A. The paragraph reads as follows: 'At the Firm's discretion, a portion of your total 2004 and future years' total compensation (combined based salary, bonus, and other compensation), will be payable in conditional equity awards (restricted stock units, and/or other equity awards) pursuant to the Firm's employee stock award program as then in effect.
What you have here is a very common provision for any publicly held financial services firm. Your employer's motivations include:
- Reduced outlay of cash for compensation
- Tax advantages
- Flexibility in determining how much comp will be paid in non-cash alternatives including company stock or other equity-related devices
- Encouraging you to act in best interest of the firm and its shareholders
- Slipping on a pair of golden handcuffs to ensure you stay put, as the stock usually vests over a three-to-five-year period
Unfortunately, this particular clause goes a bit too far. Ken Taber, an employment lawyer at Pillsbury Winthrop, says 'It gives your employer far too much leeway and could even result in a real cash crunch for you if too much of your compensation is allocated to illiquid items.'
Ideally, you would negotiate a cap on the non-cash percentage of your total comp-something other firms routinely state. Even better, you would limit the non-cash component to some portion of your bonus, as opposed to your base compensation. You would also specify what kind of non-cash alternatives will be acceptable to you, and what the restrictions would be on converting them to cash in the future.
Judging by the fact that you're holding an at-will offer rather than a contract, you haven't yet ascended to the ranks of senior management. For you, the percentage of non-cash compensation will be on the lower side of the zero-to-50%-of-bonus range common on Wall Street.
Bear in mind that the percentage awarded each year is typically decided by the executive committee and applied consistently across the firm. Your boss (or future boss) most likely has no discretion. Concentrate your efforts on negotiating a cap, as described above, to hedge your exposure.
To protect yourself-and evaluate this offer against any others you may be holding-do your homework. Find out what the norm was for the last few years for someone at your level. Also make certain you understand what happens when you leave the company.You'll certainly want to avoid severe financial penalties if you change jobs in the future.
A reader advises...
You should definitely try to find out percent of non-cash comp paid out for your level AND levels above you. It may accelerate faster than you think.
Next week's question: When changing jobs, how do you negotiate pay up when you think you're under-compensated at your present firm?
What would you advise? Send your answer to email@example.com.
Look for the Experts' answer to this dilemma and readers' comments on Ask the Expert next week.
If you want to submit a question to our panel
ASK THE EXPERT