Reflections
- 2. 2 3 We have spent over 20 years helping technology companies grow. We have created a guide that leverages our experience and provides practical insights to help both candidates and clients to achieve successful outcomes in recruitment processes. Although we have broken this document into sections in order to make it easy for clients and candidates to find the most relevant content, it is worth noting that it is only by understanding and empathising with the other party that one can negotiate a mutually satisfactory conclusion. If you are reading this from: • A hiring perspective then sections 1, 3 and 6 will be most pertinent. • A candidate perspective then sections 2, 4 and 5 will be most relevant. 1 Attracting and assessing candidates 2 Winning the race 3 Putting together an offer 4 Getting the best deal 5 Company remuneration structures 6 Appendix – Relocating candidates ATTRACTING & ASSESSING TALENT Practical advice to help companies create optimal recruitment processes. 1 CONTENTS P.4 P. 6 P. 9 P.14 P.18 P.24 2
- 3. 4 5 Maintain momentum: Make sure the candidates move through the interview steps quickly. When the interview process progresses slowly, the candidatemightquicklyperceivealackofinterestoranindecisive culture, and it gives other competitive processes the chance to overtake yours. Once this sentiment is established it is very hard to return a search to positive momentum and a successful close. Stay close to your candidates Ensure that there are regular touch points between your company and the candidates (coordinated by a key contact internally or your executive search partner), ensuring that the candidates understand the steps in the search process. This will help you to build a stronger relationship with candidates and understand their motivations. It is much easier for a candidate to say “no” to someone they are indifferent to. Understand that candidates buy with their heads and their heart, and that you will close many more candidates when you have gotten close to them and built a strong personal bond. Small details matter Every interaction between the client and the candidate will influence their perspective of the company, ranging from the front desk to the board room, and so it is important to ensure that these are consistently positive experiences. Going the extra mile to make the candidate feel welcome can make all the difference. Referencing You should always conduct both formal (ones the candidate provides) and informal (backdoor) references on your leading candidates. Leverage your network (investors and advisors) to get an honest perspective on candidates. This can be an excellent way of getting to the heart of a candidate’s motives and skill-set. With backdoor references ensure you are suitably discreet, and do not approach current colleagues, otherwise you risk endangering their employment. Define requirements - agree a list of key, assessable criteria for the role Agree an appropriate list of interview questions based around the requirements of this role Are there technical aspects to the role? For technical roles like VP Engineering - you need to ensure that you have a way of qualifying a candidate’s technical competence. It often makes a lot of sense to use a technically strong member of the team (a software engineer - for example) to qualify the functional knowledge of the candidate. Prepare a consistent list of agreed questions to ask all candidates around them. It often makes sense to ask candidates similar questions as it makes it easier to compare and contrast between them. Asking open questions is a great way to test how a candidate thinks and approaches problems. Also consider the cultural fit of your business – are you data- driven? Are you focused on personality and internal relationships whenitcomestodecision-making?Culturalfitisjustasimportant as technical skills when making the right hire. Try and include a less formal interview stage as part of your approach – perhaps lunch, or drinks with the team. This will help you to judge how strong the cultural fit is. Don’t include too many stakeholders The more internal stakeholders you have, the more risk there is of “analysis paralysis” and the longer it will take to choose and close a candidate. It is hard to get ten stakeholders to choose which movie to go and see, let alone decide who to appoint as a key senior hire for the business. Try and keep the number of stakeholders to a minimum for this reason. Define realistic targets and objectives for the new hire Understand how to sell your business Consider how your company may be perceived and try to find a way of accentuating your strengths and mitigating your weaknesses. It’s not always easy to do this – particularly if you’re a founder – but it’s quite possible with some thought. For example, most VC backed companies might be seen as risky – after all, many of them do not make a profit. Could you enrol one of your investors to talk to the candidate and re-assure them on company vision? Can you provide them with market data that shows the potential of the company? It is only by understanding these possible perceptions that you can devise effective counter- strategies. Be realistic The very best candidates will always have options – whether that is staying put, or going to another suitor. Candidates from