Leaving Equity on the Table

Equity is a powerful compensation tool.  It is the promise of future money, awarded to you only after you have stayed at a company for an extended period of time.  Typically, you need to be at a company for a few years before your equity vests and you see the return on this perk.  Indeed, some of our company clients have cliff vests where your equity does not vest incrementally each year, but rather all at once (typically, after three years).  Equity is very enticing and a great incentive to keep you where you are – it aligns you, as the lawyer, with the company’s goals and creates a situation in which you and the company both have “skin in the game”.  Unfortunately, we have seen that the once-alluring equity can turn to the epitome of golden handcuffs; a mental hurdle holding lawyers back from taking that next career step.  A couple of points to consider:

Timing matters.  If you are a few months shy of your equity vesting and if the company’s stock is trading high, it makes sense to stay and profit.  On the other hand, if you are ready to leave your current job, does it make sense to let the allure of an equity payout make you stay?  You should consider timing in any job search and you need to understand and accept that the timing often does not work out perfectly.  It is similar to bonus payouts – regularly, our lawyer candidates are forced to make a career decision and either walk away from a bonus that is coming in a few months or stay for the bonus and let go of the new opportunity.  If you are very close to receiving a large equity payout and you know you will not walk away from that, then do not explore career opportunities at that point.  Lawyers who have cliff vests are particularly sensitive to this, because they have waited years for the vesting and it is very difficult to walk away from that.  If, however, the payout is not near or you feel that you could stand to walk away from a payout, then let yourself explore the opportunity and understand that sometimes timing is tricky.  You might wind up interviewing for a new opportunity and, during that interview process, you might decide that you love the new opportunity enough to mentally accept letting go of your current equity.  Of course, if done properly, the equity that you will leave can be part of the negotiation, so it does not have to be a total loss.

Be upfront about your equity.  If we are working together on securing a new job, tell us upfront about the projected value of your equity.  Do not hide it and do not wait until the eleventh hour when we are negotiating your offer.  Most companies that inquire about compensation will ask you for a detailed explanation of your current equity portfolio.  The company will ask about how many stock options you have, when you receive new grants of equity, and your vesting schedule.  If we are dealing with a public company, then the market knows how to calculate the projected value of your equity, based on the company’s performance.  Let the new opportunity know about what you would be walking away from and let them know early. If you can accurately explain your equity portfolio, it shows that you are detail-oriented and serious about making a move.  Also, your equity will become part of the negotiation, so let them know now.  Many companies will try to do something to help ease the financial pain of walking away from a significant amount of equity.  In many of our deals, our clients have provided sign-on bonuses that go a long way toward making up for the “lost” equity.  Some companies will provide a sign-on grant of equity to help make up for what you are leaving behind.  Do not expect to be made whole by the new company, but do expect that the company will try to ameliorate the pain of walking away from your equity.

Be realistic about the projected value of your equity.  Frequently, lawyers will start off in their job search very realistic about the projected value of their current equity.  They will tell us how the equity has paid out historically and the company’s projections for the future.  When, however, a lawyer gets close to securing an offer elsewhere, we sometimes see a shift – that lawyer often starts to obsess about what he/she may be leaving behind, and he/she winds up inflating the value of the equity in his/her mind.  This is partially because equity is a good anchor – a good reason to stay- and if you are truly not ready to make a move, then the allure of your equity can keep you where you are.  If you are clinging to that, it may be an indicator that you should not make a move.  The other reason that the equity starts to inflate in one’s mind is because it is so hard to walk away from something that is variable and could increase over time. People can torture themselves with the “what if” scenarios:  I know that the stock has not been doing well for a while, but what if I decide to leave and then I hear one year later that my former colleagues all got rich off the equity because the company turned things around?  What if my company winds up getting bought out and my equity vesting could have been accelerated, and yet, I walked away from that?  The “what ifs” can serve as mental barriers to getting what you ultimately want.  Of course, you need to weigh the pros and cons of walking away, but do not let yourself dream up scenarios in which the stock dramatically soars just as you depart.  Remember the reasons that you wanted to leave and weigh them appropriately, with an objective view of what your current equity is really worth.

Play the long game.  It is short-sighted to stay in a job that you know is no longer right for you, just because the equity may be lucrative sometime in the future.  Think about the reasons that made you want to make a move, and ask yourself if the potential equity payout solves those problems.  If it does, then stay – but if your issue is that you do not enjoy the work or culture, or that there is no upward trajectory for you, then equity will not solve that.  Also, look toward the new opportunity and decide if that role/company offers you what you are looking for while remembering that it will typically involve equity as well.   We know there is a feeling of climbing uphill when you join a new company and have to start over with vesting, but if the new role is right and you have been offered a good compensation package, do not let your current equity hold you back.  You do not pay your mortgage based on the allure of equity – remember that it is future money that is not guaranteed, but rather serves as “extra” when things are going well for the company.  In the long game of your career, ask yourself if this next career move is going to get you closer to your ultimate goal.  Is this new job going to give you a broader skillset that you will need to be a General Counsel one day?  Is this new position going to give you management experience which you cannot obtain at your current company?  Think about your career with a long lens, not a myopic view of what you can get right now.  Maybe the long game view will tell you that you need to stay put, and that may be the right option.  Or maybe you will feel that gut instinct telling you that staying put just for the allure of equity is holding you back from making a change.

Feel free to contact us directly at PLSG: Contact Us