Supercharging Your Next Employment Negotiation

Our clients are superstars by most folks’ standards. Total compensation, which includes cash and equity compensation, ranges between $400,000 and $6,000,000 a year. As a result, our clients will be multi-millionaires at retirement, and some will be decamillionaires. In addition, many of our clients will become ultra-high-net-worth families with a net worth exceeding $30,000,000 either at retirement or someplace between retirement and death. As a result, employment negotiations are mission-critical.

Anecdotally in our client base, we engage in several employment discussions across their careers, with many of them not resulting in a transition. Generally, we aid an actual change to another company with about 40% of our clients. Your family deserves to have wisdom on your side during these critical transition periods.

It is optimal to affiliate with an advisor who has helped coach hundreds of negotiations and 4-5 dozen actual executive transitions.

We understand that spectacular employment consulting firms like Korn Ferry have been through thousands of transitions. Still, like real-estate agents, they represent the transaction and not the individual candidate. Nevertheless, there is wisdom in many counselors in negotiations with such high stakes and a distinct benefit in knowing that at least one of your advisors exclusively represents your family’s best interest throughout your career and into retirement.

Over the decades, we have learned that prospective employers fishing for talent seldom know how deep the compensation water is around a particular candidate. So it stands to reason that if the candidate is armed with accurate, summarized information about their compensation, then the negotiation power shifts to the candidate when they are still gainfully employed. We have created a summary of total compensation for our clients that gives them this edge.

Our team at The Bahnsen Group uses two tools to provide context to a client who is considering a transition:

  1. All clients have a comprehensive financial model which is accurate 24/7/365.  So, it is easy to take the proposed compensation parameters of an offering company and create a comparative analysis of the present employer and an alternate employer based on their proposed benefits, cash, and equity compensation structure.
    1. That said, we have noticed that finances are frequently not the only considerations. For example, being near family, broadening one’s resume, and a host of other non-financial reasons can motivate change.
  2. At the front end of a transition negotiation, we create a spectacular report called a Compensation & Perk Summary. This summary is completed by our firm so that if a time comes when our client desires full disclosure of compensation and benefits, they can say, “Here, I asked my advisors to prepare a compensation summary for me, which I am pleased to share with you.”
    1. One of the sections of this report lays out what compensation is forfeited if the client chooses to leave their current employer. Appropriately, this section is called Forfeit Value. Unfortunately, sharing the Forfeit Value concept can cause a ruckus, with headhunters claiming, “you can’t show that to the prospective employer; they will drop you like a hot potato. Nobody does that!” That might be true, but time is money, and unless a client MUST change companies or wants to change companies, anecdotally, sharing one’s Forfeit Value at the right moment in the negotiation can add hundreds of thousands, if not millions of dollars to a transition offer.
      1. Some clients choose to share only this section of the report to secure a better sign-on offer.
    2. Many other sections in our Compensation & Perk Summary will remain part of our secret sauce. So please feel free to give us a call, and we can begin a conversation.
So, what is this Forfeit Value?

Forfeit Value represents an independent, statistically valid summary of the value of our officer’s currently awarded equity compensation that would be lost by making a transition outside of their current employer. The main focus is around lost equity compensation, but we often include employee benefits and pro-rata bonus forfeitures. The forfeiture components of equity compensation are straightforward if your advisor knows Black Scholes calculations. Forfeit Value equals the sum of:

  • The Time Value of vested options.
    • This figure has nothing to do with what value is achievable by exercising a vested grant. Vested in-the-money value is captured by merely exercising the grant. Time Value of vested option grants represents the statistical value that could be captured IF the grants were held to maturity instead of being exercised prematurely to accommodate a transition to a new company.
  • The Black Scholes Value of unvested option grants that will be entirely lost in a transition.
  • The Current Value of any unvested restricted stock.
    • We see an apparent surge in the award of Performance Restricted Stock Units (PSU’s). Therefore, if the client feels there is sufficient history and reason to apply a 1.5 or higher factor to these performance stock units, we use that value and footnote the valuation differential between RSU’s and PSU’s.
Knowing what Forfeit Value is and how to use it during negotiation is a delicate matter

For a seasoned officer, Forfeit Value could be in the millions of dollars and well into the hundreds of thousands of dollars for an early career VP. When an officer introduces the concept of Forfeit Value into the negotiation, it will often end the negotiation as we believe it should if a client is genuinely seeking equitable financial treatment in transition. That said, if the concept of Forfeit Value is introduced at the right moment to a motivated company, Forfeit Value can boost the sign-on bonus and the sign-on equity award. In some instances, most often at the C/Suite level, near parity can be achieved between Forfeit Value and the up-front terms of an executive transition offer.

A full understanding of current compensation and Forfeit Value provides the clarity and conviction required for an officer to confidently negotiate their optimal transition.

Stoddard Barnhill
sbarnhill@thebahnsengroup.com

Phillip Barnhill
pbarnhill@thebahnsengroup.com

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The Bahnsen Group is registered with HighTower Securities, LLC, member FINRA and SIPC, and with HighTower Advisors, LLC, a registered investment advisor with the SEC. Securities are offered through HighTower Securities, LLC; advisory services are offered through HighTower Advisors, LLC.

This is not an offer to buy or sell securities. No investment process is free of risk, and there is no guarantee that the investment process or the investment opportunities referenced herein will be profitable. Past performance is not indicative of current or future performance and is not a guarantee. The investment opportunities referenced herein may not be suitable for all investors.

All data and information reference herein are from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other information contained in this research is provided as general market commentary, it does not constitute investment advice. The team and HighTower shall not in any way be liable for claims, and make no expressed or implied representations or warranties as to the accuracy or completeness of the data and other information, or for statements or errors contained in or omissions from the obtained data and information referenced herein. The data and information are provided as of the date referenced. Such data and information are subject to change without notice.

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Hightower Advisors do not provide tax or legal advice. This material was not intended or written to be used or presented to any entity as tax advice or tax information. Tax laws vary based on the client’s individual circumstances and can change at any time without notice. Clients are urged to consult their tax or legal advisor for related questions.

This document was created for informational purposes only; the opinions expressed are solely those of the team and do not represent those of HighTower Advisors, LLC, or any of its affiliates.

About the Authors

Phil Barnhill, CLU

Private Wealth Advisor
Director of Risk Management

Stoddard Barnhill, CFP®

Private Wealth Advisor

For nearly 25 years Phil has worked exclusively with senior leaders of public and large private companies. Over the past six years Stoddard has been carefully mentored in this niche market, leading to a highly-specialized practice knowledge within the team. This focus on corporate executives and their family dynamics comes with significant insights into executive compensation, stock concentration, equity monetization, and the full life-cycle of a career in the C-Suite.

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