Reflections
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REFLECTIONS<br />
1
We have spent over 20 years helping technology companies grow.<br />
We have created a guide that leverages our experience and provides<br />
practical insights to help both candidates and clients to achieve<br />
successful outcomes in recruitment processes.<br />
Although we have broken this document into sections in order to make<br />
it easy for clients and candidates to find the most relevant content, it is<br />
worth noting that it is only by understanding and empathising with the<br />
other party that one can negotiate a mutually satisfactory conclusion.<br />
If you are reading this from:<br />
ATTRACTING<br />
& ASSESSING<br />
TALENT<br />
• A hiring perspective then sections 1, 3 and 6 will be most pertinent.<br />
• A candidate perspective then sections 2, 4 and 5 will be most relevant.<br />
CONTENTS<br />
1 Attracting and assessing candidates<br />
2 Winning the race<br />
3 Putting together an offer<br />
4 Getting the best deal<br />
5 Company remuneration structures<br />
6 Appendix – Relocating candidates<br />
P.4<br />
P. 6<br />
P. 9<br />
P.14<br />
P.18<br />
P.24<br />
1<br />
Practical advice to help<br />
companies create optimal<br />
recruitment processes.<br />
2<br />
3
ATTRACTING & ASSESSING TALENT<br />
ATTRACTING & ASSESSING TALENT<br />
How you define your process,<br />
panel and requirements profoundly<br />
affects your chances of closing a<br />
strong candidate.<br />
BEFORE THE INTERVIEW<br />
Define requirements - agree a list of key, assessable criteria for<br />
the role<br />
Agree an appropriate list of interview questions based around<br />
the requirements of this role<br />
Are there technical aspects to the role? For technical roles like<br />
VP Engineering - you need to ensure that you have a way of<br />
qualifying a candidate’s technical competence. It often makes<br />
a lot of sense to use a technically strong member of the team<br />
(a software engineer - for example) to qualify the functional<br />
knowledge of the candidate.<br />
Prepare a consistent list of agreed questions to ask all candidates<br />
around them. It often makes sense to ask candidates similar<br />
questions as it makes it easier to compare and contrast between<br />
them. Asking open questions is a great way to test how a<br />
candidate thinks and approaches problems.<br />
Also consider the cultural fit of your business – are you datadriven?<br />
Are you focused on personality and internal relationships<br />
when it comes to decision-making? Cultural fit is just as important<br />
as technical skills when making the right hire. Try and include a<br />
less formal interview stage as part of your approach – perhaps<br />
lunch, or drinks with the team. This will help you to judge how<br />
strong the cultural fit is.<br />
Don’t include too many stakeholders<br />
The more internal stakeholders you have, the more risk there is<br />
of “analysis paralysis” and the longer it will take to choose and<br />
close a candidate. It is hard to get ten stakeholders to choose<br />
which movie to go and see, let alone decide who to appoint as<br />
a key senior hire for the business. Try and keep the number of<br />
stakeholders to a minimum for this reason.<br />
Define realistic targets and objectives for the new hire<br />
Understand how to sell your business<br />
Consider how your company may be perceived and try to<br />
find a way of accentuating your strengths and mitigating your<br />
weaknesses. It’s not always easy to do this – particularly if<br />
you’re a founder – but it’s quite possible with some thought. For<br />
example, most VC backed companies might be seen as risky –<br />
after all, many of them do not make a profit. Could you enrol one<br />
of your investors to talk to the candidate and re-assure them on<br />
company vision? Can you provide them with market data that<br />
shows the potential of the company? It is only by understanding<br />
these possible perceptions that you can devise effective counterstrategies.<br />
Be realistic<br />
The very best candidates will always have options – whether that<br />
is staying put, or going to another suitor. Candidates from market<br />
leading companies like Spotify, Google, Salesforce and Facebook<br />
get approaches from recruiters every day. Why might they want<br />
to join your company? Why would they want to take a pay-cut to<br />
do so? Sometimes it is better to hire a more realistic, less proven<br />
candidate who can grow with your business, rather than a more<br />
proven candidate who is more difficult to attract and retain.<br />
DURING THE PROCESS<br />
Maintain momentum:<br />
Make sure the candidates move through the interview steps<br />
quickly. When the interview process progresses slowly, the<br />
candidate might quickly perceive a lack of interest or an indecisive<br />
culture, and it gives other competitive processes the chance to<br />
overtake yours. Once this sentiment is established it is very hard<br />
to return a search to positive momentum and a successful close.<br />
Stay close to your candidates<br />
Ensure that there are regular touch points between your<br />
company and the candidates (coordinated by a key contact<br />
internally or your executive search partner), ensuring that the<br />
candidates understand the steps in the search process. This will<br />
help you to build a stronger relationship with candidates and<br />
understand their motivations.<br />
It is much easier for a candidate to say “no” to someone they are<br />
indifferent to. Understand that candidates buy with their heads<br />
and their heart, and that you will close many more candidates<br />
when you have gotten close to them and built a strong personal<br />
bond.<br />
Small details matter<br />
Every interaction between the client and the candidate will<br />
influence their perspective of the company, ranging from the<br />
