Negotiating Employee Benefits

Startup equity is not cash. Obvious! But we see early-stage founders and HR get ahead of themselves on this all the time. The AI bubble has only made it worse. With valuations getting wild, employees can be dazzled by equity offers expressed as massive dollar figures...but ask a few startup folks who joined rocket ships in 2021 how often those numbers actually hit the bank account. Okay: you're a Series A founder (company valued at $60M) and you're trying to close an amazing engineer. In her offer, you list the base salary, any potential bonuses, and the equity options package (Incentive Stock Options or ISOs). 𝗜𝘁'𝘀 𝗲𝗮𝘀𝘆 𝘁𝗼 𝘄𝗿𝗶𝘁𝗲 𝘁𝗵𝗮𝘁 𝗼𝗳𝗳𝗲𝗿 𝗮𝘀: • Annual base salary: $153,000 • Potential bonus: Up to $8,000    • Equity: Annual value of $26,000 ❌ 𝗕𝘂𝘁 𝗶𝘁 𝘀𝗵𝗼𝘂𝗹𝗱 𝗮𝗰𝘁𝘂𝗮𝗹𝗹𝘆 𝗿𝗲𝗮𝗱: • Annual base salary: $153,000 • Potential bonus: Up to $8,000    • 4-Year Equity Grant: 15,000 options which represent 0.054% of fully-diluted shares + a link to a scenario model the employee can utilize to project the future Is that as easily understandable as the dollar amount? No! But it's far more honest. Expressing equity in dollar terms should be reserved for startups that are valued at hundreds of millions of dollars - because the modal outcome for Series A equity is $0. It's why the discussion of "what % of my compensation is equity vs cash" can be quite misleading at young companies. Besides share count and % ownership, candidates should also ask: • 𝗙𝘂𝗻𝗱𝗶𝗻𝗴: What is the post-money valuation of the company? When did that round take place? Has the company had to raise any convertible bridge financing since then? Are there plans to raise more capital?    • 𝗘𝗾𝘂𝗶𝘁𝘆 𝗱𝗲𝘁𝗮𝗶𝗹𝘀: What is the current strike price? What is the vesting period? What is the post-termination equity period for these options (typically they'll say 90 days after you leave, which is..not a lot! Could be a negotiation point for you to push on).    • 𝗢𝗻𝗲 𝗳𝗶𝗻𝗮𝗹 𝗾𝘂𝗲𝘀𝘁𝗶𝗼𝗻: When this company goes public or gets acquired, what's the minimum valuation it needs to achieve for common stock to make a profit?    Venture-backed dollars can come with strings attached. Those strings (liquidity preferences, participating preferred, etc) can make it harder for employees to get any real value out of their equity EVEN WHEN the company exits. This question may not be something a recruiter can answer. Remember: equity is not cash. It's upside only. The more you know. #startups #salary #equity #founders #compensation  

In my best years at Amazon, I earned more than 100% above my target compensation. This was all because of the stock price. Consider this when thinking about your compensation. Amazon stock price outpaced what the planners expected, so I (and anyone else who had stock) was making more than anyone thought I would. In these years, stock was over 90% of my compensation at Amazon. Cash was a negligible part. The lesson is that cash and stock mean two different things when it comes to your compensation: Cash is reliable. As long as the company continues to employ you, you get paid. If the business struggles but doesn’t lay you off, your compensation doesn’t change. In that sense, cash has no downside. But it also has no upside. You don’t get to fully enjoy the success you help create, even if you get a bonus. Whether the company barely meets expectations or performs exceptionally well, your pay is largely the same. Even the bonus will always be capped or predetermined. Stock is different. It introduces uncertainty, but also the possibility for a life-changing upside. This is why Silicon Valley—and much of the tech industry—has been built on equity. For companies, especially early on, stock is a cheap form of currency they can use to pay employees. They may not have much cash, but they can offer ownership. For employees, that ownership creates leverage. If the company succeeds, the value of that equity can far exceed what they would have been paid in salary. This incentive structure also changes behavior in a fundamental way. If you are paid purely in cash, your incentives to perform are limited. You get the same outcome whether the company does just well enough to keep paying you or performs far beyond expectations. However, if you are a shareholder, your outcome is directly tied to the company’s performance. That tends to drive a different level of engagement and effort. In that sense, equity is often a win for both sides. The company preserves cash and aligns incentives while you gain access to upside that simply doesn’t exist with salary alone. The simplest way I think about it is this: a job that pays only cash is like renting. You are compensated for your time, but you build nothing that lasts beyond the paycheck. A job that includes equity is closer to ownership. You are, in effect, buying part of the company with your labor. If the company grows in value, you participate in that growth. Most people understand this concept when it comes to real estate. They want to build equity in something they own. But they don’t always apply the same thinking to their careers. The lesson is not that you should always choose stock over cash. Equity can be worth nothing, and many times it is. Amazon stock is obviously an outlier. The lesson is that you should think carefully about whether you are being paid only for your time, or whether you are also building ownership. Ownership is the piece that can have non-linear impacts on your wealth.

