Executive Compensation proposal question

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills.
Post Reply
Topic Author
sarala
Posts: 48
Joined: Tue Jul 21, 2015 11:34 pm

Executive Compensation proposal question

Post by sarala »

I’ve been at an explosively growing Startup company for a few months as VP of Finance. I’m in a unique conversation with the CEO to negotiate higher compensation— either through bonuses, equity options, or some combination of the two. The CEO is asking me to come back with a proposal on Monday.

My goal is to be CFO, but the CEO did not want to give me that title. He stated it’s because he wants to remain the sole decision maker. Frankly I’m okay with whatever title as long as I get the compensation that’s fair. Though it should be noted— I’m already doing 75% of what a CFO would do. The only CFO purpose I’m not fulfilling currently is collaborating with CEO and interacting with the Board.

I’d like your thoughts on the different ways I could approach this. Of course, any situation where there’s a choice between cash bonus or equity, it’s all about context— so here’s the rundown:

—————
I started back in February for their main holding company. (total of 7 companies-- 3 profitable, 4 incubating) They were looking for somebody to head and build a functional finance department from scratch. I couldn't believe that they didn't have a finance department up until that point— especially considering how amazing their sales and their growth has been.

For context— The Company has achieved 5 million dollars per year in sales since its inception in 2019. Just two years later— we are expecting to make 20M from 2021 alone. One brand is so profitable I predict there will be an exit within 3 years at around 40-50M

—————

Now, in terms of negotiating:

While I was not present last year for their first phase of astronomical growth, but I was there for their second phase of rapid growth in Q1 of this year.

I was looking at the CMO as a frame of reference— currently his base salary is about 35k higher than mine (200k) which I understand because he’s heading a revenue generating department.

For his current arrangement— he can earn a bonus capped at 50% of base, gets 1.75% equity vesting monthly, and 1/36th with accelerators—in the event there is liquidity of either brand or collection of brands.

My Question:
What is the best or most appropriate structure for someone in my position. My husband has mentioned, with equity, if I am not happy (It is a very hard and intense work) I will be tying myself down and performance bonus is more suitable. I am about 50-50 at this point. Your input and suggestions much appreciated.

Thank you
Lookingforanswers
Posts: 156
Joined: Sun May 06, 2018 4:39 pm

Re: Executive Compensation proposal question

Post by Lookingforanswers »

First of all, you should be proud that you've helped support a company growing so fast that didn't have a finance department. Congratulations, I can appreciate the fact you have already put in tons of hours to make that happen.

I think the following are reasonable:
- At least as much equity as the CMO, vesting monthly.
- You should fully vest your equity in the event the company is sold
- a 50% cash bonus opportunity, same as the CMO.

Originally I was going to write that you should give up a cash bonus in favor of more equity, which is more typical of startups in my experience. However, I am troubled by the fact that the CEO doesn't want to name you as CFO and also that he is paying you less than the chief marketing officer, which I don't understand. That makes me think I wouldn't trust the CEO 100% in the long term and therefore getting some cash bonus as you go is a good idea.

Sorry if I sound cynical about the CEO but someone who didn't even have a finance department to get started and then won't name his VP-finance as CFO seems a little off kilter to me. Should you part ways with this company in the next couple of years, the awesome support you've given them so far will look great on your resume (I know that this statement makes me sound judgmental, but I am just basing it based on the info you provided. There may be tons of additional context that means my assessment is wrong).
Zombies
Posts: 115
Joined: Sat Jul 15, 2017 6:22 pm

Re: Executive Compensation proposal question

Post by Zombies »

C-level titles are often protected for the ability to bring someone in “over” the existing organization without having to demote someone.

For instance, if the company were to go down a path to merge with a SPAC or IPO, do you have the skill set to see that all the way through? If not, the company would likely need to bring in a “public company” CFO, and if you’re already occupying that title, it gets very awkward, especially if you’re viewed as very valuable and competent (which it seems like you are!)

I think it’s reasonable for you to ask for the title, and I think it’s reasonable for the CEO to decline. If you believe your work product is equal in terms of quality and important to the CMO, trying to match that deal is a reasonable request. But I wouldn’t get hung up on the title as the CEO may have good reasons not to leverage that, even if they are a big fan of yours - which it seems like you agree with. So go with the quality / importance of work argument, and hopefully that’s enough.
Lookingforanswers
Posts: 156
Joined: Sun May 06, 2018 4:39 pm

Re: Executive Compensation proposal question

Post by Lookingforanswers »

Zombies wrote: Sat Jun 12, 2021 6:46 pm C-level titles are often protected for the ability to bring someone in “over” the existing organization without having to demote someone.

For instance, if the company were to go down a path to merge with a SPAC or IPO, do you have the skill set to see that all the way through? If not, the company would likely need to bring in a “public company” CFO, and if you’re already occupying that title, it gets very awkward, especially if you’re viewed as very valuable and competent (which it seems like you are!)
This is a very good point I didn't take into account in my answer above, and probably a better perspective than mine.
Murgatroyd
Posts: 488
Joined: Sun Jan 21, 2018 7:23 pm

Re: Executive Compensation proposal question

Post by Murgatroyd »

Is there any termination agreement? Particularly if your company is bought out?

Looks to be missing.
Topic Author
sarala
Posts: 48
Joined: Tue Jul 21, 2015 11:34 pm

Re: Executive Compensation proposal question

Post by sarala »

Lookingforanswers wrote: Sat Jun 12, 2021 4:51 pm First of all, you should be proud that you've helped support a company growing so fast that didn't have a finance department. Congratulations, I can appreciate the fact you have already put in tons of hours to make that happen.

I think the following are reasonable:
- At least as much equity as the CMO, vesting monthly.
- You should fully vest your equity in the event the company is sold
- a 50% cash bonus opportunity, same as the CMO.

Originally I was going to write that you should give up a cash bonus in favor of more equity, which is more typical of startups in my experience. However, I am troubled by the fact that the CEO doesn't want to name you as CFO and also that he is paying you less than the chief marketing officer, which I don't understand. That makes me think I wouldn't trust the CEO 100% in the long term and therefore getting some cash bonus as you go is a good idea.

Sorry if I sound cynical about the CEO but someone who didn't even have a finance department to get started and then won't name his VP-finance as CFO seems a little off kilter to me. Should you part ways with this company in the next couple of years, the awesome support you've given them so far will look great on your resume (I know that this statement makes me sound judgmental, but I am just basing it based on the info you provided. There may be tons of additional context that means my assessment is wrong).
Ah thank you, it is a demanding and intense job definitely, especially the past 3 months.
The CEO is a young brilliant 28 y.o. I am coaching him and building credibility with him. I honestly think he thinks nothing when he decided not to have a "CFO". It was just an insecurity and this reasoning comes from an inexperienced mind.
And that is in line with my original thought. At least getting a similar deal as the CMO. Thank you
Topic Author
sarala
Posts: 48
Joined: Tue Jul 21, 2015 11:34 pm

Re: Executive Compensation proposal question

Post by sarala »

Murgatroyd wrote: Sat Jun 12, 2021 7:35 pm Is there any termination agreement? Particularly if your company is bought out?

Looks to be missing.
This will be my first time, so I have not even thought about this. I will probably include this in my new agreement with the CEO/Owner
Astronaut4
Posts: 50
Joined: Fri Sep 11, 2020 9:07 am

Re: Executive Compensation proposal question

Post by Astronaut4 »

I believe titles to be important resume components and that women can often the the hard workers that move the needle but not get appropriate credit due to lack of title. My $.02.
Post Reply