Successfully hiring exceptional sales and marketing professionals is a key element of the commercialization. Many factors need to be considered and one of them is fair compensation. Missionary sales persons and superb relationship managers are worth their weight in gold. They often get paid more cash compensation than the CEO. All options generated in a negotiation must be based on fair, objective criteria that both sides agree are appropriate to the situation.
What are the valid and appropriate standards for the given situation?
In other words: Why is what the boss offers fair, based upon which objective criteria?
This means finding options that are acceptable to both sides and that resolve all issues in the negotiation, while recognizing that many different options can meet the interests and principles of each side. This means to create a clear choice between a commercially viable agreement and a willingness to walk.
Elements of Executive Compensation
1. Base salary. Base salaries are fixed in amount thus do not encourage risk taking. While the performance based awards focus on the achievement of short term or annual goals, the short terms may encourage the taking of short-term risks at the expense of long term results, a Company’s performance based award program represents often a small percentage of an executive’s compensation opportunities.
2. An annual cash bonus pursuant to a Senior Management Incentive Program (SMIP); a target percentage of the base salary of the executive, which is 30to 50% in respect of key executives; The short-term portion of the SMIP is weighted 70% towards the corporate objectives (taking into consideration the strategic and tactical goals) and 30% toward the attainment of personal objectives. At the option of the executive, the short-term incentive can be awarded in the form of an annual cash bonus or stock options.
3. Long term incentives in the form of stock options granted pursuant to a SMIP,
in respect to a new hire, granted in consideration of acceptance of an offer of employment by the Corporation; and retention grants. Long-term equity awards are important to further align an executive’s interests with those of the Company’s share- holders. The ultimate value of the awards is tied to the Company’s stock value. KIM: Fair Value method, Grant date, Exercise price,Vesting period.
4. Retirement benefits under a Corp’s defined contribution plan. Executives may make contributions of up to 6 per cent of the base salary, subject to statutory limits, and the Corporation matches 50 to 100% of the executive’s contributions. All contributions made to the plan, whether the individual’s contribution or the Corporations matching contribution, vest in favor of the executive immediately.
5. The employment agreement provides that if the executive is terminated for any reason other than for cause, he will receive an amount equal to one year’s base salary plus any earned bonus. He also receives benefits for one year following termination, or alternatively will receive one or more payments equal to the cost of replacing the benefits for the same period.
6. In the case of a change of control of the Corporation, often all of the executive’s outstanding options will vest, to the extent that they were previously unvested.
Here is yet another attractive option for a cash strap start-up: Offer incentive compensation:
– 60% base, 40% bonus for sales account managers (SAMs)
– 90% base, 10% bonus for technical account managers (TAMs)
– Some Q-to-Q linkage
– Quota ranges: $750K-$2.0M
– Ordinary Time Earnings (OTE) ranges: $90K-$250K+ varies (quota)
Some stock options, 4-5 year vesting
Other pieces of the pie
1. Create a collective of best-in-breed professionals with a diversity of disciplines that
support the commercialization of your medical technology. You find the best folks out there, and pay them above market.
2. Give your team something exciting to work on, where they form an integral part of the whole enterprise, and the whole vision. That’s the big selling point for start-ups. The team gets to work on products that will change the industry.
3. Value, as we know is in the “eyes of the beholder.” Find more factors that add value and expan dthe negotiation pie.
Compliance-based valuation- the value of stock issued by privately-held companies
The determination of the fair value of the stock can be estimated by using option pricing models similar to the Black-Scholes Option Pricing Model (BSOP). Stock strike price is the price at which the stock can be converted into the underlying stock. The underlying stock price has not been determined by the market and the volatility factor, which refers to the standard deviation of the change or variability in the value of a security over a specific time period, is not easily calculated because the security isn’t being publicly traded. Most start-ups stay away from complex capital structures, multiple classes of preferred/common stock, and varying shareholder rights, liquidation preferences and conversions.
BTW, professional advice on federal tax rules governing deferred compensation is helpful iin defining deferred compensation which included stock options and stock appreciation rights issued at a discount to Fair Market Value (FMV) (…read more)