Here’s the one thing no one tells you about stock options… In the early days of my career, I was fortunate to be part of a few high-growth companies that went on to massive exits. And while the ride was exciting, there’s one thing I really wish someone — a mentor, a manager, anyone, had sat me down and explained: Stock options are way more complicated than they look. Yes, they’re part of the upside. Yes, they can be life-changing. But what people rarely talk about is what it actually means to exercise them and the very real financial risk that comes with it. Let me break it down: Let’s say you join a company super early and rack up a large equity grant. Y ou crush it, the company takes off, and suddenly it’s worth billions. 🎉 Congrats! you’re sitting on paper millions. All you need to do is buy your options. Easy, right? Well… here’s the catch. Your strike price might be low, but the Fair Market Value (FMV) of the stock has skyrocketed. The IRS sees that as a taxable gain even if you haven’t sold a single share. So now you’re faced with: A massive tax bill due immediately No liquidity event in sight And the real possibility you could lose all that money if things change Sound insane? It is. Especially for people who don’t come from wealth and can’t just borrow millions from a generous uncle or wire it from a trust fund. It’s a broken system. And worse, it’s one that’s rarely explained to employees, even as equity is pitched as a “meaningful” part of the comp package. If you’re offering options, educate your team. If you’re receiving options, ask hard questions. Equity isn’t just upside. It’s responsibility and sometimes, a serious liability. It’s time we talked about that more.

Most first-time PE CFOs misunderstand their package and it costs them money. I see a lot of first-time PE CFOs fixate on “total comp” and miss what actually drives outcomes over a full investment cycle. In PE-backed businesses, your package is split into three buckets. Base. Fixed cash. Market-competitive for the size and sector. This pays the bills and should not depend on exit timing or market conditions. Bonus. Annual cash tied to sponsor priorities: EBITDA, cash, leverage, delivery of milestones. Often a meaningful percentage of the base. Equity (the deal). Your alignment with the sponsor. Shares, Options or sweet equity. For first-time PE CFOs, total comp and equity participation are often higher than in non-PE roles. The sponsor is buying intensity & alignment. How the equity works in practice: The sponsor owns the majority of the company and sets up a management pool (often 5–15% fully diluted). That pool is split across the leadership team. You are not participating in the whole company. You are sharing in a percentage of the value created between entry and exit. If investors double or triple their money, your equity can be worth a multiple of annual cash comp. If performance is weak or the asset is underwater, it can be worth very little or nothing. Two things that catch people out: Vesting. Equity is almost never fully yours on day one. Expect 3–5 year time-based vesting, often with additional performance hurdles tied to EBITDA, leverage, or MOIC. Liquidity. You usually only see cash at an exit or recap. Until then, it’s illiquid and theoretical. At exit, the waterfall is simple in concept if not in detail: Debt and costs are paid. The fund gets its capital back (and any preferred return). Only then is the remaining value shared between the fund and the management pool. Your payout equals the equity value flowing to management × your vested percentage at that point. How to think about this as a first-time PE CFO: Treat base plus a conservative bonus as what you rely on to run your household. Treat equity as higher-risk, higher-reward upside. When evaluating an offer, be clear on three things: – your percentage of the fully diluted equity and management pool – the vesting mechanics (time and performance) – illustrative exit scenarios so you can see realistic payoff ranges Equity in PE is a long-term partnership with the sponsor, where you trade some short-term certainty for direct exposure to the value you help create over the life of the investment. #privateequity #cfo #finance #compensation

