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Equity Compensation Consideration for Top Executives

A key executive compensation question is often asked of me, 'how much equity should I receive for my given position in the company?' The answer depends on how important the executive is to the enterprise, the size of the organization when the executive joined the enterprise, whether the company is in growth mode, and the rank order of the executive in the enterprise. Just as their are annual salary comparability studies that should be conducted to keep current with the market trends, there is also value in conducting periodic equity compensation considerations top executives.


Research conducted in 2013 by PriceWaterhouseCopers (PWC) showed that the top five executives received 63% of the entirety of the distributable equity pool, while 25% percent was reserved for future grants. More interesting, as a relative share of the grant given the top most executive (typically the CEO), the next 2, 3, 4, and 5 players received proportionately smaller grants, as shown in the chart below.

Another chart in the PWC study focused on annual stock grants as part of the basket of terms of the executive compensation package. What is interesting for me to observe is the relative weights of salary to compensation package, keeping the executive focused on the health of the firm by accepting sizable proportions of compensation as equity, keeping shareholder alignment in full focus of the executive.

I responded to a similar question online at Quora.com and here was a snapshot of my comments in that shared forum. In my response, I was considering a company wherein there is a significant equity holding founder who is Chairman/CEO, that brings on an executive team to support the organization with a stock option pool of 15-20%, where the issued equity consideration to the top five executives might look something like this...

Non-Founding Additions to the the Executive Team: President 4-6% CTO 3-4% COO 2-3% CFO 1-2% VP Sales/Marketing 0-1%; typically not equity holders, but rather paid commission on team sales Other Significant Players (variable)

In the current market, the strong prevail, and if you have got 'game' and are a market leader or 'rockstar', you can easily improve on these numbers. If you are offered significantly less than the percentages above, you have either arrived at the party too late, you are less important to the enterprise, or they don't value your contribution to the team.

An executive's importance to the overall organization is frequently aligned with their proportional equity percentage; though not always. I am aware of many mature companies, no longer in growth mode, that pay no equity consideration for their top executives, and rather compensate them through net income. So the answer, it depends, holds for this question. If you are a hunter executive, wanting to grow your company, surely you will want to seek for equity consideration, if a capitial event is in the future. Otherwise, you might seek for a profits interest and therein give yourself some way to repatriate out your contribution to the firm without a capital event.

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