We’ve all heard some version of Hans Christian Andersen’s “The Ugly Duckling“ at some point in our lives. For the record, the original is sadder and more intense than I remember. The summary is this. A bird is hatched. It is ugly and misunderstood. Others ostracize it without even knowing what it is. It doesn’t fit well anywhere and often has to make its way. Later it grows into a beautiful swan, and everyone admires it. The end.
Welcome to the world of Employee Stock Purchase Plans (ESPPs). If you are at a company that is not publicly traded or is unlikely to ever have an IPO, this post may be Continue reading →
Executive compensation is always in the spotlight. The pay levels for the highest paid executive can truly be astounding to “regular” people. In truth, they are often astounding to executive compensation professionals, including the consultants who make the recommendations. In general, most pay packages can be justified as being competitive in the market, or a small percentage of the value of the company or based mainly on the performance of the individual and/or company. This type of justification often rings hollow.
What if we applied some of the current “best practices” to nontraditional professions such as entertainment and sports? Dwayne “The Rock” Johnson is the Continue reading →
The pay ratios between CEOs and average employees are once again in the news. This is partly because proxy season always raises this issue and partly because there is a move in some circles to do away with the new pay ratio disclose rule that is part of Dodd-Frank. This year’s ratios will likely be bigger than last. The same will likely be true for most years in the foreseeable future. Here’s why.
The average annual increase for the average employee has been between 2.6% and 3.2% for several years. The use of equity compensation and other long-term compensation tools went down over at least the past decade. At the same time, executive base pay has increased between 5% and 8% most years over most of the past decade. During this period, the use of Continue reading →
Are we really doing anything? We create salary structures and write job descriptions. We organization our data and provide reports up and down the organization. We do a lot, but how much of it is making us competitive in a tight talent market?
The “annual Increase.” Sometimes we even call it a merit increase. According to one study, at the beginning of 2016 companies predicted their pay budgets would increase 3% and at the end of the year they reported the actual increase was 2.6%. Similar reports from several prior years had Continue reading →
It is readily accepted that an IPO is Nirvana to a startup. Of course, a fantabulous acquisition will also work in a pinch. Most startups design their equity plans around one or both of these possibilities. The events increasingly trigger vesting events, earn-out periods, house purchases and early retirements. But, what if you want to build something far longer-term? What if you only want to grow, make money and accomplish some important goal? Do equity plans even work for these companies?
“But, how do I make sure that the person is a great performer before I am forced to give them equity?”
This question gets asked by nearly every Founder, Investor or Compensation Committee Member very early in the development of an equity compensation plan. Sometimes it is expressed more genuinely as, “I don’t want to give away part of my company to someone who hasn’t carried their fair share.” Either way, the concern is valid. Sometimes the answer is very simple, and sometimes it is not.
Comparing base bay is relatively easy, equity not so much. A dollar is a dollar. And, if a dollar isn’t a dollar (let’s say it’s a Franc), there are published exchange rates to help convert values. But, with equity compensation, the base currency is your stock, and its value is not easily translated (or even agreed upon). This fundamental disconnect is one of the most challenging issues faced by anyone dealing with equity compensation at a start-up.
Let’s start with the oversimplified example above. There are exchange rates from dollars to francs, but they are not as consistent as the prices available for Continue reading →
You had a great idea and turned it into a company. Somehow you got to the point where Venture Capitalists were willing to invest. You may have had less than 50 employees and less than 15% of the company committed to non-founder employees. You grew and kept innovating. Equity compensation was the currency of the day and the hope of tomorrow. Your value grew and more investors came on board. Then the equity spigot became a trickle.
We have all seen the headlines, “XYZ receives $100M in funding at a $3B valuation.” We seldom see the “other” valuation showing the same company is worth $350M. For publicly-traded companies, value is determined by investors working as a group in a real-time market. They are generally purchasing the same kind of stock. Values are based on a combination of publicly disclosed information, supercool computer models and gut feel. But in the world of the pre-IPO start-ups, values take on a life of their own.
Investors in startups are buying stock with more risk and more upside potential. Companies only sell stock to investors on Continue reading →