Henry Draper, Managing Partner at Albany Partners, discusses how to negotiate your compensation. In this article, he gives you the tools to help you understand your compensation, where it fits with other tech leaders, and how you can approach reward compensation in relation to salary and equity.
For further information, you can read our 2023 CTO Craft and Albany compensation report, where we asked technology leaders to share their compensation breakdowns. The report outlines the top findings and offers solutions and actions.
TIP 1: When benchmarking what you should be paid, it should be about responsibility, not title
For example, ‘Chief Technology Officer’ and ‘VP of Engineering’ are distinct roles, but in reality, many CTOs are actually VPEs and many VPEs take on a larger leadership component than a CTO within an earlier stage business.
Use each archetype discussed here to determine where your skillset or experience is best fit.
Ask the following question: Do I own XYZ?
This is true for not just those who are looking for a new role—if you love what you do in your current role and have no interest in moving, it’s important to right-size your compensation against the wider market.
TIP 2: What are the key points of negotiation? Base, bonus or equity?
Does the employer have a ‘hard line’ on any of these elements? Do your homework ahead of time.
For example, some early-stage businesses value cash today over and above cash tomorrow. Therefore, they may have hard lines on base salary but a greater willingness to negotiate on performance-related bonuses and equity.
If an agency is representing you, always ask your recruiter.
TIP 3: Don’t get hung up on percentage ownership
It is incredibly common to hear from CTOs that their equity ‘Has to be 1% or 1.5%.’
However, this can be a poor form of measurement. Therefore, cash value is often a better benchmark as it considers the valuation at the point of joining.
Both the Albany benchmark dataset and the CTO Craft and Albany 2023 compensation survey results reveal equity to be the salary component which has the highest degree of variation—this can make it difficult to negotiate.
As a starting place, expect a minimum equity cash value of twice your base salary. We often see 3-4x base salary in Europe and 5x in the US.
TIP 4: Make sure the equity story is something you believe in
Ask the potential employer to show their modelling for how they arrived at the valuation. This is particularly helpful if you’re being sold a potential future value of your proposed allocation.
There is the tendency to show you the ‘champagne’ outcome rather than a more conservative mid-case.
Albany advises clients to present a low, mid, and best-case scenario. We then advise candidates to place most stock in the mid-case scenario when we are negotiating their package.
TIP 5: Consider strike prices
Particularly within the UK, favourable strike prices maximize your upside.
If there are limitations on what your employer is willing to grant you in terms of a percentage of the company, you may be able to increase the value of that holding in real terms by agreeing to a lower strike price. That means that the delta between the strike price and prospect value is greater, which maximises your wealth creation opportunity.
Tip 6: Find out what happens to your stock options when you leave the business
Pay attention to the good leaver / bad leaver clauses in your contract.
In most instances, a good leaver will be awarded a percentage of the value you have created during your tenure. That’s even if you’re fully vested. As we have seen in our analysis, the most common vesting cycle is 4 years.
A “bad leaver”, if not explicitly defined in the contract, encompasses any scenario that isn’t a good leaver. Most commonly, if you decide to leave the business and join another in a similar field— you would walk away with nothing.
I like to use the ski instructor analogy. Ask your current or prospective employer what would happen if you were fully vested but had a shift in priorities and wanted to relocate to Val d’siere and become a ski instructor.
Ultimately, you have to make a judgement as to whether these clauses are reasonable.
Download the compensation survey full report to learn more about leadership compensation in 2023 and view suggested solutions.
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