Opinion ID: 783603
Heading Depth: 3
Heading Rank: 1

Heading: AW's Staffing, Income, and Compensation Structures

Text: 14 AW is a small, limited liability partnership that finds and creates investment opportunities for itself, its partners, and outside investors. During the relevant time period, AW had three categories of staff: actual partners, nominal partners, and other employees. Andersen and Weinroth were the only actual partners; they were the only signatories to the partnership agreement. Three individuals were nominal partners: Phansalkar, non-party Alan Brumberger (Brumberger) and non-party James Rawlings (Rawlings). AW gave nominal partners the title of partner and, in many respects, treated them as actual partners. For the purpose of this decision, we will use the word partners to refer to both actual partners and nominal partners. 15 AW's income consisted primarily of cash fees, options, warrants, and carried interests, derived from the firm's investments. (A carried interest, in this context, is a percentage of the profits earned by the investors in a particular AW transaction, which percentage was paid to AW.) AW's income also included the compensation earned by AW partners and other employees for their service on boards of directors of companies with which AW did business. AW required that this Directors' Compensation be passed on to the firm. Directors' Compensation was a very important source of revenue for AW, because it was the only source of revenue upon which the firm could rely from year to year. 16 Pursuant to AW policy, all Directors' Compensation belonged to the firm, whether that compensation took the form of fees or in-kind compensation, such as stock options. See Phansalkar II, at -49, 2001 WL 1524479 at . This policy applied even to stock options issued in the director's name, which often were not freely transferable. A June 8, 1999 memorandum to AW partners stated: when [such options] are realized, the economic value belongs to the firm. Joint Appendix to the Parties' Submissions on Appeal (Joint Appendix) at A 2297; see also Phansalkar II, at -50, 2001 WL 1524479 at . To ensure that AW could track and collect Directors' Compensation, AW required its partners and employees to report to AW their directorships and the benefits associated with those directorships. 17 AW's compensation to its partners differed from its compensation to its other employees. AW partners usually did not receive salaries. Instead, they received Partner Allocations ( i.e., portions of the firm's non-cash income, generally securities, from transactions). Andersen and Weinroth made all decisions regarding each partner's compensation, including decisions regarding the amount and type of compensation to be awarded to each partner each year as a Partner Allocation. 18 Partner Allocations at AW were subject to a vesting policy. Under the policy, one third of an interest vested at the end of each year; at the end of three years, the interest would be fully vested. See Phansalkar II, at -31, 2001 WL 1524479 at . AW paid out Partner Allocations only when the firm monetized ( i.e., converted into money) the profit from a particular investment or transaction. See Phansalkar III, at -8, 2002 WL 1402297 at -3. 19 AW also paid for partners' overhead and expenses, and provided them with opportunities to make certain investments at discounted prices. These Investment Opportunities, like Partner Allocations, were part of each partner's compensation from the firm. Andersen and Weinroth made all decisions with respect to the value and type of Investment Opportunities awarded to each partner. 20 AW employees who were not partners received salaries, discretionary bonuses, and the opportunity to participate in an equity pool set up by the firm. 21