market leading companies like Spotify, Google, Salesforce and Facebook get approaches from recruiters every day. Why might they want to join your company? Why would they want to take a pay-cut to do so? Sometimes it is better to hire a more realistic, less proven candidate who can grow with your business, rather than a more proven candidate who is more difficult to attract and tricky to ATTRACTING & ASSESSING TALENT How you define your process, panel and requirements profoundly affects your chances of closing a strong candidate. ATTRACTING & ASSESSING TALENT BEFORE THE INTERVIEW DURING THE PROCESS 5 Empathise with candidates’ motivations Understand what really motivates your target candidate pool, and sculpt a pitch that will appeal to that group and to particular individuals. Candidates will: • Have different motivations based on their functional backgrounds. On the whole, CTOs want to build innovative and interesting technology, and a VP Sales wants to sell a strong and differentiated product • Consider your opportunity sometimes because it is time for a change (present yourself as dynamic and interesting) • Consider your opportunity sometimes because they have hit a glass ceiling (stress you are keen to develop people internally) • Consider your opportunity sometimes because they don’t believe in their company’s strategy or future (make sure they understand and buy into yours) • Consider your opportunity sometimes because they feel underpaid (you need to understand the cause of this, and whether you can address it or not given your financial constraints) CANDIDATE MOTIVATIONS
- 4. 6 7 BEFORE THE INTERVIEW Understand the role and company Getting a job offer usually requires fulfilling three requirements: • Having the technical skills required to do the job (as illustrated by career history and track record) • Being at an appropriate level of seniority and cost • Being a strong cultural fit within the organisation It’s overwhelmingly likely that at some point of the interview process, the above will be discussed, and it’s always worthwhile to prepare an answer to the obvious questions. More on this later in the “Pre-Interview Checklist” section. Understand the recruitment process Make sure you understand how many interview steps there are and who the key stakeholders are in the process. A key variable is whether there is a recruiter involved or not. It is often advantageoustohavearecruiterinvolvedinaninterviewprocess as they can qualify difficult questions on your behalf (without risking offence) and can also help you to better understand the client’s position. A recruiter will be incentivised to close the deal, and can be helpful in keeping the process moving too. If you are in direct contact with HR or the hiring manager, you will need to think about how you balance both sides of the process, namely: • Selling yourself - “getting the offer” • Qualifying the opportunity Look at it from their perspective Try to put yourself in the hirer’s shoes and think about how well your experience fits with their requirements. Most job specifications will give you a strong steer as to the key criteria – and think about your relative areas of strength and weakness. Think through your experience and what examples you can provide that show you meet their criteria. If you have little experience in an important area – you will almost certainly need to address this question sooner or later and now is the time to devise your approach. DURING THE PROCESS Pre-Interview Checklist Here is a checklist of questions that you ideally want to know the answer to before you meet for interview: Who are the stakeholders in the process? Who are the most influential? What are the interview stages? It always pays to ask this. If the last round is a presentation stage - better to know before the first interview so you can ask the right questions throughout the process. Also bear in mind that the structure of the company’s interview process will tell you a lot about the way that the company works, which can help in your decision-making process. What are the 4-5 key criteria? This is not the same as the job spec. What really matters? This might well involve certain technical skills. Think about your experience and where you have demonstrated the necessary experience and characteristics. You are very likely to get open questions about these topics, so having thought through possible examples in advance will help you give a more polished answer. Are there internal as well as external candidates? Are the internal candidates real contenders or in it just for show? How long will the process take? If there are a lot of stakeholders, it could be a long process. You need to mentally prepare yourself for this. WINNING THE RACE Helping candidates get a job offer in a competitive recruitment process. 2 WINNING THE RACE
