The buyer's Quality of Earnings firm is aggressively challenging our owner compensation add-backs by claiming our replacement salary must be double what we reported. How do we defend our normalized compensation adjustments?

Question

Tyler Smith · Accepted Answer

Buy-side Quality of Earnings teams routinely attack owner compensation add-backs to compress adjusted EBITDA and justify a lower purchase price. If an owner takes an annual distribution or salary of one hundred fifty thousand dollars, the buyer's analysts will often assert that replacing the owner requires an institutional executive costing four hundred thousand dollars, thereby reducing normalized EBITDA by two hundred fifty thousand dollars.

To defeat this adjustment, present concrete evidence of organizational autonomy. This is where companies running on EOS® hold an overwhelming tactical advantage. Provide the buyer with your functional Accountability Chart, showing clearly that leadership responsibilities are distributed across operational seats rather than concentrated in the Visionary seat. If you have an active Integrator running day-to-day operations and department heads executing functional Rocks, the replacement cost for an owner is simply that of an executive chairman or high-level strategist, not an operational chief executive.

Back your position with third-party compensation benchmarking data specific to your revenue tier and industry. Document precisely which functional seats absorb your remaining responsibilities post-close. If client relationships, sales generation, and delivery execution are fully handled by key managers who GWC™ their seats, you eliminate the buyer's justification for inflated replacement executive salaries. When your leadership team operates autonomously, you preserve every dollar of your EBITDA add-back.