What You Should Know When Negotiating Your Equity Compensation Benefits
The ever-evolving biopharma and life sciences sector provides numerous opportunities for talented employees to change jobs in order to find more challenging, well-paid opportunities. The strong demand for talent requires employers to offer lucrative and comprehensive equity compensation packages, along with attractive salaries, annual bonuses, and sign-on bonuses.
One major myth I believe exists is that only people in a higher management or vice president-level position are able to negotiate equity compensation at hire. The level of the position you are applying for will undoubtedly dictate the negotiation leverage and power you have, but I would encourage everyone — especially those who are already in a director-level position — to negotiate their equity compensation benefits. Your best chance will be to receive additional equity grants, especially if you don’t mind a longer vesting schedule.
With all this is mind, please consider the following five points when you negotiate your equity compensation benefits.
1) Negotiating at hire is easier.
At-hire is the best time to negotiate, especially for more equity. Once you are hired, long-term incentive benefits will most likely be tied to company standards. Your ability to negotiate better terms and additional stock grants depends on the level of the position you are being hired for. If you are leaving unvested options or restricted stock units (RSUs) behind that have significant value and you are being aggressively recruited, you may be able to negotiate additional grants that can cover the equity that you had to leave behind.
Remember that a pre-IPO company or a smaller biotech company, where valuations are still fairly low comparatively, will be able to offer more grants than a large pharma company. The same goes for the type of grant — a well-established company will offer more RSUs, while smaller biotechs will offer more options. In many cases, you may be offered both types of equity and you can potentially negotiate the type of grant you prefer.
2) Know what is negotiable.
Human resources representatives expect you to negotiate. Negotiating is common today, even though many people still feel uncomfortable doing it. Human resources representatives will tell you what is negotiable when they start the process and send you an offer letter. It makes negations easier and faster if you clarify what is negotiable — especially as the company’s board or compensation committee will have to approve the deal. These are the most commonly negotiable parts of equity compensation:
- The type and size of grant: Every company has rules for their grants based on various roles. Depending on your financial situation, you might prefer to receive more RSUs than options. You might well have to extend the vesting schedule in order to receive a higher initial grant, which shows you are committed to working there for the long term.
- Vesting: You might agree on a lower grant if the company will agree to accelerate the vesting for your options and RSUs. This can be beneficial, especially if you are bullish about the company’s prospects.
- Severance: I highly recommend negotiating your severance at hire. You can ask for accelerated vesting for unvested grants when a change in control happens.
3) Know what you are leaving behind.
In order to negotiate the best possible scenario, you need to assess what you are leaving behind. What do you have in unvested options and RSUs, and what is their forfeit value based on the current valuation of your company? Can you exercise any options before you leave? You potentially can ask for a delayed start with the new company if you are just ahead of a bigger vesting event. Once you know what you are leaving behind, that is a good basis for asking for more initial grants or even a higher sign-on bonus.
4) Understand your financial situation.
You obviously know why you are leaving and accepting the new job and what matters to you. Perhaps you are looking for more challenging or exciting projects, or you simply would like a promotion and increased earnings. In either case, your current financial situation will have an impact on negotiations. If you are not much of a risk taker or you have more intermediate-term goals that need funding, you may want to ask for more RSUs. If you are leaving a safe position behind in search of an adventure at a small and exciting biotech firm, you will probably want to negotiate your severance. Always align your financial goals with the decisions you make.
[Related: A Guide to Benefits When Changing Jobs]
5) Work with professionals and know your documents.
I highly recommend that you work with an employment attorney and a financial advisor who can help you understand the consequences of your decisions and help you assess and clarify the big picture. There are various documents that are associated with initial negotiations, such as the grant agreement, offer letter, and the company’s equity compensation plan. Make sure that the terms of your negotiations are in writing and the various documents are in sync.
It is an exciting time when you have an opportunity to negotiate equity compensation benefits, so first and foremost, make sure you have fun with it — and congratulations!
After thirteen years of experience in the financial services industry, Beata Dragovics opened her own firm, Freedom Trail Financial, LLC, an independent boutique wealth management firm in Boston that works extensively with executives and professionals from various pharmaceutical and biotech firms.
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Owner & Principal
Freedom Trail Financial, LLC
Beata Dragovics is the founder of Freedom Trail Financial, an independent wealth management firm helping clients with equity compensation strategies to maximize their company stock and option holdings. Beata works with life sciences professionals to develop comprehensive and customized financial planning, investment management, and equity compensation solutions that are tailored to help achieve professional, financial, and personal goals. As the principal and a financial advisor at Freedom Trail Financial, Beata is a continuous resource to her clients... Continue Reading