We sat down with our own Tim Ferguson at The Noble Law to discuss some of the strategies top-earning executives use to negotiate their equity-based compensation.
Tim’s background includes negotiating equity compensation disputes, contracts, structuring debt and equity financing, advising on control disputes, as well as analyzing stock options in litigation dispute. He shared some insights into improving negotiated executive compensation with us.
[toggle title=”What are the top things that an executive should keep in mind when negotiating compensation?” open=”no”]Typically the equity-based component of your compensation may very well be the most valuable component. It is important to also consider the type of equity (non-qualified stock options, incentive stock options, restricted stock awards, restricted stock units, stock appreciation rights, etc.). Within that context, there are a lot of technical tax securities, rules and distinctions that you should be aware of.
These contractual items include, for example:
• The relative percentage of the award (or size) from the client (/number of shares)
• The vesting schedule or milestones
• Whether or not there are any rights to acceleration of vesting
• Whether or not there are any repurchase rights
Tax considerations could include:
• Classification of the equity award
• Timing of taxable events
Securities considerations include:
• Transferability of awards
• Insider trading considerations
Aside from the equity component, severance is also an important component of executive pay. There are a number of issues within that context that are important to consider. In particular, triggers and duration of severance and potential tax concerns.
[toggle title=”Executive compensation levels tend not to be very transparent. How do I know if I’m getting my market value?” open=”no”]You should have some discussions within the parameters of your confidentiality obligations: You may be able to obtain benchmarking information from colleagues and headhunters. It’s important that people comply with their confidentiality obligations (disclaimer).
Several companies also perform benchmarking of executive pay. There are many commercial products available with information of this type.
[toggle title=”My company is being acquired; how do I ensure my job security or negotiate severance?” open=”no”]Severance benefits, along with other components of executive pay, tend to depend on the relative leverage of the parties. It is advisable to negotiate severance prior to the commencement of the employment relationship rather than in anticipation of acquisition.[/toggle]
[toggle title=”As a mid-six figure executive, I’ve been approached by a head-hunter for a competitor. What do I need to know about my non-compete and maintaining/liquidating some of my holdings?” open=”no”]At the mid-level or senior level, comprehensive employment agreements are common. Executives are frequently subject to a number of contractual obligations in their employment agreements. In addition, depending on your level of seniority and control, you may be subject to fiduciary duties with your employer. These duties may impose an additional layer of legal obligation on you. Before taking definitive action with respect to pursuing employment with a competitor, it is advisable to assess your own personal risk with respect to your employer. [/toggle]
[toggle title=”I’ve got golden handcuffs, but I’m considering going out on my own. What strategies do I need to consider for not leaving money on the table?” open=”no”]This is a risk/benefit analysis. Look at your compensation package to see what the vesting triggers are for certain events. Consider the likelihood of a particular significant corporate event that may result in acceleration or liquidation of your awards or an event that would result in distributions to stockholders. Think about the value of these factors relative to the opportunity you are considering.[/toggle]
Do you have a burning question regarding executive compensation issues? Please post a comment below and we’ll answer as soon as we can! For personalized legal advice and services please book a consultation.
For more information on Tim Ferguson and employment legal services, visit TheNobleLaw.com. The Noble Law Firm provides clarity at work. Founded in 2009, The Noble Law Firm in Chapel Hill, NC provides forward-thinking, trusted employment law counsel and assertive representation on key employment issues to individual employees and company management.
Disclaimer: The information contained in this page is for general informational purposes only and does not constitute legal, tax, accounting, or investment advice. If you require legal representation you should contact an attorney respective to your matter as soon as possible.