- 5. 8 9 Every step is an interview and all stakeholders matter Lunches and group meetings are a classic banana skin. Be conscious that you are still being assessed in every interaction with employees of the company. Even one veto can sink your candidature. Never think a meeting is purely confirmatory, even if that is the way it is positioned. You can re-use your best examples with different interviewers If you have two separate interviews with two different interviewers and get a similar question, you can use your best answer each time. It’s very unlikely they will be comparing notes on you to that level of detail. Keep your energy and motivation up You wouldn’t be human if a long interview process didn’t dent your enthusiasm. The trouble is, the last interview stages are vital to get to offer, and you need to keep your energy levels up. Qualify your interest Make sure you are ready to say yes (or no) before you get to offer stage. An interview process must be a two-way street for you to be comfortable that this is the right opportunity for you. Don’t give yourself a very difficult decision by feeling obligated to respond to an offer before you know whether you like the company and role enough first. Build Rapport The heart is at least as important as the head when someone chooses their preferred candidate. You need to break the ice with your future colleagues and make them want to work with you, not just respect you. PUTTING TOGETHER AN OFFER How to structure and present a compelling offer to a candidate. 3 All stakeholders matter - Even one veto can sink your candidature. Don’t just enrol the most senior stakeholders. WINNING THE RACE Yes! If you don’t, they will assume you aren’t paid very much anyway. It’s only ever candidates who feel underpaid who won’t say how much they are paid, and this can make you seem junior. There’s no such thing as “one market rate” for a role. Differentcandidateswillbringdifferentlevelsofexperience and therefore cost. There is not an absolute figure for “what a role is worth”. To negotiate an effective deal for yourself, you need to be able to engage in a clear dialogue with the hirer, where both parties empathise with another’s position. We need to understand and empathise with one another’s position before we are willing to compromise. It’s much better to be open and use the realities of your situation as negotiating leverage. You can say that “I am paid x but feel underpaid” – this can be a very effective tool for getting a raise. More on this in the “Getting the best deal” section. It is key to build trust with an employer and sharing remuneration is a key part of this process. We have seen candidates fall out of a process due to their unwillingness to share these details with a potential employer. SHOULD I TELL THEM HOW MUCH I AM PAID?
- 6. 10 11 Understand their recent earnings By this point in the process the candidate should have presented you with a clear breakdown of their historical earnings, across base, bonus, LTIP and benefits. If they haven’t, ask them for a complete breakdown of their compensation. Whilst these numbers do not provide a definitive guide to future financial package, it is helpful from a benchmarking perspective. Few candidates look to take a pay-cut in moving into a new role. It is also important to understand the context of these numbers: what is the cost of living differential between two locations and are there any tax implications to changing roles? Understand their expectations The candidate should be able to provide a sense of their priorities from a compensation perspective. It can be helpful to have an external perspective, probably from an executive search firm, who can explore this element with the candidate on your behalf. If you are not working with a recruiter it is important that you invest the time to understand the candidate’s expectations before you make an offer. Empathise The quantum and structure of remuneration that a candidate will seek is likely to reflect a few factors including perceived demand for their services in the market and their historical remuneration. It will also reflect their interests and financial situation. There is little point offering a low base and high equity component to a candidate with high cash-flow requirements (e.g. a mortgage and four children in private school). As far as possible recognise their personal situation and flex the financial package as far as you are able to do so. Explain your remuneration structures Most candidates who are genuinely interested in an opportunity will be willing to compromise on the financial package when they understand why an offer is being structured in a specific way. As far as possible outline the ways in which you are constrained, and why that is the case; candidates will understand that corporates and early-stage businesses face very different constraints and may structure their financial packages accordingly. Understand their market-value: The best candidates always have alternatives, and you need to construct an offer that is fit for purpose. If a candidate has another offer – then the level of that offer will likely become their perception of how much they are “worth”, not their current compensation. Never lowball candidates – it will burn the credibility of your employer brand and prove ineffective in closing good candidates. Understand their other options Is your candidate actively looking? Are they in other processes? With big or small companies? If you are a start-up and your candidate is looking at a corporate opportunity too, try to move quickly (make them seem slow moving) and offer them exciting equity and influence that will be much harder to achieve in a bigger company. Adjust your strategy if hiring directly or via a recruiter A recruiter, who has developed a good relationship with