Negotiating Equity Compensation

"I appreciate it, Alex. But I have to pay my mortgage…" My best hire walked away from “million-dollar equity upside.” $50K more salary won. So did he: I used to believe the SV playbook: Offer equity to attract top talent at below-market salaries. "You'll get rich when we exit," I'd promise. Early at Groove, my first key hire left after 18 months. He took a role paying $50K more annually. His equity would still be worth zero today. That's when I realized equity is a founder's fantasy. The conversation that opened my eyes: "Why did you leave?" "I needed the money now, not maybe later." "But the equity upside..." "I appreciate it, Alex. But I have to pay my mortgage…" I own 92% of Groove. My employees have 0% equity. They're the happiest team I've ever worked with. Here's what I learned about what employees actually want: They want to pay their bills without stress. Daily recognition keeps them engaged. My team crushes it because they're paid above market rate. Founders think: "Equity = shared upside motivation" Employees think: "Equity = monopoly money until proven otherwise" I've never had someone quit because they didn't get 0.1% of a dream. But I've lost great people because I underpaid them for 24 months. The switch I made: Rather than equity negotiations, we have salary reviews. I pay all of them well above market rate. They stay for years. Your employees don’t need a lottery ticket. They need love Monday mornings and be paid what they’re truly worth, today.

Last week, a tech employee messaged me in tears. Her company was trying to force her out right before her $380,000 in stock options vested. Their tactics? Suddenly 'discovering' performance issues after 3 years of stellar reviews. Here's how we protected her equity: First thing we did: 1. Documented everything. •Screenshot every positive review •Saved every performance metric •Archived every congratulatory email •Backed up every team recognition 2. Built a paper trail. We responded to every new "performance concern" in writing: "To confirm our discussion about [issue] today, I've consistently exceeded targets as shown in [specific metrics]..." 3. Identified the pattern. The timing wasn't coincidental: •"Issues" appeared 90 days before vesting •Previously undocumented concerns •Sudden increase in scrutiny •Rush to put her on a performance plan The result? When we presented this evidence showing clear targeting before vesting, they backed off. She got her shares. Every. Single. One. Know Your Legal Protections: Employees have legal protections against terminations designed to prevent stock vesting, though laws vary by state: 1. California: Treats equity as wages, making it illegal to fire employees solely to prevent vesting. 2. Other States: Many uphold good faith employment practices, preventing firings designed to avoid payouts. 3. State courts have awarded damages when terminations were in bad faith. Key lesson: The moment performance issues arise near vesting dates, start documenting. Your equity is a legally protected right, not a corporate favor. Remember: Companies count on you not knowing your rights or being too scared to fight back. Don't let them win. Follow for more corporate tactics exposed and how to protect yourself. #EmploymentLaw #StockOptions #WorkplaceRights Disclaimer: This information is for educational purposes only and does not replace professional legal advice. It does not establish an attorney-client relationship.

The Wretched, Little Discussed, Policy On Termination And Unvested Stock If you're laid off just days or weeks before a scheduled vesting date, you lose the full value of that unvested stock. Even if you've completed 95 percent of the work toward earning it, you walk away with nothing unless your company has specifically written protections into your agreement. If you didn’t know that you don’t get anything and that there are no legal protections for this equity, now you do. I mention this, and made this post, because many people have asked me whether being terminated means you vest out shares, or whether there’s any partial benefit based on time worked. In every case I’ve seen, no - you get nothing. This matters. At many large companies, stock compensation can be worth $30,000 to $300,000 per year depending on your level. For a typical mid-career tech worker with $120,000 in annual RSUs, that means $30,000 per vesting cycle. Missing one date by a week can erase an entire year's worth of wealth-building. Now compare that to something we talk about more often: health benefits. In the US, employers spend an average of $8,400 per year on individual health coverage, and about $24,000 to $26,000 for family coverage. We spend, which we also should, forever talking about that $8,400-$26,000 for healthcare and the RSUs get total short shrift even though, for many, they matter way more. Losing a single vesting date, by a single day, can cost you three to four times more than your annual healthcare benefit for many, or much, much more. In the US, there is no protection for unvested RSUs. Most standard equity agreements specify full forfeiture on termination. A severance agreement might include stock carve-outs, but that's optional and rarely guaranteed. Other countries like the UK or Australia may have more tax-friendly stock structures, but vesting protections are still left to the company’s discretion. This is an absurd part of compensation policy, especially for workers who are not already financially secure. You can do almost all the work for your equity and still lose it because an employer decided it was termination time. If you're in a role with stock compensation, ask upfront what happens on termination. Push for vesting carve-outs in severance (I have actually been able to get this once in my career). And most of all, certainly don't count unvested stock as guaranteed income. Until it hits your account, it's just a promise that can be taken away with days to vesting. This deserves much greater awareness and discussion.

