Executives, You Need to Negotiate Your Compensation Packages Differently

It’s better to play the long game.

Written by Sam Jacobs
Published on Jul. 29, 2022
Executives, You Need to Negotiate Your Compensation Packages Differently
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Last year, jobs were abundant, salaries jumped, and the market was flush with cash. Today, a recession looms, making it more important than ever to structure contracts that protect your long-term financial future — especially in the tech industry, which is known for notoriously short C-suite tenures.

Negotiating for non-cash options like better severance packages, stock options, and the right to consult can ensure that you're set up long-term financially and demonstrate you have a vested interest in the company’s success. 

For executive compensation packages specifically, it’s best to focus marginally less on outright cash and more on ways to structure long-term wealth and financial protection.

 

5 Points Executives Should Negotiate In Addition to Salary

5 Points Executives Should Negotiate In Addition to Salary

  1. Due diligence
  2. Aligned compensation
  3. Equity structure
  4. Severance
  5. Right to consult

 

1. Due Diligence 

This means you are provided with adequate due diligence on company performance and expectations before you join and are given enough time to review your offer — and I strongly believe that review should be with a good lawyer, especially at the executive level. We found only about 20 percent of executives use a lawyer when reviewing an offer from a company. That is a massive missed opportunity. So many executives look at hiring a lawyer as an added expense rather than an investment in their future. A lawyer is one of the few ways you can be 100 percent sure your contract will set you up for success.

 

2. Aligned Compensation 

Executive teams have the right to fully aligned, market-driven salaries and commissions (think: a salary-to-bonus structure of 80/20 or 70/30 for all executives). The CRO and the CMO should have the same stake in the business succeeding and aligned compensation shows that you understand how the business generates revenue and your role in making sure that continues. 

Compensation structures that focus on monthly or quarterly cash can lead to resentment and shortcuts in order to max out bonuses. Aligned compensation helps ensure the executive team stays focused on what’s best for the business and rewards them for it. 

 

3. Equity Structure 

It’s time we look beyond bonus potential and give ourselves more opportunities for guaranteed income. One way to do that? Liquidity. Here are a few equity terms most executives should understand and be able to negotiate for:

  • Double trigger: This agreement ensures that you will be paid half of your unvested equity no matter what, as well as guaranteeing that the remaining half will be paid if you are terminated without cause, usually within six months of the event. Double triggers are just one of many tools that protect you while you're employed at your current job — accelerating as you work — and if you are let go. 
  • Extended exercise: This agreement increases the time you can exercise your options once you leave a company. The current standard is 90 days, but it’s wise to push for 12 months or more. This agreement is often easy to get because it costs the company little. But it’s a solid addition as it gives you time to decide what to do with your equity after a job ends — helping to secure your financial stability long after your employment ends.
  • Cashless exercise: This option can be a bit more complicated, but it can be an important tool in your negotiation toolbelt. In a cashless exercise, you can use your existing options to “pay” to convert other options into shares without having to pay cash for them. It's a smart way to choose when to liquidate your wealth in a company — and to do it without cash upfront.
  • Milestone payments: Milestone payments are one of my favorite compensation package options because they reward executive risk and talent and align employee and company interests to benefit both parties. In a milestone payment agreement, the company agrees to pay you for reaching specific, larger company milestones. These milestones might be hitting your ARR target and are tiered to reward performance from, say, 75 percent and up. This motivates you to work hard to reach company goals and targets, knowing that the company will reward and acknowledge your hard work in return. In short, it rewards you for your role in the company’s growth — while leaving room for experimentation and improvement.

 

4. Severance

Severance is one of the most vital pieces of an economic compensation package — especially when times are tough. As markets slacken and talk of recession bubbles up, it’s important to secure your financial future in the unfortunate event that you’re terminated from a job, ensuring that losing your job doesn’t mean losing your financial security. After I was fired from my job several years back, I was able to use my negotiated severance money to seed my current organization — turning a financial downturn into a career opportunity.

Three months’ severance should be the bare minimum, with six months standard for executives. If you need to bend, you can key your severance to your time at the company. With severance terms, you need to be very clear with your employer on the definition of “cause” so you get the money you deserve if you lose your job. Again, this is where it’s wise to consult a lawyer. 

 

5. Right to Consult 

Another way to build your wealth is to monetize your non-competitive expertise through consulting or advisory work. When negotiating a compensation package, make sure it includes a right to consult clause. You can, and should, use your hard-earned expertise to make more money through consulting agreements.

Read More on Built In’s Expert Contributors NetworkThe Unicorn Test: 1 Sign It’s Time to Quit Your Job

 

Negotiate Wisely With These 2 Tips

I have two rules you should keep in mind when you’re getting ready to talk with a potential employer. 

Negotiate Wisely With These 2 Tips

  1. Understand your true bottom line.
  2. Take yes for an answer.

 

1. Understand Your True Bottom Line 

A negotiation is necessarily a dance, full of moves and countermoves. That’s why you must have a solid sense of your boundaries before you start. Get clear about which concessions you’d be willing to make under which conditions — and what you're not willing to compromise on — and then stick to it. Some of the best negotiations happen when both sides give a little but hold firm to the true bottom lines. 

 

2. Take Yes for an Answer 

This advice is a companion piece to your actual bottom line. Often in negotiations, we get so set on our terms and conditions — or operate out of such a scarcity mindset — that we think we need to get everything we want or walk. But that’s not necessarily the case. Look for what will create a sense of alignment between the company and yourself, what will help you both to determine whether they are working towards the same thing — and if you can work together to get there. The next time you’re negotiating, listen to what you can say yes to and look for the places where true alignment can happen.

Whatever happens in the global economy in the coming year, you can take this momentary slowing in the bull market as a wake-up call and start investing in a compensation package that can weather any financial situation and protect you for the long haul.

Read More on Built In’s Expert Contributors NetworkCandidates Should Interview Companies, Not the Other Way Around

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