Successful senior executives like yourself often receive calls from recruiters or are, in any case, sought-after by other companies.
When the right job opportunity comes your way and you become genuinely interested in making a move, what do you do? If the pay is right, do you assume the rest is standard and simply accept the other terms as proposed, or do you negotiate on other terms of the offer? What can you, should you, try to negotiate?
While you may excel in negotiating deals for your company, you may not be quite as adept at negotiating for yourself. This article sets out many of the important terms to negotiate for after the cash terms, base pay, and annual bonus are agreed to, plus the role an executive employment attorney might play in this process to help you.
Below is a list of six (6) areas among the most important non-cash terms that are negotiable in a new executive job offer and what to negotiate for.
1️⃣ Sign-on Bonus
Assess your current package of vesting equity and benefits, including stocks, options, long-term incentives, and 401(k) benefits.
To the extent you will be forfeiting some of these by leaving your current position now, you should seek a “make whole” bonus. Additionally, when you are leaving a secure job where you know the players and are well established, you should also seek what we call a “movement sign-on bonus” to compensate for your willingness to move to the unknown and have to reestablish your bona fides in new terrain.
The bonus can be cash, immediately vested equity or both.
2️⃣ Equity Terms
If you are taking a position with the expectation that the company will grow substantially in the coming years, you should negotiate to share in that success with a commensurate amount of equity as part of your executive compensation.
Your offer letter should specify the type of equity, its value, vesting, and vesting acceleration terms on a change of control. You want to know the current value so that if the company achieves 2x or 3x growth, the increased value will be meaningful to you.
For example, if you are issued options for 500,000 shares of stock, it sounds like a lot. But if the strike price is $0.10 per share, your total value going in is only $50,000. So even if you stay four years for full vesting and 4x growth is achieved, the stock is now worth $200,000, a net of $150,000. That amount, for most C-level and senior executives, is only a minor part of 4-years’ income despite considerable success achieved. On the other hand, if, instead, the value of equity started out at $500,000 ($1.00 FMV strike price), then after four years and 4x growth, your value would be $2 million and payout $1.5 million – much more meaningful for you.
3️⃣ Equity Structure and Taxation
The structure of your equity compensation should align with your outlook for the company.
For mature companies with limited growth prospects or even possible decline, consider structuring equity as restricted stock units (RSUs), which always retain some value after vesting while deferring taxation. In contrast, early-stage companies with growth potential may warrant options or restricted stock. For the latter, consider making an IRC 83(b) election to trigger immediate tax at a lower valuation, with future gains taxed at the low capital gains rate upon selling.
There are still other issues if your equity is structured as LLC units or as phantom equity.
If the company has made representations concerning its finances, assets, customers, revenues, profitability, resources for your position, or future strategic direction – all of which you’re relying on for your decision – ensure these representations are included in the job offer letter.
If they’re accurate, the company should have no qualms about formalizing them.
Too often, much of the touting in a presentation of a company slide deck is excluded from your offer, and if it later proves untrue, you might not have taken the job. However, if you can get these into the contract, it could become a trigger for severance. This way, if the job is no longer attractive, you can move on with severance as you seek a better fit.
5️⃣ Severance Terms
Making a career move entails a substantial commitment on your part, and the company should demonstrate the same commitment.
If the company chooses to terminate you without cause, they should offer appropriate severance – for CEOs or many C-level executives, this can be one year’s salary. For VPs and other senior executives, this is often six months. Robust severance packages should also address bonuses, benefits, and equity as well. Also, quite important, there should be a second trigger for severance – a trigger you can initiate – to be able to “resign for good reason.”
This trigger arises if the company breaches its obligations to you, which may include anything that influenced your decision to accept the position if those reliance terms are in your contract. It can also include reductions in your position, duties, or compensation.
6️⃣ Non-competes / Restrictive Covenants
Many job offers will be accompanied by a further company “standard agreement on intellectual property and restrictive covenants.”
This document, too, needs to be read and negotiated to assure you will not be unduly restricted in your next career move. That means pruning back as needed non-competition and non-solicitation terms, and even confidentiality terms. Additionally, if you are an inventor or CTO, make sure there can be no claim to any inventions or technology you own or might develop independently of the company.
If you leave, you do not want your hands tied.
An Executive Employment Attorney Can Help
Some job offers are just one or two pages; other times, you receive an employment agreement of 10 pages or more.
Unlike the slogan of a well-known law firm TV ad, in this case, size does NOT matter. What does matter for you is what is in your job offer, employment agreement, or equity document, regardless of its length or size. Often, it is not just a matter of editing what is there on the page, but instead, knowing what to look for, knowing what is not there, and what other executives seek and receive in circumstances like that. So, having a skilled executive employment attorney who does this work all the time and is focused on executives, rather than a business law generalist or an attorney who mainly represents companies and employers, can make a big difference in ensuring that the needed terms and protections are negotiated for in your documents.
You might not get everything or even most of what we ask for, but with the right attorney, you will at least be asking for all the right things and hopefully gain the things most important to you as part of the tradeoffs of negotiations.
If you fear an executive employment attorney might create a negative impression on your prospective employer, that can be mitigated by the fact that you should be able to direct the level and visibility of your attorney’s involvement. Your attorney can provide advice behind the scenes or be out front negotiating or in between, whichever you feel best.
Additionally, the best employers admire executives who, with the aid of counsel, negotiate reasonably and shrewdly their terms of employment. It’s often said, “If he (she) negotiates like that, I want him (her) negotiating for our company as well.” On the other hand, if the company resents that you have representation and takes “take it or leave it” or other unreasonable positions in the negotiations, this may be a warning sign to you. If this is how they act when they are recruiting you (presumably on their best behavior), it is unlikely to improve after you join. So, it might be better to pass and wait for the next opportunity.
In conclusion, make the most of your opportunity by diligently evaluating and negotiating the terms of your executive job offer with professional guidance. Keep in mind that these negotiations can significantly increase your compensation and overall satisfaction in your new role.