Stock option negotiation – where to start 🤷‍♂️

So, I’ve been asked to name an appropriate number for stock options as part of my salary package.  This will involve a stake in the game for me helping to move the company from X sales revenue to Y sales revenue over a 3-5yr period, with them fully vesting at 5 years.

The thing is, I’ve no idea how to calculate an appropriate number, level is CEO -1 in a £16m annual revenue company.  Any advice?

Start much higher than you think is reasonable.

If you think they’ll agree your opening figure you haven’t asked for enough!

with them fully vesting at 5 years.

Options or RSUs?
Sounds like the latter. If so, factor in the fact you’ll pay (a lot of) tax when you sell them and they may go up or down in price before they vest.

So ask for loads…..

very difficult to say, with out further info (which appreciate is sensitive), £16m Revenue to what £XXX double/treble/10x ?

go big, is the company planning to float or, is it non tradedable stock options,

do you have access to the balance sheet, presumably its on company house, how many shares currently exist,  likely to exist in the future

Go Big

Start with the structure – you ideally want it under the capital, rather than income, taxes regime.

Liquidity – how do you get the value out?

Protection – you’ll want some assurance you don’t end up with nothing because of some dilution event.

Value – what’s the benefit to the other shareholders of the targets you aim to hit and then what % of that is reasonably attributable to you.

What sort of Stock are we talking about – sounds like Restricted Stock? How much can your role influence the “X sales revenue to Y”? What is the risk in this not happening? Is it binary or do you still get a % of return? 5 years vesting – so beyond the performance window? e.g. you have 5 years to increase the sales and then must keep the stock for 5 years before you can sell? If you leave before that do you get nothing?

Reward via stock is it’s own specialism in HR.

Assume you want an answer at % of salary? As you go down an organisation % would fall. e.g. CEO 200% of salary in Bonus+Stock, -1 = 100%, -2 = 50%

Are CEO compensation figures available?

The fact I’m struggling to answer much of this tells me I’m way out of my depth.

Its RSU’s, I’ll be in control / responsible for all sales numbers, likely vest period starts at year 3 and the projection / ask is that the company value will double in 3-5 years

I know the key board member has shares currently to the value of £500k and CEO £300k which feels small to me, and places a nagging doubt in my mind which I can put my finger on.

I wouldn’t be getting too excited about RSUs given they’re in the income taxes regime and are taxable when they vest.  I think the total vesting is deemed to include employer NI, so by the time you take off that, income tax and employee NI, there’s a lot gone.

Is the company listed? I.e. can you even easily sell the ‘shares’ when they vest? Vesting @ 3 years seems a long way off.

It is listed.  The vesting period is intended to keep me there / focus me to the target.

Where to start? Ask them to go first and name a value. Any trained negotiator will tell you that.

If they give you none will you leave?  Can you get a better deal elsewhere?  If they have you some and it starts to get tricky/hard, will you leave?  Can they do it without you (they probably can but it might cost them more)?

Last place I was involved with discussions like this CXO’s were on 100% of salary, next level down 50%, and level below that 25%.  Selected “little people” were on 10% of salary.  BUT they weren’t listed and the valuation was on whatever reduced value had been agreed with HMRC and the mission was really to grow and flog it for as many times that value as possible.  In reality from people I know who lasted long enough – the buy out essentially strong armed them into swapping those options for future “better” options in the new owner with another 3 yr vesting; new culture is shit but nobody wants to risk losing six figure sums so are hanging on in hope.

Beware, one person tried to demand a ridiculous amount and was managed out because “no matter how much we give him, he’s never going to fulfil his expectations here so its better we get rid of him on our terms and timeline than his”!

‘salary package’? Do you mean that this would be based on some basic salary value? The idea being that it is a long term incentive to retain you?

if so then these typically award an amount of RSUs after each completed year. These are available for you to sell/burn/transfer after a set period. Any that you have been awarded and are not yet available to you are lost to you if you leave.

they’re in addition to commission ( if applicable in your ‘SVP’ role) and bonuses right?

50% seems a reasonable starting point to me.

edit. As folks have said, when they’re made available to you the value is treated as income and taxed accordingly. Seeing 50-60% of the value disappear in tax should put a proposal of 50% of salary in perspective. Having said that, there are likely ways to get them  into a pension wrapper and avoid tax🤷🏻‍♂️

Its RSU’s, I’ll be in control / responsible for all sales numbers, likely vest period starts at year 3 and the projection / ask is that the company value will double in 3-5 years

in the current ‘growth’ focused market, sales may not be the biggest influence on share value at any given time? Cutting the workforce by 10% can be as effective?

Screw RSU’s at an unlisted co. You want options under an EMI plan.

If it’s Google when your RSU’s vest you can sell them instantly. Doesn’t matter how
well you do at your job, if there is no liquidity event your RSU’s are worthless.

To put things into perspective, Stripe are still private after all these years. Most of SF royalty are raising down rounds unless they are a hot AI thing.