front desk to the board room, and so it is important to ensure that<br />
these are consistently positive experiences. Going the extra mile<br />
to make the candidate feel welcome can make all the difference.<br />
Referencing<br />
You should always conduct both formal (ones the candidate<br />
provides) and informal (backdoor) references on your leading<br />
candidates. Leverage your network (investors and advisors) to<br />
get an honest perspective on candidates. This can be an excellent<br />
way of getting to the heart of a candidate’s motives and skill-set.<br />
With backdoor references ensure you are suitably discreet,<br />
and do not approach current colleagues, otherwise you risk<br />
endangering their employment.<br />
CANDIDATE MOTIVATIONS<br />
Empathise with candidates’ motivations<br />
Understand what really motivates your target candidate<br />
pool, and sculpt a pitch that will appeal to that group and to<br />
particular individuals.<br />
Candidates will:<br />
• Have different motivations based on their functional<br />
backgrounds. On the whole, CTOs want to build innovative<br />
and interesting technology, and a VP Sales wants to sell a<br />
strong and differentiated product<br />
• Consider your opportunity sometimes because it is time for<br />
a change (present yourself as dynamic and interesting)<br />
• Consider your opportunity sometimes because they have<br />
hit a glass ceiling (stress you are keen to develop people<br />
internally)<br />
• Consider your opportunity sometimes because they don’t<br />
believe in their company’s strategy or future (make sure they<br />
understand and buy into yours)<br />
• Consider your opportunity sometimes because they<br />
feel underpaid (you need to understand the cause of this,<br />
and whether you can address it or not given your financial<br />
constraints)<br />
4 5
WINNING<br />
THE RACE<br />
WINNING THE RACE<br />
BEFORE THE INTERVIEW<br />
Understand the role and company<br />
Getting a job offer usually requires fulfilling three requirements:<br />
• Having the technical skills required to do the job (as illustrated<br />
by career history and track record)<br />
• Being at an appropriate level of seniority and cost<br />
• Being a strong cultural fit within the organisation<br />
It’s overwhelmingly likely that at some point of the interview<br />
process, the above will be discussed, and it’s always worthwhile<br />
to prepare an answer to the obvious questions. More on this later<br />
in the “Pre-Interview Checklist” section.<br />
Understand the recruitment process<br />
DURING THE PROCESS<br />
Pre-Interview Checklist<br />
Here is a checklist of questions that you ideally want to know the<br />
answer to before you meet for interview:<br />
Who are the stakeholders in the process? Who are the most<br />
influential?<br />
What are the interview stages?<br />
It always pays to ask this. If the last round is a presentation stage<br />
- better to know before the first interview so you can ask the<br />
right questions throughout the process.<br />
Also bear in mind that the structure of the company’s interview<br />
process will tell you a lot about the way that the company works,<br />
which can help in your decision-making process.<br />
2<br />
Make sure you understand how many interview steps there<br />
are and who the key stakeholders are in the process. A key<br />
variable is whether there is a recruiter involved or not. It is often<br />
advantageous to have a recruiter involved in an interview process<br />
as they can qualify difficult questions on your behalf (without<br />
risking offence) and can also help you to better understand the<br />
client’s position. A recruiter will be incentivised to close the deal,<br />
and can be helpful in keeping the process moving too.<br />
What are the 4-5 key criteria?<br />
This is not the same as the job spec. What really matters? This<br />
might well involve certain technical skills. Think about your<br />
experience and where you have demonstrated the necessary<br />
experience and characteristics. You are very likely to get open<br />
questions about these topics, so having thought through possible<br />
examples in advance will help you give a more polished answer.<br />
Helping candidates get a job<br />
offer in a competitive recruitment<br />
process.<br />
If you are in direct contact with HR or the hiring manager, you will<br />
need to think about how you balance both sides of the process,<br />
namely:<br />
• Selling yourself - “getting the offer”<br />
Are there internal as well as external candidates?<br />
Are the internal candidates real contenders or in it just for show?<br />
How long will the process take?<br />
• Qualifying the opportunity<br />
Look at it from their perspective<br />
If there are a lot of stakeholders, it could be a long process. You<br />
need to mentally prepare yourself for this.<br />
Try to put yourself in the hirer’s shoes and think about how<br />
well your experience fits with their requirements. Most job<br />
specifications will give you a strong steer as to the key criteria<br />
– and think about your relative areas of strength and weakness.<br />
Think through your experience and what examples you can<br />
provide that show you meet their criteria. If you have little<br />
experience in an important area – you will almost certainly need<br />
to address this question sooner or later and now is the time to<br />
devise your approach.<br />
6 7
WINNING THE RACE<br />
All stakeholders matter<br />
- Even one veto can sink your<br />
candidature. Don’t just enrol<br />
the most senior stakeholders.<br />
PUTTING<br />
TOGETHER<br />
AN OFFER<br />
Every step is an interview and all stakeholders matter<br />
SHOULD I TELL THEM HOW MUCH I AM PAID?<br />
Lunches and group meetings are a classic banana skin. Be<br />
conscious that you are still being assessed in every interaction<br />
