If you could have the clout a hiring company needs, your equity compensation could also be negotiable.
Depending in your skilled clout and the needs of the corporate, you might give you the option to barter your equity compensation if you find yourself hired or promoted. The grant of stock options, restricted stock and/or restricted stock units (RSUs) could also be increased or structured to make more sense as a part of your employment agreement.
A recent webinar I moderated about negotiating equity compensation included three advisors who’ve experience helping clients negotiate compensation (including a compensation attorney). Although each individual’s situation is exclusive and requires personalized advice, the final guidance of those experts provides helpful knowledge for discussions.
1. Be realistic and informed before starting negotiations
The ability to barter compensation is determined by your importance to the hiring company, observed webinar panelist Art Meyers, employment and executive compensation attorney and founding father of Meyers Law Firm in Naples, Florida. “That doesn’t mean you have to be in the C-suite,” he added. “You is usually a very talented engineer in a high-demand field. It is determined by.”
However, unless you are a C-level executive, “there’s usually not much that’s negotiable in the actual grant offer,” warned financial advisor AJ Ayers, co-founder of Brooklyn FI in New York City. “You can ask for more shares, but these grant documents often come down to a take-it-or-leave-it question. If the company makes a change for one person, it has to make the change for everyone else and go through a board review, which is messy. So don’t waste your time asking for things that won’t be granted to you.”
AJ’s view was echoed by webinar panelist Beata Dragovics, a financial advisor and founding father of Freedom Trail Financial In Boston. “In my opinion, you have to be at the VP level and the C level to really start negotiating,” she explained. For clients with this level of influence, she suggests contacting HR directly, especially at a publicly traded company, to search out out what they’ll negotiate for within the hiring offer. “HR expects you to negotiate. I coach clients to ask HR what’s negotiable.”
This realistic and informed perspective is crucial, webinar panelists agreed. If you overdo it and ask for an excessive amount of, your approach can backfire. Both Beata and AJ said they’d seen job offers actually withdrawn after negotiating overly aggressive tactics, causing employers to reconsider whether the person was an excellent fit for the corporate.
2. Understand compensation trends in your industry
What are the Factors and characteristics What do you have to concentrate on when negotiating? First, research the trends in your industry, suggested Beata Dragovics. “I think trends matter to us,” she said. This is one area where consulting with an advisor can actually provide a big advantage. Over the years, her firm has gained extensive knowledge of compensation practices within the biotech and pharmaceutical industries, during which most of her firm’s clients work.
“You learn from clients, from recruiters, from lawyers. You learn every time you negotiate. Companies want to remain competitive and therefore offer almost the same type of equity compensation. The trends are very consistent.”
Art Meyers found that it is simpler to research trends with a publicly traded company. You can view firms’ public SEC filings to see what they do with executives and key employees. He said he gets information concerning the company’s funding guidelines this manner or from consulting or personnel placement firms. “With an excellent one Stock Comp Calculator” He added, “You can see what these stock awards can do.”
3. Evaluate the equity you are abandoning
When considering bargaining benefits, Art advises his clients to think about the equity incentives provided by their current employer that they’d forfeit in the event that they moved to the hiring company. “I would ask for blanket awards if you leave something on the table. You can apply for, and often receive, an additional award, typically RSUs, where you have a short vesting schedule: six months, a year, something that mirrors the remaining vesting schedule of the other company.”
4. Know one of the best times to barter
When are one of the best times to barter equity compensation? “I would say before hiring and before promotions,” Art said. “Those are leverage points.”
For annual stock grants or special off-cycle grants that come later, all of it is determined by your performance in the corporate, he explained. “What is the value of the company? Can they be easily replaced? What is the history or culture in the company or industry? All of these factors play a role in whether you can receive annual grants or off-cycle grants.” For publicly traded firms, Art recommends submitting your application 60 days before the traditional grant cycle.
5. Choose what you would like to concentrate on throughout the negotiation
Whether or not to barter compensation often is determined by whether the initial offer is affordable, noted AJ Ayers. “Does this offer meet your financial needs?” She asks customers. “If someone is a sole earner supporting a family of three, I think it might be too much of a risk to take a pay cut and some incentive stock options (ISOs) in a startup company. As their advisor, I will advise them to instead consider a more stable salary with RSUs, where we can see the historical stock price and get a sense of what that compensation will look like.”
One method AJ likes to make use of with clients is to make an inventory of all of the things which can be necessary to them: “401(k)s.” Salary. Is there a pleasant upfront bonus? If you’re strapped for money at once, this could possibly be very helpful.”
She noted that some technology firms are actually offering exceptional advantages. “Is there fertility support? If you have a client who is having difficulty conceiving, $50,000 in fertility support could be far more valuable than an additional RSU grant. What’s right for the customer, what they need to support their family: That’s how we come to the offer table and start evaluating these different offers.”
Likewise, Beata selects and negotiates only a number of attributes which can be most significant to their customers. She emphasized that the present market environment of an industry will determine the scope of possible negotiations.
6. Protective measures within the event of termination
Protection of equity allocations within the event of Termination of Employment Severance payments triggered for various reasons are an important point that have to be taken under consideration during negotiations and any severance payment arrangements. AJ suggests her clients have their employment contract reviewed by a lawyer. “We see in some of these agreements an unpleasant clause that provides for arbitrary dismissal and where a company can fire someone at any time and for any reason,” she warned. “The vesting period ends and you lose stock options. It makes sense to have these employment contracts reviewed by a lawyer.” Any clause that is taken into account problematic might be addressed in negotiations, she explained.
For more guidance in your equity compensation during layoffs, try one other Forbes.com article I wrote: Protect your stock options and RSUs from job loss: 3 key actions.
7. Know how private firms differ
At a non-public company, Art Meyers said, it’s harder to realize insight into trends and expectations when negotiating compensation. “What you really want to do is convert the number of shares granted into a percentage of ownership on a fully diluted basis and require either a transaction value, a current book value or the current value Valuation under Section 409A You need to get a feel for what it’s worth now.”
A Section 409A valuation is an evaluation of the stocks of personal firms to find out their fair market value using various methods permitted by IRS regulations under Section 409A of the Internal Revenue Code. Importantly for stock options, the 409A fair market value “should be the strike price that is offered to you,” said AJ Ayers. “But maybe not tell You know this when you look at job offers. So you have to find the 409A yourself.”
The 409A valuation could be very useful information, together with any details about preferred stock sold to investors, AJ claimed. She warned to disregard any spreadsheets claiming the startup will likely be “the next Amazon” and to maintain your expectations realistic.
Early-stage startups are likely to offer stock options somewhat than stock options Double trigger RSUs which have turn into popular for later pre-IPO firms. This means it’s worthwhile to think concerning the option’s strike price. When it involves stock options in a startup, AJ Ayers strongly encourages clients to think about whether the exercise price is inexpensive enough for the choices to make sense as compensation.
“If the price is less than a dollar, it’s probably feasible for a family that has some savings or could sell some investments for it,” she explained. “But when we talk about ISOs or even non-qualified stock options (NQSOs) with an exercise price of $5 or $10, we start to lose any tax arbitrage that is possible through exercising and then holding those shares. I will never advise you to do and keep these exercises. That’s too much risk.”
More resources
The webinar during which these experts spoke Negotiate equity compensation when hiring and protect it upon termination of employmentIs available upon request within the myStockOptions webinar channel. In addition, myStockOptions.com has a Website area with resources to barter equity compensation upon hiring or promotion.
