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Context: North-America work culture. I make up the numbers because there are not important here.

I am negotiating my salary with Bob. The company offers a vesting schedule of 3 years, 1 year cliff. I am interested in this, because the company's shares are not yet on the market, and I get the shares at the investors price.

Here is how he wants to negotiate the salary:

  • We agree on a salary of $240k.
  • I want roughly half the salary in equity (yes, that's risky, I know).
  • Bob then says that half of 240 is 120, so that makes:
    • $120k per year as a salary,
    • $120k as a vesting, spread on 3 years.

However, it does not strike me as right. The salary is yearly, and the vesting is spread on 3 years, 4 if the cliff is included. When I asked for half the salary in equity, I thought that it meant something like:

  • year 1: 120k salary, 0 equity
  • year 2 to 4: 120k salary, 120k equity

or, if the cliff is included:

  • year 1: 120k salary, 0 equity
  • year 2 to 4: 120k salary, 160k equity

While Bob means:

  • year 1: 120k salary, 0 equity
  • year 2 to 4: 120k salary, 40k equity

What is the “right” (common) way to compute this? Is it likely that Bob is negotiating in bad faith?

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  • Vesting is an example of "deferred compensation". I.e. you work now but get paid later. This ONLY makes sense for you, if there is a significant upside potential and this example clearly doesn't unless you are confident that you can sell the 120k in equity for at least 200 k in cash.
    – Hilmar
    Commented Mar 18, 2022 at 12:07

2 Answers 2

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Nobody is right or wrong. There are no rules regarding what needs to happen. It just comes down to what is written in the contract. If Bob is being clear exactly how the maths is going to be worked out, you can hardly say he is working in bad faith.

If equity is part of your salary (e.g. ongoing) you'd get it every year. But each equity "package" would be spread out the next 3 years.

Year 1: $120 Salary,  $40 Equity. ($40 Year 1)
Year 2: $120 Salary,  $80 Equity. ($40 Year 1, $40 Year 2)
Year 3: $120 Salary, $120 Equity. ($40 Year 1, $40 Year 2, $40 Year 3)
Year 4: $120 Salary, $120 Equity. ($40 Year 2, $40 Year 3, $40 Year 4)
Year 5: $120 Salary, $120 Equity. ($40 Year 3, $40 Year 4, $40 Year 5)
...

If the equity is a signing bonus, or one-off payment:

Year 1: $120 Salary, $40 Equity. ($40 Signing Bonus)
Year 2: $120 Salary, $40 Equity. ($40 Signing Bonus)
Year 3: $120 Salary, $40 Equity. ($40 Signing Bonus)
Year 4: $120 Salary,  $0 Equity.
Year 5: $120 Salary,  $0 Equity.
...

Whatever you figure out, you need to probably spend the couple of hundred dollars and speak with your accountant, or some expert in this area and get their opinion.

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His proposal is wrong, but that's quite obvious.

The even weirder part is the vesting. Vesting makes sense if you get the shares on top of your normal salary and lose that Bonus if you leave early. You'd however pay the normal market price for the shares so why should you even lose this money when you leave? (or worse, when they decide to fire you?)

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  • That looks like a bad thing, but it's really a good plan financially. The question is simplified compared to my situation: I in fact accepted their offer almost a year ago, and now I'm renegotiating my salary because I got promoted. The vesting is now worth $1M on the market, so I don't regret trading a part of my salary for it. I just want to have some concrete elements for this negotiation, because they will bring that $1M up, eventually, in order to give me a low raise.
    – Boiethios
    Commented Mar 18, 2022 at 8:45
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    @Boiethios If they bring up the $1M, kindly point out to them that it wasn't $1M when the compensation was agreed upon, and should therefore be excluded from the negotiation process. After all, if that equity had become $35 instead, they wouldn't give you a larger raise as a result.
    – GOATNine
    Commented Mar 18, 2022 at 9:12

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