In highly competitive talent markets, newly emerging boutique consulting firms are offering equity to team members at all levels as a differentiator to draw talent from larger incumbent firms. Typically, this equity becomes exercisable at the moment of any liquidity event or when the individual reaches the top level of the firm, such as Managing Director or Partner. Such policies not only promise to be highly lucrative, with the future potential of Private Equity investment, but also align the interests of new employees with those of the firm. They are frequently cited as a draw for mid to senior-level talent while also creating a sense of ownership and long-term commitment amongst the employee base of these fast-growing organizations. It will be interesting to see if the larger firms, typically with bigger balance sheets, seek to offset this newly emerging talent acquisition tactic with increased salaries or, indeed, more comprehensive equity offerings of their own.

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  

Some of my clients lost 25% of their holdings in the last 6 months Not from their India portfolio but from their American RSUs (Restricted Stock Units).  If you work for a listed company, this could happen to you too.  Why? RSUs are shares given by your company as part of your salary or bonus. They’re free for you, but their value depends on the company’s stock price. If you’ve been at your company for years, you might have a lot of these shares—sometimes up to 75% of your investments! For example, Swiggy recently got listed, and employees now have most of their money tied up in Swiggy shares. This can be great if you work for companies like NVIDIA or Apple, whose shares have skyrocketed. But it’s risky if your company’s stock isn’t doing well, like Intel, Freshworks, or UiPath. How to Protect Yourself 1. Sell some RSUs to pay taxes: Use the proceeds to pay off perquisite and capital gains taxes.   2. Diversify: While you may love your company, it’s smart to invest in competitors too. Example: If you work at Zomato, buy some Swiggy shares.   3. Add stability with debt investments: A debt portfolio can reduce the overall volatility of your investments.   4. Sell some shares regularly: If you hold 100 shares and receive 100 more over 4 years, sell 25 shares immediately to keep your holdings constant.   5. Stay vigilant: Watch your company’s performance and competitors. If you notice red flags, be ready to sell most of your holdings. Bonus Idea!   Sell 50% and hold 50%. This 50:50 strategy lets you enjoy potential growth while reducing regret if things don’t go as planned. If you found this helpful, share it with your friends and colleagues!