Q. Hi Liz, I am negotiating a job offer for a VP of HR role with a funded startup. How much severance (in the event of termination not for cause) should I aim for in my employment contract? A. For a VP of HR at a startup, aim for 6-12 months of base salary, plus extended benefits (health/COBRA for 6-12 mos) and accelerated equity vesting, negotiating 12+ months as a strong starting point, reflecting your senior role, potential impact, and the startup's risk. Leverage your executive status and the "not for cause" clause (like strategy shifts) to secure a robust package, potentially asking for 12-18 months or salary plus bonus. Negotiation Targets: Base Salary: 6-12 months is standard for VPs, but 12+ months (even up to 18) is a solid negotiation goal in a startup. Bonuses: Pro-rated bonus for the current year and payment of any earned but unpaid bonuses. Equity: Crucial for executives; negotiate accelerated vesting (e.g., vesting for 6-12 months post-termination) or continued vesting. Benefits: Extended health (COBRA) coverage for 6-12 months or more is vital. Perks: Outplacement services, positive reference letter, laptop retention. Negotiation Strategy: Research: Understand typical executive packages in your industry and for similar roles. Start High: Begin negotiations by asking for a more generous package (e.g., 12-18 months) to allow room to compromise. Focus on "Not For Cause": Emphasize that strategic changes (like a new direction) aren't performance-based, justifying more security. Consider Total Value: Don't just focus on cash; the value of equity, benefits, and perks can significantly increase the package's worth. Get it in Writing: Ensure all terms are in your initial employment agreement, not a separate policy. Legal Review: Have an employment lawyer review the final agreement. Here’s to you!

You’re negotiating your job offer all wrong… Most people hear “we’re offering you equity” and assume it’s a great deal. It might be—or it might be worthless. The difference? How you negotiate it. Step 1: Gather Intel First When they mention equity, don’t rush to accept. Instead, ask: • “How do you typically structure equity grants for this role?” • “What would need to happen for the equity offer to be adjusted?” • “How do you determine refreshers and future grants?” These questions keep them talking and reveal flexibility. Step 2: Uncover the Real Value Numbers alone don’t mean much. Push for details: • “How should I think about the value of this equity?” • “What happens to my shares if the company is acquired?” • “How has the company’s valuation changed over the past three years?” Watch for red flags in vesting schedules, strike prices, and liquidity risks. Step 3: Reframe the Offer If they say, “This is our standard package,” respond with: • “How am I supposed to feel confident in that without knowing its future value?” • “I imagine you want top talent fully invested—how do we make this a win-win?” Then anchor high: “I was expecting something in the range of 20,000 RSUs—how far off are we?” Step 4: Use Tactical Empathy If they resist, show you understand their constraints while guiding the conversation: • “I get that budgets are set, but what flexibility do you have on refreshers?” • “What’s the path to a larger grant if I perform at a high level?” The key is keeping them engaged, uncovering flexibility, and making them feel like they’re solving the problem with you—not against you. Have you negotiated equity before? How did it go?