with employees of the company. Even one veto can sink your<br />
candidature. Never think a meeting is purely confirmatory, even<br />
if that is the way it is positioned.<br />
You can re-use your best examples with different interviewers<br />
If you have two separate interviews with two different<br />
interviewers and get a similar question, you can use your best<br />
answer each time. It’s very unlikely they will be comparing notes<br />
on you to that level of detail.<br />
Keep your energy and motivation up<br />
You wouldn’t be human if a long interview process didn’t dent<br />
your enthusiasm. The trouble is, the last interview stages are<br />
vital to get to offer, and you need to keep your energy levels up.<br />
Qualify your interest<br />
Make sure you are ready to say yes (or no) before you get to<br />
offer stage. An interview process must be a two-way street for<br />
you to be comfortable that this is the right opportunity for you.<br />
Don’t give yourself a very difficult decision by feeling obligated<br />
to respond to an offer before you know whether you like the<br />
company and role enough first.<br />
Build Rapport<br />
The heart is at least as important as the head when someone<br />
chooses their preferred candidate. You need to break the ice<br />
with your future colleagues and make them want to work with<br />
you, not just respect you.<br />
Yes!<br />
If you don’t, they will assume you aren’t paid very much<br />
anyway.<br />
It’s only ever candidates who feel underpaid who won’t say<br />
how much they are paid, and this can make you seem junior.<br />
There’s no such thing as “one market rate” for a role.<br />
Different candidates will bring different levels of experience<br />
and therefore cost. There is not an absolute figure for “what<br />
a role is worth”.<br />
To negotiate an effective deal for yourself, you need to be able<br />
to engage in a clear dialogue with the hirer, where both parties<br />
empathise with another’s position.<br />
We need to understand and empathise with one another’s<br />
position before we are willing to compromise. It’s much<br />
better to be open and use the realities of your situation as<br />
negotiating leverage. You can say that “I am paid x but feel<br />
underpaid” – this can be a very effective tool for getting a<br />
raise. More on this in the “Getting the best deal” section.<br />
It is key to build trust with an employer and sharing<br />
remuneration is a key part of this process.<br />
We have seen candidates fall out of a process due to<br />
their unwillingness to share these details with a potential<br />
employer.<br />
3<br />
How to structure and present a<br />
compelling offer to a candidate.<br />
8 9
PUTTING TOGETHER AN OFFER<br />
PUTTING TOGETHER AN OFFER<br />
Empathise with the candidate<br />
Be Creative<br />
BEFORE MAKING AN OFFER<br />
DURING NEGOTIATION<br />
Understand their recent earnings<br />
By this point in the process the candidate should have presented<br />
you with a clear breakdown of their historical earnings, across<br />
base, bonus, LTIP and benefits. If they haven’t, ask them for<br />
a complete breakdown of their compensation. Whilst these<br />
numbers do not provide a definitive guide to future financial<br />
package, it is helpful from a benchmarking perspective. Few<br />
candidates look to take a pay-cut in moving into a new role.<br />
It is also important to understand the context of these numbers:<br />
what is the cost of living differential between two locations and<br />
are there any tax implications to changing roles?<br />
Understand their expectations<br />
The candidate should be able to provide a sense of their priorities<br />
from a compensation perspective. It can be helpful to have an<br />
external perspective, probably from an executive search firm,<br />
who can explore this element with the candidate on your behalf.<br />
If you are not working with a recruiter it is important that you<br />
invest the time to understand the candidate’s expectations<br />
before you make an offer.<br />
Empathise<br />
The quantum and structure of remuneration that a candidate will<br />
seek is likely to reflect a few factors including perceived demand<br />
for their services in the market and their historical remuneration.<br />
It will also reflect their interests and financial situation. There is<br />
little point offering a low base and high equity component to a<br />
candidate with high cash-flow requirements (e.g. a mortgage and<br />
four children in private school). As far as possible recognise their<br />
personal situation and flex the financial package as far as you are<br />
able to do so.<br />
Explain your remuneration structures<br />
Most candidates who are genuinely interested in an opportunity<br />
will be willing to compromise on the financial package when they<br />
understand why an offer is being structured in a specific way. As<br />
far as possible outline the ways in which you are constrained, and<br />
why that is the case; candidates will understand that corporates<br />
and early-stage businesses face very different constraints and<br />
may structure their financial packages accordingly.<br />
Understand their market-value:<br />
The best candidates always have alternatives, and you need<br />
to construct an offer that is fit for purpose. If a candidate has<br />
another offer – then the level of that offer will likely become<br />
their perception of how much they are “worth”, not their<br />
current compensation. Never lowball candidates – it will burn<br />
the credibility of your employer brand and prove ineffective in<br />
closing good candidates.<br />
Understand their other options<br />
Is your candidate actively looking? Are they in other processes?<br />
With big or small companies? If you are a start-up and your<br />
candidate is looking at a corporate opportunity too, try to move<br />
quickly (make them seem slow moving) and offer them exciting<br />