both parties, should have a clear understanding as to how far apart expectations are from early in discussions. They can prepare the ground to ensure that the parties understand where compromises are likely to be required. The recruiter as a middleman can ensure that the relationship between the hiring executives and the candidate is not negatively affected during tough negotiations. Sometimes a company chooses not to use an executive search firm and so direct negotiation is necessary. When you negotiate directly, it can be more risky as the communication is direct, but can lead to maximum empathy between the two parties and the closing of a good deal. In this scenario it is essential to avoid an emotional response to negotiations. Understand that it is right for the candidate to push for the best deal and to ask difficult questions. You must explain your constraints and empathise with their situation. Time is of the essence To get to a close both parties are likely to have to compromise to a certain extent, and during a negotiation stage both parties feel emotionally vulnerable. Whilst details are important to both parties it is important not to go through too many rounds of negotiation, as one or both parties may feel burned out by the situation and seek a simpler solution elsewhere. Explain your offer Don’t assume that candidates understand your company equity structure or valuation, it can be very difficult to positively value structures that you don’t understand. Don’t be afraid to break structures to get the best Whilst you will have outline structures in place that apply across your executive team, sometimes it is necessary to break these structures to attract the right candidate. Be creative Sometimes company constraints will make it feel like you cannot reach a suitable agreement with the candidate, in this instance think creatively. For example, where you cannot match a candidate’s cash expectation in an earlier stage business, you could agree an increase in the cash component as the business hits certain milestones (revenue or EBITDA). Check if they have any unanswered questions Now is the time to make sure they have all the information they need to say yes. Finalise the process quickly Once the numbers have been agreed with a candidate it is important to pull together documentation in the form of an offer letter quickly, followed by a contract. Whilst it is not uncommon forcandidatestorejectanofferafteragreeingitverballyitisvery rare for a candidate to pull out of an offer once they have signed a contract. Remember that a deal isn’t closed until a candidate signs and starts, so don’t let your process down by making this step take too long. BEFORE MAKING AN OFFER DURING NEGOTIATION Empathise with the candidate Be Creative PUTTING TOGETHER AN OFFER PUTTING TOGETHER AN OFFER 10
- 7. 12 13 Set your candidate up for success before they walk through the door Maintain the relationship The start date for candidates can vary widely, often three or even six months due to notice periods; during this period a candidate could suffer a change of heart. As a result, it is important to maintain an ongoing relationship with the candidate, if this is managed in the right way it will also bring additional advantages. It can enable the candidate to develop a deeper relationship with peers and gain additional insights into the business and to hit the ground running from day one. Onboarding The onboarding process should be slick and well thought out, so that all candidates joining the business enjoy a consistent introduction to the organisation. The process should commence before the candidate joins the business; providing them with information about how they will spend their early days in the organisation and background information that will enable them to be more effective from their first day in the business. This process is likely to include a training programme, induction with key members of the team and an outline of key processes and structures in the organisation. There should also be a clear welcome from senior members of the team in both a formal and informal manner. Make sure your HR organisation has all their relevant details from a payroll perspective. Keep your promises During the hiring process various promises will be made to the candidate regarding their financial package, budget to invest in building their team or opportunities for career advancement; as far as possible you should keep these promises. Whilst it may be tempting to offer the earth to close a candidate during a search process, miss-setting expectations is likely to result in candidates losing trust and ultimately looking outside the hiring organisation. Executives understand that business situations change and where you can’t keep your promises this should be addressed with them frankly and directly. BEFORE THE CANDIDATE STARTS Until a candidate has started work in the business, there is always a risk that they will pull out of the offer and so once you have closed the deal with the candidate, an effective onboarding process is essential. PUTTING TOGETHER AN OFFER