In Q1 2025, LTI (Ongoing Equity) Programs Had 4x the “Pay for Performance” Differentiation for Promoted Employees Vs. Salary Raises Companies generally reward top performers through three types of compensation programs: [A] Salary Raises [B] Long Term Incentives (LTI)–often ongoing equity grants [C] Short Term Incentives (STI)–often called a bonus program Today, let’s compare how much differentiation there is across the market for top performers between [A] and [B]. ________________ 𝗠𝗲𝘁𝗵𝗼𝗱𝗼𝗹𝗼𝗴𝘆: We recently took a look at Q1 2025 merit cycle data across 46k+ employees from Pave's dataset. 1st, our data science team grouped and analyzed employees across four groups:  • [1] Promoted  • [2] Above expectations (no promo)  • [3] Meets Expectations or equivalent (no promo)  • [4] Below Expectations (no promo) 2nd, our data science team looked at two dimensions across salary and ongoing equity grants  • [1] What % of employees received a compensation update?  • [2] For those who received, what was the size of the increase? Note that for equity, this was measured by the % increase in net equity value compensation vesting over the next 12 months 3rd, our data science team multiplied “participation” with “amount” to find the “𝗲𝘅𝗽𝗲𝗰𝘁𝗲𝗱 𝘃𝗮𝗹𝘂𝗲 𝗼𝗳 𝗶𝗻𝗰𝗿𝗲𝗮𝘀𝗲” as a method of measuring pay for performance. ________________ The Results: ✅ 𝗣𝗿𝗼𝗺𝗼𝘁𝗲𝗱  => Salary: +9.7% expected value increase => Ongoing Equity: +38.6% expected value increase ✅ 𝗔𝗯𝗼𝘃𝗲 𝗘𝘅𝗽𝗲𝗰𝘁𝗮𝘁𝗶𝗼𝗻𝘀 (𝗡𝗼 𝗣𝗿𝗼𝗺𝗼)  => Salary: +4.5% => Ongoing Equity: +11.0% ✅ 𝗠𝗲𝗲𝘁𝘀 𝗘𝘅𝗽𝗲𝗰𝘁𝗮𝘁𝗶𝗼𝗻𝘀 𝗼𝗿 𝗘𝗾𝘂𝗶𝘃𝗮𝗹𝗲𝗻𝘁 (𝗡𝗼 𝗣𝗿𝗼𝗺𝗼)  => Salary: +3.1% => Ongoing Equity: +3.8% ✅ 𝗕𝗲𝗹𝗼𝘄 𝗘𝘅𝗽𝗲𝗰𝘁𝗮𝘁𝗶𝗼𝗻𝘀 (𝗡𝗼 𝗣𝗿𝗼𝗺𝗼)  => Salary: +0.3% => Ongoing Equity: +0.0% expected value increase ________________ 𝗠𝘆 𝗧𝗮𝗸𝗲𝗮𝘄𝗮𝘆𝘀: 1️⃣ 𝗣𝗿𝗼𝗺𝗼𝘁𝗲𝗱 𝗲𝗺𝗽𝗹𝗼𝘆𝗲𝗲𝘀 𝗿𝗲𝗰𝗲𝗶𝘃𝗲 𝗮 𝗺𝗲𝗱𝗶𝗮𝗻 𝗲𝘅𝗽𝗲𝗰𝘁𝗲𝗱 𝘃𝗮𝗹𝘂𝗲 𝟯𝟴.𝟲% “𝗲𝗾𝘂𝗶𝘁𝘆 𝗿𝗮𝗶𝘀𝗲” 𝘃𝘀 𝗮 𝟵.𝟳% 𝘀𝗮𝗹𝗮𝗿𝘆 𝗿𝗮𝗶𝘀𝗲. This means that for promoted employees, the equity comp is ~4x as outsized from a pay for performance standpoint. 2️⃣ 𝗠𝗲𝗮𝗻𝘄𝗵𝗶𝗹𝗲, 𝘁𝗵𝗲 “𝗲𝗾𝘂𝗶𝘁𝘆 𝗿𝗮𝗶𝘀𝗲𝘀” (𝟯.𝟴%) 𝗮𝗿𝗲 𝗺𝘂𝗰𝗵 𝗰𝗹𝗼𝘀𝗲𝗿 𝘁𝗼 𝘀𝗮𝗹𝗮𝗿𝘆 𝗿𝗮𝗶𝘀𝗲𝘀 (𝟯.𝟭%) 𝗳𝗼𝗿 “𝗺𝗲𝗲𝘁 𝗲𝘅𝗽𝗲𝗰𝘁𝗮𝘁𝗶𝗼𝗻𝘀” 𝗲𝗺𝗽𝗹𝗼𝘆𝗲𝗲𝘀. This suggests that the real LTI/ongoing equity comp differentiation is happening for top performers (both those in the “promoted” and “above expectations (no promo)” buckets. ________________ 𝗣𝗿𝗮𝗰𝘁𝗶𝗰𝗮𝗹 𝗦𝘂𝗴𝗴𝗲𝘀𝘁𝗶𝗼𝗻 𝗳𝗼𝗿 𝗖𝗼𝗺𝗽𝗲𝗻𝘀𝗮𝘁𝗶𝗼𝗻 & 𝗛𝗥 𝗟𝗲𝗮𝗱𝗲𝗿𝘀: Analyze your company’s “expected value” salary and equity raise amounts. How do your outcomes compare to the Q1 2025 benchmarks from this post? And where + how should you consider tweaking your "recommendation logic” to guide your company towards more or less merit cycle differentiation for different cohorts of employees?