equity and influence that will be much harder to achieve in a<br />
bigger company.<br />
Adjust your strategy if hiring directly or via a recruiter<br />
A recruiter, who has developed a good relationship with both<br />
parties, should have a clear understanding as to how far apart<br />
expectations are from early in discussions. They can prepare<br />
the ground to ensure that the parties understand where<br />
compromises are likely to be required. The recruiter as a<br />
middleman can ensure that the relationship between the hiring<br />
executives and the candidate is not negatively affected during<br />
tough negotiations.<br />
Sometimes a company chooses not to use an executive search<br />
firm and so direct negotiation is necessary. When you negotiate<br />
directly, it can be more risky as the communication is direct, but<br />
can lead to maximum empathy between the two parties and the<br />
closing of a good deal.<br />
In this scenario it is essential to avoid an emotional response to<br />
negotiations. Understand that it is right for the candidate to push<br />
for the best deal and to ask difficult questions. You must explain<br />
your constraints and empathise with their situation.<br />
Time is of the essence<br />
To get to a close both parties are likely to have to compromise<br />
to a certain extent, and during a negotiation stage both parties<br />
feel emotionally vulnerable. Whilst details are important to both<br />
parties it is important not to go through too many rounds of<br />
negotiation, as one or both parties may feel burned out by the<br />
situation and seek a simpler solution elsewhere.<br />
Explain your offer<br />
Don’t assume that candidates understand your company equity<br />
structure or valuation, it can be very difficult to positively value<br />
structures that you don’t understand.<br />
Don’t be afraid to break structures to get the best<br />
Whilst you will have outline structures in place that apply across<br />
your executive team, sometimes it is necessary to break these<br />
structures to attract the right candidate.<br />
Be creative<br />
Sometimes company constraints will make it feel like you<br />
cannot reach a suitable agreement with the candidate, in this<br />
instance think creatively. For example, where you cannot match<br />
a candidate’s cash expectation in an earlier stage business, you<br />
could agree an increase in the cash component as the business<br />
hits certain milestones (revenue or EBITDA).<br />
Check if they have any unanswered questions<br />
Now is the time to make sure they have all the information they<br />
need to say yes.<br />
Finalise the process quickly<br />
Once the numbers have been agreed with a candidate it is<br />
important to pull together documentation in the form of an offer<br />
letter quickly, followed by a contract. Whilst it is not uncommon<br />
for candidates to reject an offer after agreeing it verbally it is very<br />
rare for a candidate to pull out of an offer once they have signed<br />
a contract. Remember that a deal isn’t closed until a candidate<br />
signs and starts, so don’t let your process down by making this<br />
step take too long.<br />
10<br />
11
PUTTING TOGETHER AN OFFER<br />
Until a candidate has started work in the<br />
business, there is always a risk that they<br />
will pull out of the offer and so once you<br />
have closed the deal with the candidate,<br />
an effective onboarding process is<br />
essential.<br />
BEFORE THE CANDIDATE STARTS<br />
Set your candidate up for success before they walk through the<br />
door<br />
Maintain the relationship<br />
The start date for candidates can vary widely, often three or even<br />
six months due to notice periods; during this period a candidate<br />
could suffer a change of heart. As a result, it is important to<br />
maintain an ongoing relationship with the candidate, if this is<br />
managed in the right way it will also bring additional advantages.<br />
It can enable the candidate to develop a deeper relationship with<br />
peers and gain additional insights into the business and to hit the<br />
ground running from day one.<br />
Keep your promises<br />
During the hiring process various promises will be made to the<br />
candidate regarding their financial package, budget to invest in<br />
building their team or opportunities for career advancement;<br />
as far as possible you should keep these promises. Whilst it<br />
may be tempting to offer the earth to close a candidate during<br />
a search process, miss-setting expectations is likely to result in<br />
candidates losing trust and ultimately looking outside the hiring<br />
organisation. Executives understand that business situations<br />
change and where you can’t keep your promises this should be<br />
addressed with them frankly and directly.<br />
Onboarding<br />
The onboarding process should be slick and well thought out,<br />
so that all candidates joining the business enjoy a consistent<br />
introduction to the organisation. The process should commence<br />
before the candidate joins the business; providing them with<br />
information about how they will spend their early days in the<br />
organisation and background information that will enable them<br />
to be more effective from their first day in the business. This<br />
process is likely to include a training programme, induction<br />
with key members of the team and an outline of key processes<br />
and structures in the organisation. There should also be a clear<br />
welcome from senior members of the team in both a formal and<br />
informal manner. Make sure your HR organisation has all their<br />
relevant details from a payroll perspective.<br />
12 13
GETTING THE BEST DEAL<br />
GETTING THE<br />
Understand your priorities<br />
BEST DEAL<br />
BEFORE RECEIVING AN OFFER<br />
Understand your priorities<br />
Have a sense of the market and process dynamics<br />
