was to implement performance evaluations. Peggy has spent a lot of time in developing performance evaluations for each role – including a partner peer review performance evaluation. Positions: Operations/Assistants – we found that the salaries were too arbitrary. While we decided to include bonuses as a percentage of the salary, to encourage a more team based environment we included team work as part of the performance evaluation criteria. Portfolio Manager (Jr and Sr) - we found that the base salary is very high and the bonus is low compared with benchmark data. In addition, we found discrepancies between PMs under each partner/advisor. Partners agreed to set salary structure in an effort to promote fairness and collaboration across the teams. Sr PMs are considered to be on the path to partner. Actions Steps: -Salary based with bonus component using a performance evaluation -Contemplate salary /bonus incentive to adjust to closer to market -Lowering base salaries and higher bonus – firm-wide -Over a 2year period, we plan on lowering salaries while increasing the incentive structure to bring our compensation more in line with the market. -Consider the option of pre-pay a portion of the bonus to ease transition. -Goal is to maintain total comp, just adjust structure. -Lowers P&L obligation and allows flexibility based on firm performance -Align compensation to firm performance across all positions Compensation Benchmarking 9 What changes, if any, will you make to compensation?

10. Staff Selection and Performance Management MODULE 2

11. Performance Evaluation 12 Design a performance evaluation form. Follow the worksheet. (20 minutes) This form will be used for all employees for the firm. These are our core values – each team will use with applicable attributes of each position. This provides a framework to have a disciplined manner to measure our employees vs. our targets. FORMS FOR PARTNER AND POFTOLIO MANAGER ATTACHED AT THE END OF THIS WORKBOOK OPERATIONS FORM TO BE COMPLETED Job FactorExplanation 1. Business developmentIncrease AUM, referrals, marketing 2. Client service Build relationships, teamwork, retention 3. Leadership focus Each to act as an owner, focus on personal development 4. Protect the business Manage risk within the firm, protect the brand/reputation 5. PartnershipsPromote teamwork, build networks 6. Execution/Technical AptitudeCompetency at core job duties Describe how the form will be used. We recognize as an organization that in long term want to create separate job specific performance evaluations. Above factors are shared factors for all employees. Notes

12. The Culture of Your Firm MODULE 3

13. Organizational Culture 14 Describe the culture of your firm. What changes would you make? How? Today Silo Practice – partners operate in their own manner on their respective books of business No sense of community/cohesiveness Us vs. Them (admin/ops vs. partners) Lack of clear leadership hierarchy No emphasis put on compliance One of the partners is sabotaging his reputation and the firms because of his drinking Future The partners want to set an example for the employees of the firm. The four partners are now leading by example. Initiative: Moving from working for yourself to managing others. Collapsing the silos (please see organization chart of page 6. Initiative: Collapsing the silos will help to build trust among the employees. The new organizational structure will create a career path to aspire to. This should also help with morale within the firm. The partners will now report to a newly created external Board of Advisors. Initiative: Source of leadership accountability. Each partner has taken on an additional responsibility for the day to day management of the firm. The MDMN partners have created a hierarchy so that every employee understands who the senior people are and who is reporting to whom. Initiative: Centralized leadership from silo. Creating a recognized leadership office for the firm. Mary: CEO Roger: CFO Don: CIO Peggy: COO Need to evaluate teamwork and team collaboration in reviews. Initiative: Incorporate team reviews. Creating a culture of compliance. Initiative: The COO is in the process of capturing workflows and revamping MDMN’s compliance manual. Sense of Community. Initiative: The partners have chosen a charity for the firm to support in order to foster more collaboration and work as a team on something outside of the office together. Don’s drinking is unfortunately becoming a problem. Initiative: Ask him to seek professional help for his drinking in order to stop the reputational headache that this has been causing MDMN. The entire firm is very worried about him on a personal level.

