Webinar: Negotiating Equity Compensation: How Advisors Can Help Clients, available on demand at the myStockOptions Webinar Channel, features insights from three leading financial and legal advisors, including real-world case studies, about negotiating equity comp in job offers and protecting it at termination.

Once you reach the pivotal point in your career where several companies want you, employers will negotiate with you to entice you to join them. Equity compensation can play a big role in these negotiations. There is no fixed ceiling over what you can negotiate. The company's standard stock plan agreements and documents no longer completely control what you can receive.

Negotiating your equity comp requires clout. At a public company, this means senior executives; but at a private company, key employees also include engineers and designers.

This article explains what you should know and consider before you start any job negotiation involving equity compensation. It is based on a panel session about this topic at the 2019 myStockOptions.com financial-planning conference: Stock Grant, Employment, And Severance Agreements: Key Documents For Advisors To Understand And How To Help Clients Avoid Big Mistakes.

Who Can Negotiate? What's Negotiable?

The first point about negotiating your equity compensation arrangement is that it requires clout. At a public company, this means senior executives: VPs and above. At a private company, however, key employees also include engineers and designers.

The two main components of the compensation package are cash (base salary and bonus) and equity. Cash compensation can include upfront bonuses to "make you whole." For example, you might be losing a bonus payment or equity vesting by leaving your old job.

You can negotiate the dollar value of the equity compensation grant. You also can negotiate the underlying terms, such as those detailed below.

Accelerated Vesting Schedule

Some employment attorneys say they are starting to see companies weight vesting schedules toward the final vesting tranches. The reason is to retain employees for longer. For example, instead of vesting the typical 25% of the grant per year, a stock plan may vest your grant in the following way:

  • Year 1: 10%
  • Year 2: 15%
  • Year 3: 25%
  • Year 4: 50%

However, if you're a superstar product designer who doesn't plan to stay that long at a pre-IPO company, you may be able to negotiate a special vesting schedule that accelerates on the IPO date or at a certain point after the IPO.

If you're a superstar who doesn't plan to stay long at a pre-IPO company, you may be able to negotiate a special vesting schedule.

Early Exercise

Instead of waiting until the vesting date to exercise options, you can negotiate the ability to exercise the stock options before vesting (often termed early exercise). The stock that you acquire is restricted stock, and you must file a Section 83(b) election within 30 days of the exercise for potentially favorable tax treatment. (Early exercise raises special risks to understand. For details, see this website's section on early-exercise stock options.)

Post-Termination Exercise Period

After you leave a company, you typically have 90 days to exercise stock options (though this usually depends on the type of job termination). You can negotiate a longer period. For details on equity compensation and job loss, see another article on this website.

Bring Experts Into The Process Early

Above all, obtain information from an expert advisor, whether an employment attorney or a financial planner, who has experience with equity compensation. Work with that expert before you leave your current job. I knew someone who left a job days before his one-year anniversary. His company required him to repay his signing bonus. If only he had known to wait until the one-year mark, he could've kept thousands of dollars.

"The advice of an employment attorney will make things better," stated Alisa Baker, co-founder of the Silicon Valley law firm Levine & Baker, in the panel session on stock grant, employment, and severance agreements at the myStockOptions.com conference. "Most people think of a lawyer as someone you engage when you're about to sue someone, or when you're going to about to get divorced. But having one doesn't mean that you are going to be litigating. It means that you're going to be having a contract that's better for you personally."

If you obtain information from an expert advisor, whether an employment attorney or a financial planner, work with that expert before you leave your current job.

Ms. Baker says she reviews both the current job's documents and the new job's documents. She examines the current job's documents to understand what you may be leaving on the table:

  • Are stock options about to expire?
  • Are you able to exercise stock options before leaving?
  • Is restricted stock or an RSU grant about to vest?
  • Are you giving up the next batch of vesting?

She also reviews the potential new job's documents. The employment agreement is a key document that incorporates all the other documents, such as stock plan documents and equity grant agreements. She ensures that all documents are consistent. If her clients negotiate specific changes, she ensures that all of the documents reference these changes.

Even if an employment agreement states that it supersedes all other documents, you may still end up in court arguing about which is right. “If you use a lawyer for nothing else but ensuring that the client is getting what they think they're actually getting, that would be a huge benefit,” Ms. Baker told the financial advisors at the myStockOptions.com conference.

Further Resources

For more details on job negotiations involving equity compensation, see Alisa Baker's three-part article series, Negotiating And Structuring Your Stock Compensation, elsewhere in this website's section Job Events, along with the related FAQ.

You can also research compensation ranges at the website PayScale. For salaries at startup companies, try AngelList.

Editor's Note: An article in The Wall Street Journal has particular guidance for women on equity comp in job negotiations: There's Another Gender Pay Gap: Stock Options. It states that "women often don't know what to ask for, experts say. And companies don't tell them."

Jane Yoo is a CFP® and the founder of Jane Financial in Oakland, California. This article was published solely for its content and quality. Neither the author nor her firm compensated us in exchange for publication of this article.