4<br />
How to negotiate a good<br />
financial package with an<br />
employer.<br />
Understand your preferences regarding financial incentives,<br />
specifically the weighting of base, bonus, benefits and equity in<br />
the broader package, as this will impact the negotiation of your<br />
package.<br />
Clarify your financial position<br />
This will ensure they have all the relevant information and can<br />
make their best offer to try to close you. Often details of existing<br />
benefits aren’t communicated properly and candidates don’t<br />
receive as large an offer as they might. Also consider the impact<br />
of taxation on your income.<br />
If you feel underpaid relative to market rates, this is an<br />
opportunity to use that as leverage to secure a better package.<br />
Try to explain why you feel underpaid and stress that whilst you<br />
are very attracted to the role and company you don’t want this to<br />
be a possible cause of future tension.<br />
You also need to bear in mind that it is rare to get a raise of more<br />
than 20% (in terms of base + bonus) when you move jobs. If you<br />
have been severely underpaid, you can’t expect a new employer<br />
to necessarily correct that in one go.<br />
Ensure that all parties know of any extra costs entailed by the<br />
move<br />
A new job might mean moving house, or more travel costs. These<br />
are all strong, solid reasons to ask for more money.<br />
If you are the only candidate who is a realistic contender for the<br />
role, then chances are you can negotiate a raise on your current<br />
package. Many hirers prefer to spend a bit more now to close<br />
a strong candidate than wait for weeks or possibly months to<br />
identify and hire a cheaper option.<br />
Similarly, certain functions and industries experience shortages<br />
of relevant talent and this will drive incentives up. In contract, in<br />
a recession there is a greater supply of candidates and therefore<br />
likely to be less wage inflation.<br />
Understand the employer’s constraints<br />
This is extremely important. Effective negotiation can only occur<br />
if:<br />
a) You ask for things that are possible<br />
b) Both parties empathise with one another’s position<br />
By understanding their financial constraints, this enables you to<br />
direct your negotiation much more effectively. An earlier stage<br />
company might be cash constrained and be more willing to offer<br />
equity – and the reverse might be true of a bigger business. Could<br />
you use some of your bigger company benefits (that you will lose)<br />
as leverage to get more equity? Probably, and you’d likely have a<br />
better chance of getting that than asking a start-up to replicate<br />
that benefit. Demonstrating a lack of empathy in this regard,<br />
particularly with earlier stage businesses, could act as a red flag<br />
from a cultural perspective.<br />
14 15
GETTING THE BEST DEAL<br />
GETTING THE BEST DEAL<br />
DURING NEGOTIATION<br />
Is it best to negotiate directly?<br />
If you are working with a recruiter through the process, this can<br />
be a good time to extract value. Be very open with your recruiter,<br />
and ask them to negotiate on your behalf, once you have a sense<br />
of what sort of offer you wish to obtain. The recruiter should<br />
be able to have a pretty direct conversation with the hirer and<br />
ensure there is no risk of falling out with the hiring manager.<br />
Some hirers will want to negotiate with you directly, and it is up<br />
to you whether you prefer to take this approach or go through<br />
the recruiter. When you negotiate directly, it can be riskier, but<br />
in some instances it can lead to maximum empathy between the<br />
two parties and can facilitate the successful closure of a good<br />
deal.<br />
If you are negotiating directly with the hirer it’s important to:<br />
• Reiterate your interest in the role<br />
The hirer will emotionally feel like they want to close you, but you<br />
must also rationally agree a good financial deal. It’s important<br />
to ensure the emotional goodwill persists through the rational<br />
negotiation.<br />
• Package up your requests<br />
Always package up your requests into one communication<br />
if you wish to negotiate an initial offer. If you are continually<br />
asking for more things it will rapidly burn the goodwill of the<br />
hirer. Remember that making an offer is when the hirer feels the<br />
most emotionally vulnerable, and if the process feels “too hard”<br />
(after rounds of to-ing and fro-ing) they may lose patience and<br />
terminate the offer discussions.<br />
DIFFERENT NEGOTIATION TACTICS<br />
If you are in multiple recruitment processes, early suitors<br />
might try to pressure you with “exploding offers” – where<br />
there is a strict time limit. Whilst we wouldn’t recommend<br />
hirers follow this strategy (it is too aggressive and can put<br />
candidates off), some hirers will use it. It’s never a good<br />
idea to accept an offer because of time pressure unless<br />
you are sure enough that it is suitably strong. If you are in<br />
other, less developed but more attractive processes, it is<br />
reasonable to politely decline the time limit and say that<br />
it is an important move for you and you need to assess<br />
your options fully. A confident hirer should give you some<br />
space and encourage you more positively to choose them.<br />
You can also use other search processes as leverage to<br />
accelerate other processes.<br />
It is also reasonable for a hirer to ask you if they are your<br />
preferred opportunity, particularly if you are at offer<br />
stage. You need to think about how you might answer<br />
this question before you get it. Whilst no hirer wants to<br />
feel that they are in second place, it is through misleading<br />
people that relationships are broken. By all means keep<br />
