Reflections is a guide to help companies and candidates alike to get more out of their recruitment processes. Created by Neon River, a specialist internet and technology industry focused executive search firm, it also provides valuable insight on company compensation structures.
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
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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
