For C-suite executives, contemplating a job offer (or a promotion within an existing company) is about more than just weighing salary and title. Myriad factors can play into executive compensation: stock options, restricted stock units, long-term incentive plans, vesting schedules, insurance benefits, restricted covenants and releases. The list goes on.
While most executives are rightfully excited about the opportunity a new role can present, many tend to see such opportunities through “rose-colored glasses.” In other words, it’s critical not to let a sense of euphoria over a new job cloud your judgment and cause you to overlook the details of what you are being offered in terms of compensation (and what you might be leaving “on the table”).
Lean on your team of advisors.
Needless to say, executive compensation can be complicated stuff. The first step in making a decision is to lean on your team of advisors to help you take the emotion out of the process and carefully weigh the pros and cons of a compensation package.
That typically starts with your wealth advisor, who should be able to build and lead a broader team of attorneys and CPAs, among other advisors. Your wealth advisor’s role is to ensure the entire team is aligned and working collaboratively with your best interests front and center. By taking a team approach, all contingencies and potential pitfalls can be fully explored on your behalf.
Conduct a side-by-side comparison of compensation packages.
With your advisory team in place, develop a side-by-side comparison of your compensation today versus what is being offered. Get granular. Any executive compensation package typically involves a degree of give and take, and it helps to be clear-eyed as to what you are gaining—and what you are letting go. Specifically, explore the following:
- Base salary.
- Stock options. With markets being down, many stock options are worth considerably less. If you leave when those options are depressed, you likely can’t continue with your vesting and may be forced to exercise those options, which could mean not realizing any gain on those options. If that is the case, ask yourself, “Is this the time to make a change, or should I wait until the markets recover?”
- 401(k) plan.
- Bonus/annual incentive plan.
- Long-term incentive plan. These plans can have restrictive covenants of their own, which is something to discuss with your attorney.
- Executive deferred compensation plan. This could include a 457(b) plan.
- Key employee restoration plans.
- Employee benefits. These include benefits such as medical, dental, vision, short-term disability and long-term disability, as well as parental leave, etc.
- Restricted stock units.
- Vesting schedules. If you plan to be in your new role for just a few years, you likely don’t want to agree to a six-year vesting schedule. Make sure any vesting schedule aligns with your expectation for time in the role.
Also, take a close look at the tax implications of a new versus existing compensation package. If in taking on a new role you are forced to exercise stock options, that payout can potentially result in significant tax consequences. Understand what those consequences are so you can adequately plan and prepare.
Go through ‘what if’ scenarios.
As promising as a new leadership position can seem, things don’t always turn out as we hope. Go through some “what if” scenarios with your advisors. What happens if your expectations don’t pan out? What are you guaranteed? What sort of severance will you receive? Be realistic, particularly if you are jumping into a new industry or going from a Fortune 500 to a startup, for example. Is that a risk you want to take at this point in your career? Be honest with yourself.
Also, understand the situation of the CEO and other high-level persons making the offer. Are the people recruiting you or bringing you into your role secure in their roles? What happens if the CEO and/or other key personnel change after you are brought into your role? Consider this carefully when negotiating compensation and what you are guaranteed.
Finally, whether it is on your terms or not, define what your eventual exit looks like. When is that? What will be the likely trigger? Is there a noncompete or other restrictive covenants you’ll be forced to wrestle with at the time? Is there a required garden leave? Can you live with those restrictions if you expect yet another “chapter” in your executive career?
Ultimately, the decision whether to take on a new executive leadership role comes down to having the confidence that you are receiving everything you deserve. Working with a team of qualified advisors to make that decision can help you sleep better at night knowing you thoughtfully and deliberately considered every possibility.