When negotiating, do you think the big wins happen at the table? They don't! The real magic happens before the first word is spoken. Success in 80% of negotiations is due to preparation. It's taking small steps to control the process, foresee challenges, and set small goals. I coached a procurement manager stuck in a deadlock with a supplier. Both sides had drawn firm lines: • The supplier demanded upfront payments. • The procurement team refused. • They feared cash flow issues. For weeks, the talk had gone in circles. It made no progress. When I stepped in, I asked one question: “𝙒𝙝𝙖𝙩 𝙙𝙤𝙚𝙨 𝙩𝙝𝙚 𝙨𝙪𝙥𝙥𝙡𝙞𝙚𝙧 𝙧𝙚𝙖𝙡𝙡𝙮 𝙣𝙚𝙚𝙙?” The team realized the supplier's main concern wasn't money. It was to reduce delivery risks. By focusing on interests, not positions, we found a solution: 𝗔 𝘀𝗺𝗮𝗹𝗹 𝘂𝗽𝗳𝗿𝗼𝗻𝘁 𝗽𝗮𝘆𝗺𝗲𝗻𝘁, 𝗽𝗹𝘂𝘀 𝗺𝗶𝗹𝗲𝘀𝘁𝗼𝗻𝗲 𝗽𝗮𝘆𝗺𝗲𝗻𝘁𝘀 𝘁𝗶𝗲𝗱 𝘁𝗼 𝗱𝗲𝗹𝗶𝘃𝗲𝗿𝘆 𝗽𝗵𝗮𝘀𝗲𝘀. The result? The deal closed in two days, with terms that worked for both sides. That negotiation taught me this: →  Preparation isn't just logical. → It's also strategic and emotional. I'm happy to share here how I prepare for a negotiation: 𝗦𝗲𝘁 𝗦𝗠𝗔𝗥𝗧 𝗴𝗼𝗮𝗹𝘀 𝗳𝗼𝗿 𝗲𝘃𝗲𝗿𝘆 𝘀𝘁𝗮𝗴𝗲. • Be Specific, Measurable, Achievable, Relevant, and Time-bound. • No vague goals like “get the best deal,” aim for concrete outcomes: → Add a long-term partnership clause → Reduce delivery timelines by 10% → Secure flexible payment terms 𝗙𝗼𝗰𝘂𝘀 𝗼𝗻 𝗶𝗻𝘁𝗲𝗿𝗲𝘀𝘁𝘀, 𝗻𝗼𝘁 𝗽𝗼𝘀𝗶𝘁𝗶𝗼𝗻𝘀. • Ask, why does the other side want this? • When you negotiate based on interests, you create options that meet both parties’ needs. 𝗣𝗿𝗲𝘀𝗲𝗻𝘁 𝗠𝘂𝗹𝘁𝗶𝗽𝗹𝗲 𝗼𝗳𝗳𝗲𝗿𝘀 (𝗠𝗘𝗦𝗢𝘀) • Successful comes with always having options ready. For example: → Offer A: A 5% discount for upfront payments. → Offer B: Standard payment terms and extended service coverage. If you present choices, you reduce deadlock and keep control of the conversation. 𝗨𝘀𝗲 𝗘𝗺𝗼𝘁𝗶𝗼𝗻𝗮𝗹 𝗜𝗻𝘁𝗲𝗹𝗹𝗶𝗴𝗲𝗻𝗰𝗲. 𝗡𝗲𝗴𝗼𝘁𝗶𝗮𝘁𝗶𝗼𝗻 𝗶𝘀𝗻'𝘁 𝗷𝘂𝘀𝘁 𝗹𝗼𝗴𝗶𝗰—𝗶𝘁'𝘀 𝗮𝗯𝗼𝘂𝘁 𝗰𝗼𝗻𝗻𝗲𝗰𝘁𝗶𝗼𝗻. • Practice self-awareness to stay composed under pressure. • Show empathy to build trust. • Use "Feel, Felt, Found" on objections, and it'll guide decisions. Negotiation is like a dance. Both sides need to move in sync, adjusting their steps as they go, to create a harmonious outcome. And the best dances are choreographed long before the music starts. So, what’s been your biggest negotiation breakthrough? Have you ever unlocked a deal by shifting focus from demands to solutions? Found success by preparing better than your counterpart? Drop your story in the comments—I’d love to hear it. Or DM me if this resonates with a challenge you’re navigating. Let’s talk about what works.

The biggest equity lessons I’ve learnt from working with 1,000+ founders and investors 👇🏾 After years supporting founders through Diversity-X and Impact Lawyers, a pattern keeps repeating itself: Equity problems rarely start when you issue the shares. They show up later, usually right in the middle of a fundraise. Here are the quick takeaways founders tell me they wish they’d heard earlier: 1. If no one owns your equity framework, it will get messy The strongest companies keep it simple: clarity, consistency, manager-level understanding, and a plan for when the pool needs topping up. If it can’t fit on one page, you don’t have a framework. 2. Dilution isn’t scary when you plan it Raise what you actually need. Manage burn. Fundraise once you’ve de-risked the business. Founders who do this stay in control. 3. Your option pool is your hiring engine Patterns I see most: Seed: 10–15% Post-A: ~10–12% Post-B: ~6–8% Review the pool before fundraising, not during investor negotiations. 4. Your first 10 hires set the precedent for the next 100 Their grants become the internal benchmark. Clear ranges stop chaos later. 5. After 10–12 people, percentages stop being useful Switch to a value-based model tied to salary and current valuation. Candidates want clarity, not decimals. 6. Vesting, leavers and exercise windows are where trust is won or lost Skip these and you’ll feel it in later rounds — and in due diligence. 💬 Final Thought Equity is a strategic tool, not just paperwork. It shapes hiring, retention, and fundraising. 📖 I’ve published the full, detailed article on Substack — you can read it here: 👉🏾 http://bit.ly/48AtX1U If you want help sense-checking your cap table or building an equity plan your team actually understands, drop me a message or email me at kevin.withane@impactlawyers.co.uk . Always happy to help founders build with confidence.