your options open but don’t massively oversell your<br />
interest in roles.<br />
BEFORE STARTING<br />
Here are a few things to think about after you have agreed a<br />
package:<br />
Agree a start-date<br />
If this is for an external role, you need to bear in mind how long<br />
your notice period (both on paper and negotiated) might be. It<br />
might be impossible to tell before you resign – in which case<br />
agree a provisional start date with your new employer but make<br />
sure they understand it is subject to change.<br />
Finalise paperwork<br />
Start building relationships with<br />
your future colleagues.<br />
Often companies will send you an offer letter (although this is<br />
not necessary), followed by a full contract. Make sure you read<br />
the contract carefully, particularly any non-compete clauses.<br />
Now is the time to try and amend them should you wish to.<br />
If you have an equity component to your offer, ask for a copy of<br />
the shareholder agreement and any other relevant paperwork<br />
pertaining to equity holdings.<br />
Start building relationships<br />
Meet up with your new boss and / or colleagues for an informal<br />
session to discuss plans for when you start.<br />
Ensure that the HR organisation has your relevant details for<br />
payroll purposes and to ensure a smooth on-boarding process.<br />
16 17
COMPANY COMPENSATION STRUCTURES<br />
COMPANY<br />
COMPENSATION<br />
STRUCTURES<br />
5<br />
New compensation structures,<br />
and in particular equity schemes,<br />
can be confusing.<br />
PRIVATE COMPANIES AND EQUITY<br />
STRUCTURES<br />
Most private companies seek to reward their employees<br />
(especially the most senior ones) with some form of equity<br />
incentive; these can be quite different to the types of equity<br />
structure found in public companies.<br />
Private companies usually have a pool of stock, typically between<br />
10-15% of the company, available to incentivise key employees.<br />
Whilst the founders tend to hold equity, options are used as a key<br />
tool to attract and retain other senior executives. As you become<br />
more senior, your equity incentives tend to grow exponentially.<br />
Mid, or even relatively junior staff within a VC backed company<br />
hierarchy might all have stock options – but these will likely be of<br />
much less potential value than those which senior members of<br />
the executive management team might possess. Candidates who<br />
join companies at earlier stages can typically expect a greater<br />
proportion of the option pool compared to those who join later,<br />
as the business is likely to be less valuable when they join.<br />
STOCK OPTIONS AND VESTING<br />
Private companies typically offer equity incentives in the form of<br />
stock options. A stock option is simply the right to buy a share at<br />
a particular strike price (more on this later) once it has vested.<br />
Vesting is a key concept associated with stock options - it is a<br />
period of time that you must wait before you can use the stock<br />
option. If stock options instantly vested when a new employee<br />
joined a business, the risk would be that the employee could<br />
leave and retain the options without having spent enough time in<br />
the business to contribute to the value created.<br />
Most private companies will offer a “four year vesting period<br />
with a one (or two) year cliff.” A four year vesting period simply<br />
means that it will take four years before you can exercise all your<br />
stock options. The one year cliff means that you get the first<br />
quarter of your options, all at once, on your first anniversary of<br />
employment. Typically, your remaining unvested options would<br />
then vest at a constant rate every quarter for the remaining<br />
three years.<br />
The reason why private companies like to have a “one year cliff”<br />
is because most unsuccessful new hires will leave in the first 12<br />
months – and this mechanism means that they don’t leave with<br />
equity.<br />
18 19
COMPANY COMPENSATION STRUCTURES<br />
A strike price is simply a fixed<br />
price at which you have a right<br />
to buy a share once the option<br />
has vested.<br />
STRIKE PRICES<br />
USING STOCK OPTIONS<br />
ACCELERATED VESTING<br />
A strike price is simply a fixed price at which you have a right to<br />
buy a share once the option has vested. For example - if the share<br />
price of a company is £1, and the strike price is 10p – then there<br />
will be 90p worth of profit for every stock option that person<br />
possesses. A strike price is therefore a price at which you can buy<br />
a share – and if that price is below the true value of a share, then<br />
it is definitely worth using.<br />
How do I know whether I have an attractive strike price or<br />
not when the company is private?<br />
Try and find out whether there was a recent funding<br />
round and what the price per share was at that time -<br />
this is a great indication if you can get it. Failing that - are<br />
there some public businesses that give some sensible<br />
comparisons?<br />
Often VC backed companies will give quite low strike<br />
prices, in order to incentivise their staff - certainly at<br />
below “true share price value” - but make sure you<br />
have done your homework to understand the realistic<br />
potential value of your options.<br />
If you have employee stock options in an investor-backed<br />
company, you will need them to realise through:<br />
• Vesting over time; or<br />
• A “change of control” in the company<br />
A “change of control” typically occurs in one of two scenarios:<br />
The company floats on the stock market<br />
In this instance, your vested stock options (after a lock-up period<br />
post IPO that prevents employees cashing out too early and<br />
sending a bad signal to the market) can now be used. A vested<br />
stock option gives you the right to buy a share at a particular<br />
