Negotiating Your Chief Strategy Officer, Chief Growth Officer or Chief Transformation Officer Contract

As companies increasingly recognize the importance of setting a winning direction for expansion, change, and evolution, the demand for C-level executives to drive, manage and sustain organizational growth increases.  Roles such as Chief Strategy Officer (CSO), Chief Growth Officer (CGO) and Chief Transformation Officer (CTO) have been created to address the growing need.

If you have a job offer now or are seeking a CSO, CGO, CTO, or similar C-level or senior executive leadership role in the strategy, growth or transformation space, it is wise to give proper attention to the terms of your job offer, employment contract, equity and compensation terms going in.

The CSO, CGO and CTO roles share many common issues and concerns related to their work in reshaping processes, introducing and developing new technologies, recruiting and directing personnel, allocating resources, as well as crafting and implementing necessary initiatives in the organization to achieve and sustain holistic growth. Often this growth is backed by private equity and carries with it the added pressure of a targeted timeline toward a successful exit event.  On the other hand, each role also carries distinct responsibilities and rewards that impact how you will work with the CEO and Board.  It is wise to have each of these items addressed in your executive job offer or contract terms, with proper protections for you as the C-level executive taking on these important challenges.

Three Different C-level Strategic Roles  

Each of these strategic executive leadership positions typically reports to the CEO, and each has its own separate role, focus and objective within the organization, as described below.

1. Chief strategy officer (CSO) has the main responsibility for strategy formulation and management, including developing the corporate vision, strategy and goals, overseeing strategic planning, and leading strategic initiatives, including M&A, transformation, partnerships, and cost reduction.  As CSO, you would also work with the CEO, stakeholders and management teams to support strategic decisions, improve current business operations and revise them to achieve the company’s long-term vision.  The position can arise where the CEO may have inadequate experience or lacks time to devote to developing business strategy.  It can also arise in companies with high growth and scalability ambitions, often driven by a time sensitive desire to realize on those ambitions with an aggressive exit strategy.
2. Chief growth officer (CGO) seeks to drive and optimize the company’s revenue, market share and expansion – identifying growth opportunities, forming strategic partnerships, and overseeing sales and marketing efforts.  As CGO, you seek to collaborate, measure, and provide support for growth initiatives, to reshape the organization in order to stay ahead of buyer needs, engaging potential buyers wherever they are in the purchase cycle.  This role embraces marketing, with full analysis of the company’s value proposition, measuring customer response to the company’s campaigns, and assuring sales activities maintain the value proposition and insights are relayed back to the marketing and product teams. The CGO also oversees product development to assure delivery of value to the customer.
3. Chief Transformation Officer (CTO) focuses on bringing about change, as well as growth in revenue and profit to an organization.  The CTO is expected to work with the CEO to lead the company through major changes, such as new products, internal policy changes, or corporate repositioning.  CTOs are responsible for driving innovation, improving efficiency, and ensuring long-term growth.  The CTO is often brought aboard to enable the company to address rapid-fire developments in technology — along with shifting markets, customer demands, competitive environments and trends in global trade – some or all of which have spurred the need for continuous transformation and transformational leadership.  CTO can also be brought aboard as trouble-shooters to address a decline in the company’s performance not unlike turnaround CEOs explored in my earlier CEO World article: Interim CEO and Turnaround CEO Employment Agreements: Terms and Compensation.

Risks you face taking a C-level Strategic Role  

In each of these three roles, CSO, CGO and CTO, you are taking on the role of change agent, and that is not an easy thing to do.  It’s a role with critical obstacles, and you would be wise to recognize and attempt to deal with them from the outset.

To enhance your chance of success, you will need the backing and confidence of the CEO and Board.  Your power and ability to effect change derives from the CEO, who must support your authority within the organization.  This support carries through to the Board as well to provide you the ability to influence company decisions that may affect the changes for which you will be held accountable.

The changes you will want to make should not be expected to generate popularity and support in all quarters. It is important to recognize incumbent vested interests and be able to take them on to lead the organization in a new direction.  You will certainly need to work with existing management to understand where they are, to listen and coach them to where things need to go.  However, when your new approaches are met with a wall:  that is, the response “that’s the way we’ve always done things around here,” senior executives need to receive a clear directive from the CEO supporting your changes.  Things are changing here and that will include executive personnel who are not with the program.  Old ways will not be permitted to slow or even stymie needed change.

Key Contract Protections to seek 

You job offer for a CSO, CGO and CTO position might well describe your duties and responsibilities “as are typically commensurate with such position as and as may from time to time be assigned by the CEO.”  That description commits the company to nothing and makes your position entirely discretionary.

Instead, it is wise to negotiate for a clearly delineated set of duties and responsibilities and statement of your authority in those areas.  Because you seek to be a change agent in the company, you want to avoid role ambiguity, ensure the right level of autonomy in decision-making, define your oversight role and align performance metrics with your expected contributions.