- 8. 14 15 Understand your priorities Understand your preferences regarding financial incentives, specifically the weighting of base, bonus, benefits and equity in the broader package, as this will impact the negotiation of your package. Clarify your financial position This will ensure they have all the relevant information and can make their best offer to try to close you. Often details of existing benefits aren’t communicated properly and candidates don’t receive as large an offer as they might. Also consider the impact of taxation on your income. If you feel underpaid relative to market rates, this is an opportunity to use that as leverage to secure a better package. Try to explain why you feel underpaid and stress that whilst you are very attracted to the role and company you don’t want this to be a possible cause of future tension. You also need to bear in mind that it is rare to get a raise of more than 20% (in terms of base + bonus) when you move jobs. If you have been severely underpaid, you can’t expect a new employer to necessarily correct that in one go. Ensure that all parties know of any extra costs entailed by the move A new job might mean moving house, or more travel costs. These are all strong, solid reasons to ask for more money. Have a sense of the market and process dynamics If you are the only candidate who is a realistic contender for the role, then chances are you can negotiate a raise on your current package. Many hirers prefer to spend a bit more now to close a strong candidate than wait for weeks or possibly months to identify and hire a cheaper option. Similarly, certain functions and industries experience shortages of relevant talent and this will drive incentives up. In contract, in a recession there is a greater supply of candidates and therefore likely to be less wage inflation. Understand the employer’s constraints This is extremely important. Effective negotiation can only occur if: a) You ask for things that are possible b) Both parties empathise with one another’s position By understanding their financial constraints, this enables you to direct your negotiation much more effectively. An earlier stage company might be cash constrained and be more willing to offer equity – and the reverse might be true of a bigger business. Could you use some of your bigger company benefits (that you will lose) as leverage to get more equity? Probably, and you’d likely have a better chance of getting that than asking a start-up to replicate that benefit. Demonstrating a lack of empathy in this regard, particularly with earlier stage businesses, could act as a red flag from a cultural perspective. GETTING THE BEST DEAL How to negotiate a good financial package with an employer. 4 BEFORE RECEIVING AN OFFER Understand your priorities GETTING THE BEST DEAL
- 9. 16 17 Is it best to negotiate directly? If you are working with a recruiter through the process, this can be a good time to extract value. Be very open with your recruiter, and ask them to negotiate on your behalf, once you have a sense of what sort of offer you wish to obtain. The recruiter should be able to have a pretty direct conversation with the hirer and ensure there is no risk of falling out with the hiring manager. Some hirers will want to negotiate with you directly, and it is up to you whether you prefer to take this approach or go through the recruiter. When you negotiate directly, it can be riskier, but in some instances it can lead to maximum empathy between the two parties and can facilitate the successful closure of a good deal. If you are negotiating directly with the hirer it’s important to: • Reiterate your interest in the role The hirer will emotionally feel like they want to close you, but you must also rationally agree a good financial deal. It’s important to ensure the emotional goodwill persists through the rational negotiation. • Package up your requests Always package up your requests into one communication if you wish to negotiate an initial offer. If you are continually asking for more things it will rapidly burn the goodwill of the hirer. Remember that making an offer is when the hirer feels the most emotionally vulnerable, and if the process feels “too hard” (after rounds of to-ing and fro-ing) they may lose patience and terminate the offer discussions. Here are a few things to think about after you have agreed a package: Agree a start-date If this is for an external role, you need to bear in mind how long your notice period (both on paper and negotiated) might be. It might be impossible to tell before you resign – in which case agree a provisional start date with your new employer but make sure they understand it is subject to change. Finalise paperwork Often companies will send you an offer letter (although this is not necessary), followed by a full contract. Make sure you read the contract carefully, particularly any non-compete clauses. Now is the time to try and amend them should you wish to. If you have an equity component to your offer, ask for a copy of the shareholder agreement and any other relevant paperwork pertaining to equity holdings. Start building relationships Meet up with your new boss and / or colleagues for an informal session to discuss plans for when you start. Ensure that the HR organisation has your relevant details for payroll purposes and to ensure a smooth on-boarding process. DURING NEGOTIATION BEFORE STARTING Start building relationships with your future colleagues. GETTING THE BEST DEAL GETTING THE BEST DEAL If you are in multiple recruitment processes, early