You need to know company valuation, revenue growth, previous investment rounds and understand the cap table to be able to effectively negotiate. 9/10 don’t and just accept what is put on the table. Feel free to DM me if you need help.

Lots of information missing; in addition to silly’s post above…turnover? competitor analysis? sector size? postion/ranking in sector? growth opportunities? do the ‘key board member’ and CEO want revenue growth so they can cash in their chips and walk before yours vest?

I could go on.

You need to think long and hard if this is the right move for you.

I’ve watched a few Dragon’s den episodes.

Start with something like “I’ll give you £100k for 80% of the company”.

If they try and haggle keep dropping the £ figure till they realise you’re serious.

You need to think long and hard if this is the right move for you.

Given the rest of yours and silkysillys post, I don’t have the ability, patience or will to play all of those chess games with board members and senior company politics.

I’m coming to the conclusion that it’s beyond my competence level and I should content myself with the fruitions of a senior sales employee.    Of course, this could be an opportunity to learn all of that, but the risk of failure feels high IMO.

If you’re not prepared to do the research, understand the potential risks and rewards, ask the focussed questions you won’t be able to take an informed decision.

They want an answer beyond the end of the week and I’ll be negotiating with a board member that’s been running multiple companies for 40 years.  I don’t have time nor the skills for that.   The best I could do is tell them the salary & commission I want plus name a price on the stock options as an on-target bonus related to success and not get into the detail.

All off this bollocks just puts me off tbh, I’d quite like to just work and get paid and let that be an end to it.

If I were going to work for a well funded start-up then I’d concentrate on salary and bonus structure. Options etc in a start-up are like a lottery ticket, nice to have, but not to be relied upon as a form of income.

This

If I were going to work for a well funded start-up then I’d concentrate on salary and bonus structure. Options etc in a start-up are like a lottery ticket, nice to have, but not to be relied upon as a form of income.

It’s not exactly a start up through if it’s t/o is £16m.
Work backwards.
In 5. Year’s time I want to retire holding onto say £400,000 of stock options.
Which I can realise over a ten year period .
Keeping me with a nice income till government and sipps kick in .

… £400,000 of stock options.
Which I can realise over a ten year period…

They should be stocks by then. stock options in one company? The value of shares can go down as well as up.

They want an answer beyond the end of the week and I’ll be negotiating with a board member that’s been running multiple companies for 40 years.  I don’t have time nor the skills for that.   The best I could do is tell them the salary & commission I want plus name a price on the stock options as an on-target bonus related to success and not get into the detail.

Yet you believe you will be able to control the entire revenue of a 16M+ firm.  Beware… i’ve seen good sales folk suddenly get stymied by (logical) rules imposed from the board on types/size/profitability/duration of deals to ensure the business gets the multiplier it wants.  Even your commission (really do they pay simple commission at this level?) may end up so complex you want to walk away.  Which is why they want you with an incentive to stay.  I’d flip it round and say “Here’s what I want now …..; but if you want me still to be here in X years time I think its up to you to propose the incentive for that”.  Beware they will probably try to trade off the “now” for the “future”.  You ask for £100K a year, they’ll offer you £65K and the possibility of £0.5M if it all goes great.   If you can get £100K elsewhere – don’t take that!

All off this bollocks just puts me off tbh, I’d quite like to just work and get paid and let that be an end to it.

Beware this can be a test of whether you are ready to sit at the big boys table!  I’ve had an excellent employee who in any fair world would hold shares in the company because he’s a major value contributor BUT he’s the most risk averse person I know.  The board offered him options, which in fairness was the most complicated arrangement I’ve seen and potentially not that financially great.  When I saw the proposal I suggested it was too complex and sophisticated for what they should have been trying to achieve – I was rebuffed with “well maybe he’s not ready to be a shareholder in a growing business”.

Thanks Poly.  Over the last 24hrs I’ve thought about this and created a honest draft response which I’m still considering.   On that basis I am missing some keys skills / experience it basically goes:

a) match my current salary during year 1, but you provide the mentoring and I’ll provide the learning to get to full speed by year 2.  Happy for those to be mutually agreed performance measures.

b) Year 2, I want £Xk OTE to do this job ongoing

c) you tell me what you’ll offer as a reward for success, I’m anticipating X% of the revenue growth number.

Your last point is very poignant and reflects on my post a) despite my ages I’m immature in business for this role – and perhaps not ready – and this bothers me and they have spotted it, so point a) is intended to allow us to work together for me to grow in the role, an opportunity for me to grow my Sales management ability traded for my Sales discipline and Enterprise close record.  I can’t perform 100% on day 1.   Albeit, Branson didn’t know what “bottom line  “ was until 50yo…..

I’m still having doubts, I’m a good Enteprise seller / worker bee and there’s a bit about me that says there’s nothing wrong in remaining so.

Edit: I also have a nagging doubt I could be the perfect scapegoat if the targets aren’t met to the boards expectations….