It is also wise to add to your duties and responsibilities, some aspirational duties with an eye toward career advancement.  As a CSO, CGO or CTO, your next career move may be to the CEO role.  Thus, it is wise to include in your duties those associated with the CEO role, such as M&A input, capital raise and investor relations, that may be viewed by executive recruiters on your LinkedIn profile.  Such duties may also enhance your effectiveness in the change agent role.

Your authority needs to cover key necessary staffing and support.  You need the ability to hire, fire and manage staff you need to do your job.  You need to set out the interface you expect with existing power centers in the company.  You should also secure the authority to provide strategic input across key areas such as marketing, sales, technology, and production.

To the extent you are relying upon any particular representations as to the current state of the company or any particular promises of support for your planned initiative that were given to you as part of your recruitment, it is important to include those terms as well in your C-level job offer or employment contract.

Designing Your Cash Compensation  

As a C-level executive, your cash compensation package should include competitive base salary, bonuses, including signing bonus and performance bonus, and appropriate executive equity.

Your signing bonus ought to have two components.  First, a make-whole amount to cover amounts you are losing at your current position to take this job.  The make-whole is especially justified when the new employer presses you on your start date, not allowing you to vest or received payments you would have received.  The second part, that I call “movement” bonus, is a bonus to justify your leaving a current secure position to go into the unknown.  The movement bonus is especially relevant for the prospective CSO, CGO or CTO, because you go in as a change agent which poses special challenges.

For your annual bonus, to be compensated fairly, your performance metrics should align with your specific duties. These can focus on particular elements of change you seek to accomplish in your role, and then more broadly the levels of growth you seek to achieve for the company, such as market penetration, enhanced revenues, improved profitability.  For more on bonus structuring, see my earlier CEO World article “Structuring Bonuses in Your CEO Compensation for Maximum Benefit.”

Executive Equity:  Your Stake in Success  

As a C-Level change officer, whether CSO, CGO or CTO, executive equity should comprise a significant and perhaps most significant part of your entire executive compensation package.  This component of your package ties most directly to giving you a stake in the changes you hope to effect.

It is important to review the amount of equity you are offered, especially your percentage interest in the entire enterprise.  This way, you can determine your potential upside if you do achieve a level of success in your work.

Vesting can be time-based, typically over 4 years, but should also be based in part on performance tied to the same metrics as your annual cash bonus.  Your equity should also provide for acceleration on the ultimate success event – investor liquidity with an acquisition or IPO.  My strong recommendation is for single trigger acceleration as set out in my two prior CEOWORLD articles on the subject:  “Fighting the Double Trigger as Free Labor vs Slavery: How to Negotiate Your Own Change of Control Acceleration Terms” and “Fighting the Double Trigger as Free Labor vs Slavery II: Negotiating with a Public Company Change of Control Acceleration Terms.”

Ideally, your equity should be tax favored to the extent possible.  If the company is eligible, restricted stock which is QSBS (Qualified Small Business Stock) is best. It gives you the chance for significant tax-free treatment for the appreciation.  For LLCs, profit interests are also a good choice with no tax consequence on issuance and capital gains treatment on sale.  RSUs, qualified and non-qualified stock options and phantom stock are other structuring choices but less favorable.

Severance Triggers and Benefits to Backstop your Position 

Severance benefits and severance triggers are a critical set of provisions in any change officer job offer or employment contract, whether CSO, CGO or CTO.

An important concern for all change executives is the potential for losing all or most of your equity in the event of termination in the first two years.  If you do your job, you will ruffle some feathers.  There is bound to be more established forces against you, and even if your CEO champion is steadfast, you’ll never know if that CEO champion will get a job offer elsewhere and you could be left high and dry.

Thus, it is important that severance is robust if you are terminated without cause.  This should include not only significant severance pay and benefits – 9 or 12 months, but the same level of acceleration on equity.  Additionally, there should be no provision to force you to sell your equity at the company’s then determined stock price.

Attention should also be paid to severance triggers.  Termination for cause must be severely restricted to largely willful and materially damaging acts to the company with your full opportunity to receive notice and respond.  But not only that, you should have your own triggers as well.  If the company fails to give you the level of support set out in the contract, you should be able to give the company notice and if the situation is not properly addressed, you should be able to quit with full severance.

Consult an Executive Employment Lawyer 

When presented with a C-level job offer or executive contract to serve as a Chief Strategy Officer, Chief Growth Officer or Chief Transformation Officer, given the magnitude of your position, its potential to greatly benefit the organization, but yet the risks those change positions entail to you, in taking up the challenges such positions offer, it ought to be expected that you would thoroughly review the terms of any such job offer or employment contract.  And when you do, to assure that you receive appropriate consideration of the points raised in this article, it is prudent to seek the guidance of an experienced executive employment lawyer who can help tailor the terms to your specific role and protect your interests, both short-term and long-term.

Written by Robert A. Adelson, Esq.

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