suitors might try to pressure you with “exploding offers” – where there is a strict time limit. Whilst we wouldn’t recommend hirers follow this strategy (it is too aggressive and can put candidates off), some hirers will use it. It’s never a good idea to accept an offer because of time pressure unless you are sure enough that it is suitably strong. If you are in other, less developed but more attractive processes, it is reasonable to politely decline the time limit and say that it is an important move for you and you need to assess your options fully. A confident hirer should give you some space and encourage you more positively to choose them. You can also use other search processes as leverage to accelerate other processes. It is also reasonable for a hirer to ask you if they are your preferred opportunity, particularly if you are at offer stage. You need to think about how you might answer this question before you get it. Whilst no hirer wants to feel that they are in second place, it is through misleading people that relationships are broken. By all means keep your options open but don’t massively oversell your interest in roles. DIFFERENT NEGOTIATION TACTICS
- 10. 18 19 Most private companies seek to reward their employees (especially the most senior ones) with some form of equity incentive; these can be quite different to the types of equity structure found in public companies. Private companies usually have a pool of stock, typically between 10-15% of the company, available to incentivise key employees. Whilst the founders tend to hold equity, options are used as a key tool to attract and retain other senior executives. As you become more senior, your equity incentives tend to grow exponentially. Mid, or even relatively junior staff within a VC backed company hierarchy might all have stock options – but these will likely be of much less potential value than those which senior members of the executive management team might possess. Candidates who join companies at earlier stages can typically expect a greater proportion of the option pool compared to those who join later, as the business is likely to be less valuable when they join. Private companies typically offer equity incentives in the form of stock options. A stock option is simply the right to buy a share at a particular strike price (more on this later) once it has vested. Vesting is a key concept associated with stock options - it is a period of time that you must wait before you can use the stock option. If stock options instantly vested when a new employee joined a business, the risk would be that the employee could leave and retain the options without having spent enough time in the business to contribute to the value created. Most private companies will offer a “four year vesting period with a one (or two) year cliff.” A four year vesting period simply means that it will take four years before you can exercise all your stock options. The one year cliff means that you get the first quarter of your options, all at once, on your first anniversary of employment. Typically, your remaining unvested options would then vest at a constant rate every quarter for the remaining three years. The reason why private companies like to have a “one year cliff” is because most unsuccessful new hires will leave in the first 12 months – and this mechanism means that they don’t leave with equity. COMPANY COMPENSATION STRUCTURES PRIVATE COMPANIES AND EQUITY STRUCTURES New compensation structures, and in particular equity schemes, can be confusing. 5 COMPANY COMPENSATION STRUCTURES STOCK OPTIONS AND VESTING
- 11. 20 21 A strike price is simply a fixed price at which you have a right to buy a share once the option has vested. For example - if the share price of a company is £1, and the strike price is 10p – then there will be 90p worth of profit for every stock option that person possesses. A strike price is therefore a price at which you can buy a share – and if that price is below the true value of a share, then it is definitely worth using. If you have employee stock options in an investor-backed company, you will need them to realise through: • Vesting over time; or • A “change of control” in the company A “change of control” typically occurs in one of two scenarios: The company floats on the stock market In this instance, your vested stock options (after a lock-up period post IPO that prevents employees cashing out too early and sending a bad signal to the market) can now be used. A vested stock option gives you the right to buy a share at a particular strike price. If that strike price is lower than the price of a share in your company on the stock-market, you will make a profit on each stock option of the share price minus the strike price. If the IPO happens before all your options have vested, your unvested options will keep on vesting over time, and you can use them once they have vested. Once public, a company may also seek to create new equity incentive structures to motivate key staff – but these will likely be very different in nature. Trade sale or merger with another company In this instance any vested stock options will have to be bought by the acquirer on acquisition. Just as when a company goes public, when a company is sold to another business, there will be a price per share that the