You’re changing jobs and have been offered equity compensation as part of your new salary package, which means it’s time to negotiate the best deal for yourself.
If the mere thought of this sends a little shiver down your spine, please know that you are not alone. Even the most high-flying career women I work with can still struggle with this at times. We tend to be far better at advocating or negotiating for other women than we are for ourselves.
The unavoidable truth is that women typically negotiate for less equity than men, perhaps explaining in part why women in the United States still currently earn about 18% less than their male counterparts, and why the gender gap is still so prevalent.
This is not only due to any lack in negotiation prowess, but also a propensity for women to want higher salaries over more equity, since that is the safer route to take. But long term, this can have damaging implications for wealth accumulation.
By not negotiating for themselves powerfully enough, women routinely leave money on the table – as much as $1 million on average.
But it doesn’t have to be this way. I am passionate about helping successful women like you feel powerful in your professional and financial lives. And a major factor that can guide the trajectory of both, is the power of negotiation and how it impacts remuneration.
Understanding Equity Compensation
Equity compensation (also known as equity grants) refers to non-cash payments offered to employees, which could include stock options, stock appreciation rights, performance shares and restricted stock. Effectively it’s a stock reward given to employees in addition to their usual salary.
Broadly speaking there are three main categories we deal with at WealthChoice:
- Employee Stock Option Plan (ESOP): This provides the option, within a specific period of time, to buy a set quantity of shares in the company if you choose to exercise this right. In my view, the best approach is to exercise your options and sell at the same time, in order to realize the money value and avoid being out of pocket.
- Restricted Stock Units (RSUs): These are based on a vesting schedule, which determines when stock ownership rights are activated (for instance based on the number of service years or performance milestones), a company can grant employees a specific number of shares. The big difference between RSUs and ESOP is that RSUs are usually worth something and you know the value of the position, whereas – with ESOPs – a share price drop before you vest could mean your investment is worthless.
- Employee Share Purchase Plans (ESPP): The company gives employees the chance to buy stock at a discount to fair market value at specific times of the year, often with a cap on the quantity.
Each option gives you the potential to enjoy a slice of ownership of the firm in which you work. But each comes with specific requirements, which may include vesting schedules or meeting performance metrics. Inevitably there are tax considerations too, which should be carefully discussed with your tax professional and your financial advisor.
Why Equity Compensation Is Important for Women Executives
I regard equity compensation as a potential ticket to financial freedom, one which does not distinguish between color and gender, and helps women increase their net worth by participating in the success of the company they have helped to build.
By harvesting the value of equity compensation, women executives are free to invest in other ways, which builds more wealth, more peace of mind, and creates more options for the future.
Figures from 2018 tell us that American women receive about 25% of the equity compensation of men. So when it comes to generating wealth and building professional equality, negotiating equity is critical to closing the gender pay gap and evening out the business playing field.
For women, taking up these grants is also a prized opportunity to claw back some of the financial disadvantage resulting from time away from careers due to family commitments, as well as the need to plan financially for longer lifespans than men and the resultantly higher cost of retirement and health care.
You Are More Valuable than You Know
Offering equity compensation is a proven strategy used to motivate staff, incentivize employees, help to retain and recruit talent, and also as a means of conserving cash (particularly in the start-up phase). So you have a bargaining chip.
A 2022 report from Morgan Stanley noted that, “Nearly one in three decision-makers (32%) said the top goal for offering equity compensation is to attract and retain talent. Nearly half (47%) reported their workforce attrition in 2021 was higher than in 2020.” As a result, “Nearly one in three US decision-makers are looking to expand their equity compensation programs”.
Clearly employees are on board with this approach, with the same report noting that “84% of employees agree that equity compensation is the most effective way to motivate employees and keep them engaged”.
In short, equity compensation has unlimited upside potential. That is, if you approach it with a strategic mindset and a willingness to negotiate.
Negotiation Tactics and Guidance
The full benefit of equity compensation can only be truly achieved if women executives and their advisors consider all the implications upfront. For instance, negotiating the length of your vesting schedule is as important as knowing the market value of the stock and the type of equity grant being offered.
As an example, a long vesting schedule could leave a female executive feeling ‘locked in’ to her current company and limited in her career goals; so a shorter period might offer more flexibility. There are also issues of timing to consider, which will have tax implications and impact cash-flow requirements.
As with all things in life, trade-offs are inevitable, but by planning carefully and preparing a negotiation strategy up front, it is possible to extract maximum value out of this opportunity in order to create value across your financial portfolio.
When I’m presenting to female executives I always encourage them to carefully lay the groundwork upfront when it comes to equity compensation. As a guide, I routinely suggest following these 11 points:
- Research the role you are negotiating. What is the pay scale for the role? How much equity is typically granted for this role?
- Companies typically put their best offer up front. Remember that you have the highest amount of leverage to negotiate on the initial offer.
- Try to negotiate equity with your future boss, rather than a recruiter. The boss is more invested in the position and in you.
- Lead with love. Start the conversation about how excited you are about the role and your future growth, but make it clear that you want a part of the upside.
- Take your time to negotiate. Communicate by email to slow the pace.
- Practice your pitch. Come prepared. Have notes. Practice your pitch in the mirror if it helps.
- Introduce your competition. Let them know you are speaking with other employers.
- Know your worth. Have a full and complete picture of what you are leaving behind at your current employer. You want a match, or an improvement.
- Find easy wins. Take less in salary, but more in equity. Give and take where it matters most to you.
- Craft a third offer. If the employer gives you two options, create a third yourself.
- Follow through. Keep the momentum going. Confirm your equity compensation is on the docket for board approval.
Get Yourself a Negotiating Cheerleader
At WealthChoice we want women to be confident enough to advocate for more. So much so that I wrote a book on it! If you would like to discuss the WealthChoice approach to negotiating equity compensation, then I invite you to get in touch.
Whether you are considering the tax and financial planning implications of your equity compensation, or negotiating a new role with new financial opportunities, we’d love to help you take all the money you can off the table!