How many of you have experienced a "bittersweet exit"? [Sarah] exhaled deeply as she stared at the email announcing the acquisition. After three grueling years as CRO, they'd finally attained a $100 million exit. Her mind raced back to countless late nights, missed family dinners, and the constant stress of keeping the company afloat. She'd poured her heart and soul into this venture, believing her 1% equity stake would be her ticket to financial freedom. With trembling hands, she opened her equity spreadsheet. The numbers stared back at her: 1% equity $100 million exit $1 million gross payout Sarah's heart sank. Two million sounded like a lot, but reality quickly set in. First came taxes. At a 37% federal rate plus 13.3% for California, nearly half vanished instantly. Then there was the liquidation preference for investors, eating another chunk. Her vesting schedule meant she'd only receive 75% of her shares. After all deductions, her take-home amount was just over $350,000. She leaned back, a mix of emotions washing over her. It was a windfall, no doubt. But far from the multi-million dollar life-changing sum she'd imagined. The fancy sports car and beachfront property she'd dreamed of owning suddenly seemed out of reach. This payout would cover her kids' college funds and maybe a down payment on a modest home. It was a significant step forward, but not the leap into wealth she'd envisioned. As congratulatory messages poured in, Sarah forced a smile. She was grateful, yet couldn't shake a tinge of disappointment. The startup lottery hadn't quite delivered the jackpot she'd hoped for. She closed her laptop, heading home to share the bittersweet news with her family. Tomorrow, she'd start planning her next move, wiser about the realities of startup economics and the true value of equity. The point of this story is to temper unrealistic expectations and highlight the need for a more nuanced understanding of equity compensation. It's not about belittling a substantial payout, but rather about exposing the gap between common perceptions and the economic realities of startup exits for most employees, even at the executive level. Startup success doesn't guarantee instant millionaire status for most employees.

Over the last few weeks, there have been multiple leaders in our network asking about equity vesting schedules and if we’re seeing any trends. Here’s what I’ve hearing from leaders in our community: 👉 Private companies are evaluating shorter vesting schedules, but few are executing on these ideas due to the legal and admin challenges of changing equity plans. 👉 Bottom line: there is increasing pressure from Boards to limit dilution rates and burn, but Pre-IPO Tech companies are sticking to the typical 4-yr vesting schedules with 1-yr cliff for new hire grants and refreshes with monthly vesting over two years with no cliff. However, alternative approaches by 'outlier companies' are emerging. ➡ Stripe, Lyft, and Coinbase adopted one-year vesting schedules (https://lnkd.in/eYKv_vGB) ➡ OpenAI has PPUs that provide employees with a % of profits ➡ Pinterest and DoorDash have front-loaded splits over 3 and 4 yrs respectively, which is in contrast to Amazon’s back-loaded splits Why would companies consider shorter term vesting schedules? Companies move to a shorter term to reduce their 'stock based compensation' expense or burn, but a flaw can emerge if companies go this direction and commit to fixed annual grant values. If the stock price significantly declines, the company will be need to issue more shares to deliver the same value. How do you stay informed of trends? There are well established benchmarking providers for different forms of cash compensation like Radford for broad based compensation, Compensia for executive compensation, and Alexander Group for sales incentive compensation. Equity benchmarks can be much more elusive… especially for private companies. The good news is that there are now compensation platforms like Kamsa, Complete (YC W22), Pave, Compa, and Levels.fyi that help to understand what’s going on in your company and in the market. VC firms share insights from portfolio company surveys like the General Catalyst survey on equity refreshes (credit to Guissu Baier): https://lnkd.in/eniMAPNu So how do you make sense of all of this as a talent leader? 1️⃣ Be curious and learn about different aspects of equity. ⭐ Options vs RSUs: https://lnkd.in/e3HESBXN ⭐ PPUs: https://lnkd.in/ezdRkjtn ⭐ Traditional vesting schedules: https://lnkd.in/ePB2ZQqn ⭐ Unique vesting schedules: https://lnkd.in/eUrDZCUe ⭐ Preferred vs 409A valuation: https://lnkd.in/e3x7w72s 2️⃣ Stay on top of trends from competitive offers, track them, monitor impacts to offer acceptance rates, and most importantly partner with your Comp team as your company designs its program for new hires and employees. 3️⃣ Build your network with other talent leaders. 4️⃣ Follow leaders that are sharing insights on how the market is evolving like Charlie Franklin (CEO at Compa), Matt Schulman (CEO at Pave), and Zuhayeer Musa (Co-founder at Levels.fyi).