acquirer is paying. If the strike price of your stock options is below that share price – then the difference between the two is your profit per option. The permutations are much more complex in this scenario when it comes to unvested options compared to when a company goes public. It could be negotiated as a condition of sale by the management team of the selling company that all unvested options be paid out by the acquirer. This would probably increase the cost of buying the company to the acquirer – but would obviously be attractive to the management of the acquired company. The acquiring company might want to create a new equity incentive scheme within the new business to keep key staff – or of course it may also have its own staff that it intends to use for key roles going forward. Accelerated vesting is sometimes offered to the most senior executives and is only common for CEO roles. Accelerated vesting means that a proportion of your unvested options (e.g. 25%, 50%, 100% accelerated vesting) instantly vest when certain “triggers” are fulfilled. A “single trigger” is an accelerated vesting clause where the “trigger” is usually a change in control of the company. This is often unpopular with the acquirer – as they will have to pay you out on acquisition, and may also have to re-incentivise you with a new equity scheme if they wish to try to keep you. Companies may therefore offer accelerated vesting clauses to the most senior employees with a “double trigger” – where both triggers must be fulfilled for the clause to apply. The first clause would be a change of control, and the second that the employee is no longer wanted in the new business. This can be a nice compromise as it protects the employee in the event of them being acquired and not needed anymore, without being too much of a disincentive to the acquirer. STRIKE PRICES A strike price is simply a fixed price at which you have a right to buy a share once the option has vested. COMPANY COMPENSATION STRUCTURES USING STOCK OPTIONS ACCELERATED VESTING How do I know whether I have an attractive strike price or not when the company is private? Try and find out whether there was a recent funding round and what the price per share was at that time - this is a great indication if you can get it. Failing that - are there some public businesses that give some sensible comparisons? Often VC backed companies will give quite low strike prices, in order to incentivise their staff - certainly at below “true share price value” - but make sure you have done your homework to understand the realistic potential value of your options.
- 12. 22 23 DILUTION AND PREFERENCE SHARES VC backed companies often take multiple rounds of funding, and will often issue new shares once new investors put money into the business. This means that the percentage of the total shares that an existing shareholder possesses will decrease – and this is known as dilution. If you join a VC backed company and are offered stock options – it is always worth asking whether there will be any further funding rounds and therefore dilution of your stock. However, it is of course also true that further funding will enable the business to scale and therefore you may well have a smaller slice of a much bigger business. You should also find out whether there are different classes of shares. Investors will often get preference shares in a business – meaning that if there is an exit, the preference shares get paid out first. This protects the investors in the case of a low exit, but can be disastrous for employees as they are left with little of the pot once the investors have cashed out first. Some companies operate a “Good Leaver / Bad Leaver” clause where a bad leaver might be defined as someone who resigns after a short period of time or moves to a competitor. In that instance, they might have to sell back equity they hold at cost price, whereas a “Good Leaver” will be able to keep their equity on leaving or sell it at a much higher price. RESTRICTED STOCK UNITS Restricted Stock Units, also known as RSUs are often used by large public companies to incentivise their staff, particularly at a senior level. Because large public companies often have a relatively stable share price, stock options are a less effective form of incentivisation as it becomes difficult to realise substantial increases in market capitalization, and offering stock options priced at below the current share price would incur taxes at the point of receiving the option. A Restricted Stock Unit is simply a unit of stock that is granted to an employee when certain conditions – which usually involve either vesting over time, or certain performance milestones being achieved. When you are granted RSUs, you will have to pay income tax once the conditions for giving them have been fulfilled, but this will often be taken at source (you will receive your net amount of RSUs). A key difference between an RSU and a stock option is that an RSU has worth regardless of company performance – as the “strike price” is essentially zero – you are gaining a share. The strikepriceofastockoptionmaybenotmuchlowerorsometimes higher than the value of a share, and therefore of little or no value depending on the circumstance. Smaller companies may use RSUs too as a mechanism to incentivise employees where company growth is unlikely to provide sufficient upside. Make sure you understand the company valuation today and what it could be worth in the future. COMPANY COMPENSATION STRUCTURES
