When deciding to leave a company, the majority of individuals I speak with talk about following their passion, working with cool technology, and obtaining experience in a successful company. I completely agree with following your interests and making sure you find a quality company that will treat you well, allow you to learn new things, and delve into the path you wish – but once you choose your new path, how do you maximize your financial outlook as well?
Many technology-based companies view attraction or retention of executives and key employees as their #1 problem due to demand for talent in a limited pool of individuals. However, the majority of these employers rely on irregular programs – spot awards, ad hoc grants, and non-cash benefits – to hold on to key employees.
So how do you get the most out of your career with the company? Start with a well-defined plan, and develop an understanding of your executive compensation package and how best to structure it for long-term success.
- Start with transparency – ask important questions around the health of the organization and the stock option pool.
- Discuss your executive compensation package to ensure you fully understand the implications of:
- Long-term incentives
- Peripheral negotiations around severance, vacation days, etc.
- Terminology used in your vesting agreement
Remember: Negotiate for what is fair – they are offering you a job you love.
- Conclude with shared meaning – you and the company both want long-term value creation and to reward those involved providing outstanding performance.
Not sure what may be involved for point #2? Here are some examples and tips.
Long-Term Incentives (LTIs)
Addressing this becomes more important when you reach the VP level because your ratio of LTIs to total compensation dramatically increases. Many mid- to large-companies provide current value awards (RSUs or phantom units), so if you spent the majority of your career with smaller companies, read up on the difference between stock options and owning these awards.
Review your performance-based plan. Is there a cash component? Only equity? Consider the risk you are willing to take. Do you need more cash annually to set aside for your financial goals? Can you take the risk of asking for a heavier equity allocation? Depending on where the company is on its journey, it may be easier to obtain additional equity shares than cash allocation.
Peripheral Negotiations
When movement cannot be made for compensation or incentives, you may be able to ask for additional protections or benefits.
Do you like to travel often? Discuss what a typical week looks like and when working from home would be allowed. Think about asking for additional vacation days – if they have a plan with levels of additional days per number of years worked, you may be able to ask for the highest level benefit.
Are you taking a huge risk in a department that may flop or go big? Consider asking for a short time frame of severance if you are terminated from the company. Knowing you have a safety net to get back on your feet can make a huge difference mentally, but remember to confirm what scenarios the severance will or will not pay out for.
Ensure your agreement includes indemnification protection. Starting down, or continuing through, the executive path includes additional risk. On the personal side, think about obtaining an umbrella insurance policy and directors and officers policy, if applicable.
Terminology
Make sure you understand the terminology in your vesting agreement.
When the vesting schedule accelerates
- Acceleration based on termination – Does this mean any termination? Termination without cause? Leaving for good reason?
- Acceleration based on a merger or acquisition (change in control single trigger) – Do you receive an additional year of credit? Or a shorter or longer time period?
- Acceleration based on acquisition and termination (double trigger) – How long are you covered post-acquisition?
Golden Parachute / Tax Gross Up
At the end of your journey through management, key employees may be offered severance packages that include accelerated vesting, continuation of salary and health benefits, or other factors. If you believe you will receive more than three times your average compensation (over the past five years) upon the end of employment, review your agreement to ensure you receive a 280G payment projection.
The gross up should include income and excise taxes due. Also, ask for a reimbursement for additional expenses in connection with an IRS audit claiming additional tax due if related to the 280G payment and gross up. You shouldn’t be liable for a miscalculation made by the company in grossing you up for the applicable tax.
Find out more about other compensation topics here.
Thoughtful conversations around executive compensation can make a distinct difference over time. Starting with the end in mind while planning for a successful career at your new company allows you to focus on your job and know the risks and rewards applicable to you.
Do you have other helpful thoughts others should consider? Add a comment below or reach out to me for a discussion over coffee at [email protected]