14. Incentive Compensation MODULE 4

15. Incentive Compensation 16 We first had to consider what are the incentives. To keep it simple we decided despite the role, growth and above average performance in each particular role, will determine what amount an employee gets out of the firm’s bonus pool. If MDMN does well as a firm everyone will be compensated for their contributions. Everyone's goal is to help the firm grow and profit more than 15% each year. For more highly compensated roles such as an advisor, performance expectations include new revenue expectations and book size – at the level where the advisor would be considered fully compensated. We used the example below: Advisor/BDO compensation is funded as a percent of revenue generated/managed. Identify the desired % Advisor BDO compensation % Overhead expense % Profitability 100% revenue Calculated the total compensation available and determine how to divide it between fixed pay, individual incentive, firm incentive, etc. We have modeled it for several years to determine compensation earned vs compensation paid and any guarantees that may be needed for the first year or so. Verified that it is affordable for our firm and makes business sense. We finalized the plan design including use of a base salary, percentage of revenue for new business The plan design and total compensation supports the desired performance results, it will be perceived as desirable by the candidate, and administratively pay can be easily tracked and calculated. Base Salary – incentive based on asset retention and new organic growth and new client acquisition. Performance evaluation are based on employee engagement(self assessment) and manager assessment. Reviews are conducted twice a year (December and June). Incentive comp of 5 – 20% of salary Salaries for Operations Associate - $95k incentive comp of 5 – 20% of salary Admin/Receptionist - $60 Salaries for Jr Portfolio Manager - $115k Salaries for Sr Portfolio manager - $160k Design Advisor Bonus Plan

16. Partner Compensation MODULE 5

17. Partner Compensation 18 Mary, Don and Roger all have equal ownership yet each is not equally contributing to the firm’s profits. Mary, Don and Roger also are keeping salaries that they had during their wirehouse tenure. Clearly the ownership structure and compensation must be amended. Moreover they realized they had to change partners compensation to incentivize growth since the partners are the main rain makers. All agreed after much deliberation and badgering from Peggy, that they had to move a way from the wirehouse payout structure they had grown so accustomed to over the years. The move to an incentivized bonus structure also created a healthy competition for the partners. It is apparent that Lane and Pete need to be included in the firm’s ownership since they are currently working like independent contractors. However there is concern among the partners that they can contribute as much as needed. Each has great potential to grow his book and can help with MDMN’s business succession needs. Partners created guidelines for partnership including targets to be met within a two year time frame and amount of ownership available – Metrics below. Peter and Lane will accrue ownership over time if particular thresholds are achieved. Partners asked their accountant for a business evaluation to help in determining potential ownership structure. They are also considering a valuation by one of the specialists in the industry, FP Transitions or Gladstone. Another goal is to create more collaboration among the partners and provide a succession plan. Pete and Lane will begin slowly working with Don and his clients to support him through his difficult period. This too will create an eventual exit strategy for Don. Also noteworthy is the partners cutting out many of their discretionary expenses from their compensation such as i.e. car leases, extravagant dinners, etc. It was decided to lower partners’ base salaries and go to a more variable model. Lowering base salaries creates a larger profit pool. The new comp model includes: implementing partner peer performance reviews along with the following components as part of the bonus: asset retention 30%, organic growth 30%, 30% management responsibilities, and referrals from existing clients and COI’s 10%. Roger - $250K, includes a $30kmanagement premium for his role as CFO Mary – $250k, including a $50k premium for her role as CEO Don – $250k, includes a $30k premium for his role as CIO Managing members: Eventual Ownership of 15% Lane – $100k Pete - $100k SEE COMPENSATION EVALUATION AT END OF PRESENTATION FOR DETAILS Set the base compensation for your partners.

18. Partner Incentive Compensation 19 As noted in the previous section, Partners, historically, have been compensated based on their individual production. This has led to a siloed organization with a shallow culture and little shared accountability and teamwork. This was a primary focus for the partners and has resulted in a revised compensation plan. Partner compensation plan will consist of 3 components: -Base Salary, with premium paid for specific responsibilities (CEO, CFI, CIO, COO) -Revenue incentive (10% of revenue generated) -Profit/ownership distribution. Partners will distribute firm profits, after the funding of a non- partner profit sharing plan, according to the ownership % each has. Partners will decide what, if any, profits to retain/reinvest in considering the owners distribution. Partner compensation was designed to address key behaviors: -Drive accountability for results and improve cross-firm communication. -Incent partners to generate revenue. As silos are an issue being addressed, revenue incentive payout will be kept at 10% -Improve teamwork and shared success through a firm-wide profitability component. -Encourage a “lead by example” culture *See appendix for pro-forma 2015 impact on operating margin. Create, discuss and define incentive compensation for partners.

19. Other Initiatives 20 Describe any other initiatives you will undertake as a firm. These may be outside of the scope of compensation and people but may be important parts of your case. Notes InitiativeExplanation 1.Succession plan for DonDon wants out soon. 2.Lane & Pete as partner Lane and Pete can better serve the firm by assisting/being partners 3.Get Don in AA He has a drinking problem and is killing our reputation 4.Compensation for entire ops team Mirror PM comp for firm 5. Evaluate need for FT project manager and receptionist roles Roles are in question

20. - Portfolio Manager - Partner Development Plan and Performance Evaluations

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27. Compensation Evaluation

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