Note: Our recent Newsletter entitled “Long Term Incentive Compensation: 10 Basic Concepts,” brought in this very thoughtful – and helpful – response:
Alan – Great Overview! Having operated within the early-stage medical device world for 20+ yrs, equity constitutes a significant component of my compensation packages. Usually, smaller companies have fewer economic resources to match salaries offered at larger companies, and equity offers incentive to work the 60-70hr work weeks normally required to make early-stage ventures successful. It really creates an incentive to miss personal events, travel 80%+, and give-up many things that other team members wouldn’t sacrifice.
I have known quite a few executives that have ‘left behind’ share options unknowingly, thinking that their vesting schedule provided indefinite time in which to exercise the shares. 60, 90 and 180 day terms to exercise have been most common in my plan. Regardless of the ‘good leaver’ – ‘bad leaver’ status of the employee, I have yet to see continued accrual or vesting after a colleague has left. Perhaps we are not very good negotiators going into the new position!
Regardless, HR has always done a great job at the companies for whom I have worked describing the details for exercising and/or forfeiture. That’s a good thing, because the details become hazy after a number of years.
Finally, accelerated vesting upon change of control has been a necessary component of all employment agreements I have executed. To that, I would include the movement of the Company more than 25 miles from the location when hired, and any non-performance/non-cause change (reduction) in Title or Job Responsibilities, reduction in compensation and incentive greater than 5%, and/or reduction in span of control without mutual agreement. If any of these things occur, upon the employee’s choice to ‘move on’, both a severance package and 100% acceleration of vesting should occur. IMHO (In My Humble Opinion).
J. Chris McAuliffe
Thanks for the additional info and insight. I am convinced many millions of dollars are lost each year – maybe tens of millions of dollars – by failing to take care of equity compensation.
One further point: if an employee is close to vesting when termination occurs, it is foolish not to ask for a small “bridge” to the vesting date. I’ve seen clients make many thousands of dollars more in severance in this way.
Hope you’re enjoying the blogsite. Thanks again for contributing.
Note: We get lots of letters regarding Performance Improvement Plans. In this feedback, we are asked the most common question there is about “PIP’s” although many people don’t express it quite this clearly:
Alan – I love your website. Your answers are inspiring and full of wisdom!
I have a question regarding Performance Improvement Plans: Could contesting a PIP lead to escalation of difficulties?
San Luis Obispo, California
Thanks for the positive feedback.
Yes, I must admit that contesting a Performance Improvement Plan could lead to an escalation of difficulties.
But, taking a medicine could lead to negative side effects.
Just like exercise could induce a muscle pain, or bruised joint.
Or, for example, going to the beach could lead to a sunburn.
However, pushing back at a PIP is different because confronting dishonest wrongdoing in an open, honest and public way is the best way – if not the only way – to avoid escalation by the wrongdoer. Think about it – it’s definitely true.
Note: We recently posted a new video entitled “7 Timeless Truths About HR,” which elicited a lot of comments, almost all of them quite positive. Many were from HR Professionals, like this one:
Nice Video, Alan! Thanks for setting the record straight about HR!
All the Best,
Peter (An HR Pro)
I deal regularly with HR folks in my work, and I represent many HR professionals. For this reason, I see “both sides” of the issues. I hope and trust that comes through. Thanks for writing in.
We LOVE feedback of every kind. Your taking a minute to drop us an email would be so very much appreciated.
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© 2011 Alan L. Sklover, All Rights Reserved. Commercial Use Prohibited.