Business majors: do I take commission, equity or salary?

Equity is the biggest possible payoff and you don't need cash so push for equity.

1. Ask for a "base salary" of fully vested stock which will be awarded quarterly for as long as you are on the job.

2. Ask for a sales commission to be paid out in stock options.

The fully vested stock will be yours even if you leave. You should try to negotiate for the options to be valid if you leave as well, but you might get push back on that.

If the company is cash strapped, they will love this idea. It costs them nothing!

Fortune favors the bold.

Hmm interesting:

1- with the vested stock how exactly

Are payouts structured?

2 - the issue with the second commission structure is that it is in stock so I'm not hedging whatsoever with any sort of monetary compensation

Run this by a good transactional lawyer. Equity in a start up can be lucrative if the venture catches fire, but talking about "equity" in a business is about as talking about "pure breads" at the Westminster Kennel Club dog show. You need to know what kind of business entity is it, what class of shares would you get, voting or not, dividends or not, buyout rights, and so on. Commission is a good "eat what you kill" way to get paid. But the devil is also in the details. What is the commission based off of? Gross, net? Claw back provisions?

Too many people have stood in your shoes and find themselves on the short end of the stick after five years of hard work when they realize that they did not get the deal they thought they were getting. It is worth spending $1,000.00 now to make sure you get a solid deal than to try to file a lawsuit to recover $100,000.00 that you think you got screwed out of after working for five years.

Bizdeal wrote:

Hmm interesting:

1- with the vested stock how exactly

Are payouts structured?

2 - the issue with the second commission structure is that it is in stock so I'm not hedging whatsoever with any sort of monetary compensation

1. You're just asking for salary to be paid in stock instead of cash. So the baseline would be whatever salary you both might think would be reasonable. If you both agree on a salary of $100,000 then you ask for $25,000 of stock to be signed over to you every quarter. You do it quarterly because transferring stock might involve lawyers, accountants, etc, and you don't want to churn their legal fees.

2. That's right. This is the highest risk, highest reward scenario. If you want to have some cash payout, then ask for the base salary in cash and then push really hard to make the stock commission scale with the size of the sale, with no upper limit on the commission. That way your equity grows in direct proportion to the value you add to the company. They will understand this and be willing to give away a lot to build the customer base.

Just make sure there are no limits to the commission. I've seen salesmen create many millions of dollars of business but only pull in $200,000 because the commission was capped. Of course no one feels sorry for them, but they got cheated nonetheless.

Oh, and make sure any stock options you get have no expiration date or push for the longest term they are willing to give you. It's a small thing to negotiate but could have big consequences. Again, I've seen people get screwed by this.

And ask for preferred stock over common stock. Preferred stock has first claim on assets in case the company liquidates, and may benefit from better dividends.

Always ask for more than you think you're worth, because what really matters is what the other guy thinks you're worth.

DiscoGary wrote:

Just make sure there are no limits to the commission.

Correct. Get your small piece of the action off the top and get it for a long period of time.

DiscoGary wrote:

Oh, and make sure any stock options you get have no expiration date or push for the longest term they are willing to give you. It's a small thing to negotiate but could have big consequences. Again, I've seen people get screwed by this.

This is a complicated issue. Be sure when the founders go fishing for capital, they aren't watering down your stake. Definitely consult a lawyer. The stories of founders getting screwed out of their equity slices are legion.

Also, if it's halfway successful, the capital demands will be enormous. In the very unlikely event the org makes it to 10 years, you might get your equity payout, maybe.

As soon as a little money enters the picture, people change. If the business gets off the ground be prepared to be screwed and make enough money in commission to pay for the lawyers.

Precious Roy wrote:

talking about "pure breads" at the Westminster Kennel Club dog show.

lol

Thanks for all the advice.

Would it be too much to ask for a combo of vested stock, commission & nominal salary?

This company is a small startup ( Very small) so obviously not public. How do I get vested stock in that case?

An example of what I would ask for:

1- 15% commission indefinitely (as long as I'm active but not sure what you would legally define active as)

2 - equity of say 2% of my product line per quarter to a max of 20%

3 - small base salary loosely linked to the hours I work (mainly as a hedge if they go under I still get some pennies on the dollar)