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.

Equity compensation can be an incredible wealth builder… Or a tax disaster if you don’t understand how to manage them Here’s a high-level breakdown of the most common forms I see with executives and high earners 👇 1. RSUs (Restricted Stock Units) They are taxed as ordinary income on the vest date Most companies withhold a flat amount (often 22% or 37%), which can be very wrong You need to understand that taxes are due immediately, whether you sell or not Key question to ask on buying vs selling decision: If someone handed you that amount of cash today, would you buy this stock? If the answer is no, holding the RSUs probably isn’t the right move. And remember, your future RSUs have the price changes built into them 2. ISOs (Incentive Stock Options) No regular income tax on exercise, but you have to worry about AMT AMT can be triggered, creating a surprise tax bill for many This is why early exercising before the stock has grown much can be powerful but only with proper AMT modeling The risk: - You can pay tax on paper gains for stock that Never becomes liquid - It Declines in value - Or never has a successful exit This requires real planning, not guesswork 3. NSOs (Non-Qualified Stock Options) Taxed as ordinary income at exercise on the spread Early exercising can reduce income taxes But it also means paying tax before certainty exists The risk... Paying income tax on something that ultimately becomes worthless. Equity compensation is not “free money.” It’s a series of: - Tax decisions - Cash flow decisions - Concentration risk decisions What works for one person can be completely wrong for another

Most equity programs I see in startups are a mess that loses talent. Here's the 5 things they get wrong and how to fix it. I've spent enough time inside startup equity programs to know how most of them actually work. Who gets equity? Depends on the hire. How much? Whatever it took to close the offer. Vesting terms? Whatever the template said when the company was 20 people. Pave just published data from 4 million grants across 4,500 companies. Here's where most startups are off. 1. One cliff policy for everything. 80% of companies cliff new hire grants. Makes sense, you want time to assess fit. But cliffs on ongoing grants to tenured employees have dropped from 34.6% in 2020 to 17.6% today. If you're still applying the same cliff to a refresh grant as a new hire offer, that's a default nobody questioned. 1. Ad hoc participation. 55% of entry-level new hires receive equity, rising to 94% at Director. R&D hires get grants at nearly twice the rate of G&A (84% vs 49%). These should be conscious decisions, not whatever came up during the offer. Build a one-page participation grid by level and function. 1. Equity only flows through promotion. 95% of promoted employees get a refresh grant. High performers who stayed in their role? 44%. If the only way to earn more equity is to move up, you've got a blind spot with your best ICs who are happy where they are. 1. Equity burn rate is invisible. Median burn rate is 2.95%. Growing companies sit around 2.9%, stable headcount at 2.6%. AI companies run at 3.9%, nearly 40% above the broader tech median. Your burn rate should reflect a deliberate choice about what talent you're competing for. If nobody can explain what yours is, that's a problem. 1. No plan for the options-to-RSU transition. 97% of companies under 100 employees use options. But RSUs become dominant around 500-1,000 employees. Start the board conversation before a senior hire from a later-stage company forces it on you. Access the full report here (free):  https://lnkd.in/ge2ej8WW