strike price. If that strike price is lower than the price of a share<br />
in your company on the stock-market, you will make a profit on<br />
each stock option of the share price minus the strike price. If the<br />
IPO happens before all your options have vested, your unvested<br />
options will keep on vesting over time, and you can use them<br />
once they have vested. Once public, a company may also seek to<br />
create new equity incentive structures to motivate key staff –<br />
but these will likely be very different in nature.<br />
Trade sale or merger with another company<br />
In this instance any vested stock options will have to be bought<br />
by the acquirer on acquisition. Just as when a company goes<br />
public, when a company is sold to another business, there will be<br />
a price per share that the acquirer is paying. If the strike price of<br />
your stock options is below that share price – then the difference<br />
between the two is your profit per option. The permutations are<br />
much more complex in this scenario when it comes to unvested<br />
options compared to when a company goes public.<br />
It could be negotiated as a condition of sale by the management<br />
team of the selling company that all unvested options be paid out<br />
by the acquirer. This would probably increase the cost of buying<br />
the company to the acquirer – but would obviously be attractive<br />
to the management of the acquired company. The acquiring<br />
company might want to create a new equity incentive scheme<br />
within the new business to keep key staff – or of course it may<br />
also have its own staff that it intends to use for key roles going<br />
forward.<br />
Accelerated vesting is sometimes offered to the most senior<br />
executives and is only common for CEO roles. Accelerated<br />
vesting means that a proportion of your unvested options (e.g.<br />
25%, 50%, 100% accelerated vesting) instantly vest when certain<br />
“triggers” are fulfilled.<br />
A “single trigger” is an accelerated vesting clause where the<br />
“trigger” is usually a change in control of the company. This is<br />
often unpopular with the acquirer – as they will have to pay you<br />
out on acquisition, and may also have to re-incentivise you with a<br />
new equity scheme if they wish to try to keep you.<br />
Companies may therefore offer accelerated vesting clauses<br />
to the most senior employees with a “double trigger” – where<br />
both triggers must be fulfilled for the clause to apply. The first<br />
clause would be a change of control, and the second that the<br />
employee is no longer wanted in the new business. This can be a<br />
nice compromise as it protects the employee in the event of them<br />
being acquired and not needed anymore, without being too much<br />
of a disincentive to the acquirer.<br />
20 21
COMPANY COMPENSATION STRUCTURES<br />
Make sure you understand the<br />
company valuation today and<br />
what it could be worth in the<br />
future.<br />
DILUTION AND PREFERENCE SHARES<br />
VC backed companies often take multiple rounds of funding, and<br />
will often issue new shares once new investors put money into<br />
the business. This means that the percentage of the total shares<br />
that an existing shareholder possesses will decrease – and this<br />
is known as dilution. If you join a VC backed company and are<br />
offered stock options – it is always worth asking whether there<br />
will be any further funding rounds and therefore dilution of your<br />
stock. However, it is of course also true that further funding will<br />
enable the business to scale and therefore you may well have a<br />
smaller slice of a much bigger business.<br />
You should also find out whether there are different classes of<br />
shares. Investors will often get preference shares in a business<br />
– meaning that if there is an exit, the preference shares get paid<br />
out first. This protects the investors in the case of a low exit, but<br />
can be disastrous for employees as they are left with little of the<br />
pot once the investors have cashed out first.<br />
Some companies operate a “Good Leaver / Bad Leaver” clause<br />
where a bad leaver might be defined as someone who resigns<br />
after a short period of time or moves to a competitor. In that<br />
instance, they might have to sell back equity they hold at cost<br />
price, whereas a “Good Leaver” will be able to keep their equity<br />
on leaving or sell it at a much higher price.<br />
RESTRICTED STOCK UNITS<br />
Restricted Stock Units, also known as RSUs are often used by<br />
large public companies to incentivise their staff, particularly<br />
at a senior level. Because large public companies often have a<br />
relatively stable share price, stock options are a less effective<br />
form of incentivisation as it becomes difficult to realise<br />
substantial increases in market capitalization, and offering stock<br />
options priced at below the current share price would incur taxes<br />
at the point of receiving the option.<br />
A Restricted Stock Unit is simply a unit of stock that is granted<br />
to an employee when certain conditions – which usually involve<br />
either vesting over time, or certain performance milestones<br />
being achieved. When you are granted RSUs, you will have to<br />
pay income tax once the conditions for giving them have been<br />
fulfilled, but this will often be taken at source (you will receive<br />
your net amount of RSUs).<br />
A key difference between an RSU and a stock option is that an<br />
RSU has worth regardless of company performance – as the<br />
“strike price” is essentially zero – you are gaining a share. The<br />
strike price of a stock option may be not much lower or sometimes<br />
higher than the value of a share, and therefore of little or no<br />
value depending on the circumstance. Smaller companies may<br />
use RSUs too as a mechanism to incentivise employees where<br />