- 13. 25 In a global economy, high growth tech-firms look outside their domestic market to access larger talent pools to find more experienced executives or individuals with very specific skill sets - this means relocating executives. Whilst this can be a great option or even a necessity for many firms, relocation brings its own challenges – quite simply: • c. 80%+ of candidates are likely to rule themselves out of a relocation for personal reasons and this means you need to talk to many more candidates to reach a shortlist; and • There is an increased chance of the move not working out in the medium-term, due to family or cultural issues Be realistic Candidates from abroad (e.g. US) often seem attractive, but ask yourself whether you can realistically attract and afford the candidate with high associated costs. If there is sufficient local supply of talent, then there is probably no need to look internationally. Understand their situation It is important to recognise that the decision will be made by the candidate and their family – invest time understanding their personal situation, stress-testing how realistic a move is at an early stage and then if appropriate bring the family to the new location to consider the practicalities of the move. Ask the candidate directly why they are looking to relocate, whether they have seriously discussed the move with their family and where there are potential blockers. Key areas to probe include: • The age and situation of children? • Educational and health requirements? • Their partner’s situation and whether they work? • Are there other personal factors that will tie them to a specific location? • What are their personal and professional concerns about relocation? Simply by asking these questions you will start to form a picture as to how seriously the candidate has thought about the ramifications of a potential move. In our experience introducing executives into the interviewing process, who have previously successfully relocated with the company, can prove to be an invaluable educational and selling tool for the candidate. Time spent exploring the practicalities of the move with someone who has made that transition can make the difference for both an executive and their family who are sitting on the fence. APPENDIX - RELOCATING A CANDIDATE 6 The lack of local supply for certain functions or experience, means that looking internationally for talent can be a great way to identify a broader pool of candidates. APPENDIX - RELOCATING A CANDIDATE
- 14. 26 27 Financial considerations It is important to consider the financial impact of relocation on the candidate’s family. Candidates will naturally look to maintain or improve their standardoflivingandassuchthereareanumberofconsiderations that should be discussed with candidates: • The relative costs of living. Whilst some locations may be much cheaper on the face of it, you should also consider ancillary costs – property prices, private healthcare and international schools. Equally where the hiring company is based in a cheaper location, leverage this as a key sales point. • Consider tax differentials. • Will the candidate’s partner be able to get a job? Will the job pay competitively to their current package? • The cost of relocation is substantial and it is reasonable for the hiring company to pick this up where possible. • Even where the cost of living is markedly lower between two locations, you may still find it difficult to persuade a candidate to take a cut on the headline terms of their financial package. Reducing the risks Bear in mind whether a candidate has relocated before? How did this process go for them? Naturally those candidates who have a demonstrated track record of successful international relocation and a global mind-set are more likely to successfully complete a relocation. Seriously probe the candidate’s view on relocation. Candidates are much more likely to talk openly about their concerns to a 3rd party than a hiring company, particularly where they have an existing relationship. Understand where the candidate perceives there to be pressure points. Support the family It is equally important to persuade a relocating candidate’s family that the location is a great place to live, as much as selling the company to the candidate directly. If you can help the candidate’s family to find a suitable home, great schools for their kids and provide broader support, then you’ll massively enhance your chance of successfully closing a candidate. Be flexible Relocation always brings complexities, are there alternative ways to attract the right candidate without a full relocation? For example, could you consider weekly commutes or time spent between two locations to attract the right appointment? Could you allow a candidate to work a day/week from home? Whilst these solutions may not be ideal, if it enables you to make the right appointment then potentially it is worth considering. APPENDIX - RELOCATING A CANDIDATE
- 15. 28 About Neon River Neon River is a next-generation executive search firm. We partner with internet and technology companies to build world-class management teams. www.neonriver.com