As a CEO or senior executive, you are intelligent, savvy and, above all, successful. Your talent, skills and accomplishments make you a desirable target by other businesses. From time to time, opportunities are presented to you and at some point you may become interested.
When you receive a job offer letter, how do you evaluate it? Do you accept the terms “as is” or do you negotiate? You do a great job negotiating deals for your company but do you always do as well when representing yourself?
This article explores the situations in which you negotiate the employment job offer, the terms you should focus on and their ramifications, and how an executive employment attorney can help you.
Being in a Position to Negotiate
Often an opportunity comes through an executive recruiter with the assignment to find a capable executive to fill a CEO, CMO or other C-Suite vacancy. You are already well established in your current position, you have the requisite skillset and experience and the recruiter seeks to lure you away to another position to make his or her placement.
Sometimes, it’s not a recruiter, the opportunity comes to you by a contact in your network, perhaps an old school mate, a colleague from another position, or a contact from an industry meeting or professional group contact, but once again you are asked to leave your current position to take something new.
Other times, you are between positions, and when it rains it pours. You’ve been available for a while and you have more than one offer where before you had none.
In each of those situations, you have a relatively strong bargaining position because you have an existing executive position or multiple offers. Now, you are at that point when the new employer makes you an offer.
Assuming you get the salary and target bonus you are looking for, there is still an awful lot of items on the table. Many of these items may be far more important than salary. You may never be in a better position to negotiate further than you are at the moment of the job offer. This article discusses the executive job offer and suggests ways for you as a CEO or C-suite executive not to miss what might be your biggest opportunity, for yourself, on the new job – right at the beginning.
Offer letters seem routine: they are not!
For many CEOs or C-suite executives the offer letter is pretty routine. They’ve sent out plenty to people they’ve hired and now is the rare occasion you’re on the receiving end. You receive the job offer for a new CEO or other C-level position – that is, the offer letter, plus NDA / non-compete agreement. The letter recites name, position, salary, start date, the stock options offered, standard benefits and relocation package, at will employment, a drug test, and then if you accept, sign below.
Perhaps, you negotiate a bit over the salary, but if the salary and options are right, you feel good chemistry and you like the company, its location and opportunity, then you accept. You feel it represents an improvement over your current situation, offers a new challenge or has more upside potential. So, you accept.
Don’t miss the chance to negotiate key items
Yet, for many executives, that easy acceptance of the offer letter largely “as is” can itself be a great lost opportunity and for some a big mistake.
In the three circumstances I first mentioned, you have considerable bargaining power. The employer wants and needs you. You may never be in a better position to negotiate further than you are at the moment of the job offer. Assuming you get the salary and target bonus you are looking, there is still an awful lot on the table. Many of these items may be far more important than salary. These key items include those mentioned below.
- Signing Bonus
Before you accept the offer, you should do an inventory of your vesting equity and benefits, what stock, options, long term incentives, 401k benefits are due to vest in the near term that you are about to forfeit by leaving your current company now. You need to be made whole for what you will forfeit. Plus, you are leaving a secure position for the unknown. That risk too should be compensated. The dollar values can be paid in cash or in the form of an equity sign-on bonus.
- Equity terms
Equity is a critical part of most CEO and C-suite executive compensation. This is the part of compensation that gives you a meaningful stake in the success of the enterprise. Generally, if the company stagnates or declines, equity tied to appreciation will be of much less value or even no value. If you are taking this position in part because you believe this company has an upside and eventually it does grow, then equity can become the most important part of your executive compensation package. Your offer letter needs to reflect that. It should be specific about the type of equity, quantity, strike price and vesting terms.
- Equity Structure / Taxation
Your offer letter should reflect your belief in the company and your future with it. If it’s a mature company that has limited growth prospect or might actually decline, or perhaps a turnaround situation that may or may not succeed, you may want to structure equity as restricted stock units (RSUs) that always retain some value once they vest and can never go underwater, all while putting off taxation to the latest possible time. (See the author’s article on Restricted Stock Units in the February 2017 issue.) On the other hand if your job offer is from an early stage company and your interest is piqued by the prospects for growth, pre IPO, then options or restricted stock is the better structure. With restricted stock you may want to make an IRC 83(b) election that will trigger immediate tax. You might want to make that election over all or part of your stock so that you pay tax when the stock value is low, and then have lower capital gains taxation on all-future appreciation, which tax is only paid when you sell the stock.
If the new position requires relocation, you want your offer letter to include provisions requiring the company to pay a monthly allowance for temporary housing or use of a company apartment and your commuter costs including spousal travel, during the shakedown period of six months to a year or longer. With these provisions, you will not need to carry out a permanent relocation until you have confidence this move will be long term.
If the company has provided you financial statements or made representations as to assets, customers, revenues, profitability, resources for your position or future strategic direction that you are relying on in taking this position, you should also seek to include those representations in writing in the offer letter. If the representations are truthful, the company should be willing to put them in the offer letter to you.
- Severance terms
Even though the employment will be “at will”, that you can be let go at any time, you are making a major commitment to go with the company by leaving your current position, and so the new company must make a commitment to you. If they choose to terminate you without cause, they should provide suitable severance. For most CEOs, that severance compensation is at least one year’s salary. The offer letter should also give you the ability to quit for good reason, e.g., if the company violates its obligations to you. Those obligations can include any items that were stated as items you relied on to take this agreement.
Getting Help Regardless of Bargaining Position
Many CEOs, CMOs and C-level executives receive and negotiate full employment agreements. But many others receive an offer letter and no more. And for executives who receive employment agreements, those often follow the terms of the offer letter. So in either case the offer letter is very important to set the terms of your deal going in.
Sometimes you are in a good position to negotiate as in the examples at the beginning of this article. Sometimes you are not. Even if this is your only job offer, one at you must take, these terms are just too important to accept them “as is” without at least some effort to structure terms that don’t change the essential deal but still offer you important protections.
Where you are making this kind of important change in your career, with so much at stake over the terms mentioned above and many others, it is wise to hire an executive employment attorney with strong tax, corporate and securities law knowledge to advise you on and aid you in assuring the proper drafting of these important terms. Sometimes just a word here or there, or an extra clause added by a skilled attorney can make an enormous change for you in realizing the benefit of your bargain or enabling you to leave a difficult situation you did not anticipate.
If you are fearful that hiring an executive employment attorney could create a bad impression with your future employer, don’t let that fear deter you. The attorney should be your tool to use as you wish. He or she could remain behind the scenes to offer you advice. Or if you wish, the attorney could be more active, drafting changes to articulate your position. Either way, you are well advised to at least look into what items are still on the table and what you might wish to seek. Typically, the cost of such assistance is quite minimal compared to the stakes involved for the typical CEO or C-level or senior executive.
So, congratulations on your job offer. Hope you will make the best of it!