company growth is unlikely to provide sufficient upside.<br />
22 23
APPENDIX -<br />
RELOCATING<br />
A CANDIDATE<br />
APPENDIX - RELOCATING A CANDIDATE<br />
The lack of local supply for certain<br />
functions or experience, means that<br />
looking internationally for talent can<br />
be a great way to identify a broader<br />
pool of candidates.<br />
In a global economy, high growth tech-firms look outside their<br />
domestic market to access larger talent pools to find more<br />
experienced executives or individuals with very specific skill sets<br />
- this means relocating executives.<br />
Whilst this can be a great option or even a necessity for many<br />
firms, relocation brings its own challenges – quite simply:<br />
candidate directly why they are looking to relocate, whether<br />
they have seriously discussed the move with their family and<br />
where there are potential blockers.<br />
Key areas to probe include:<br />
• The age and situation of children?<br />
• c. 80%+ of candidates are likely to rule themselves out of a<br />
relocation for personal reasons and this means you need to talk<br />
to many more candidates to reach a shortlist; and<br />
• Educational and health requirements?<br />
• Their partner’s situation and whether they work?<br />
• There is an increased chance of the move not working out in the<br />
medium-term, due to family or cultural issues<br />
• Are there other personal factors that will tie them to a specific<br />
location?<br />
6<br />
Be realistic<br />
Candidates from abroad (e.g. US) often seem attractive, but<br />
ask yourself whether you can realistically attract and afford<br />
the candidate with high associated costs. If there is sufficient<br />
local supply of talent, then there is probably no need to look<br />
internationally.<br />
Understand their situation<br />
It is important to recognise that the decision will be made by<br />
the candidate and their family – invest time understanding<br />
their personal situation, stress-testing how realistic a move is<br />
at an early stage and then if appropriate bring the family to the<br />
new location to consider the practicalities of the move. Ask the<br />
• What are their personal and professional concerns about<br />
relocation?<br />
Simply by asking these questions you will start to form a picture<br />
as to how seriously the candidate has thought about the<br />
ramifications of a potential move.<br />
In our experience introducing executives into the interviewing<br />
process, who have previously successfully relocated with the<br />
company, can prove to be an invaluable educational and selling<br />
tool for the candidate. Time spent exploring the practicalities of<br />
the move with someone who has made that transition can make<br />
the difference for both an executive and their family who are<br />
sitting on the fence.<br />
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APPENDIX - RELOCATING A CANDIDATE<br />
Financial considerations<br />
It is important to consider the financial impact of relocation on<br />
the candidate’s family.<br />
Candidates will naturally look to maintain or improve their<br />
standard of living and as such there are a number of considerations<br />
that should be discussed with candidates:<br />
• The relative costs of living. Whilst some locations may be much<br />
cheaper on the face of it, you should also consider ancillary costs<br />
– property prices, private healthcare and international schools.<br />
Equally where the hiring company is based in a cheaper location,<br />
leverage this as a key sales point.<br />
• Consider tax differentials.<br />
• Will the candidate’s partner be able to get a job? Will the job<br />
pay competitively to their current package?<br />
• The cost of relocation is substantial and it is reasonable for the<br />
hiring company to pick this up where possible.<br />
• Even where the cost of living is markedly lower between two<br />
locations, you may still find it difficult to persuade a candidate to<br />
take a cut on the headline terms of their financial package.<br />
Reducing the risks<br />
demonstrated track record of successful international relocation<br />
and a global mind-set are more likely to successfully complete a<br />
relocation.<br />
Seriously probe the candidate’s view on relocation. Candidates<br />
are much more likely to talk openly about their concerns to a<br />
3rd party than a hiring company, particularly where they have an<br />
existing relationship. Understand where the candidate perceives<br />
there to be pressure points.<br />
Support the family<br />
It is equally important to persuade a relocating candidate’s family<br />
that the location is a great place to live, as much as selling the<br />
company to the candidate directly. If you can help the candidate’s<br />
family to find a suitable home, great schools for their kids and<br />
provide broader support, then you’ll massively enhance your<br />
chance of successfully closing a candidate.<br />
Be flexible<br />
Relocation always brings complexities, are there alternative<br />
ways to attract the right candidate without a full relocation? For<br />
example, could you consider weekly commutes or time spent<br />
between two locations to attract the right appointment? Could<br />
you allow a candidate to work a day/week from home? Whilst<br />
these solutions may not be ideal, if it enables you to make the<br />
right appointment then potentially it is worth considering.<br />
Bear in mind whether a candidate has relocated before? How did<br />
this process go for them? Naturally those candidates who have a<br />
26 27
About Neon River<br />
Neon River is a next-generation<br />
executive search firm.<br />
We partner with internet and technology<br />
companies to build world-class management<br />
teams.<br />
www.neonriver.com<br />
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