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5 ways to negotiate a solid executive compensation package in a recession

It’s important to guarantee short and long-term security, says this CEO of a private membership for high-growth leaders.

5 ways to negotiate a solid executive compensation package in a recession
[Photo: Ketut Subiyanto/Pexels]

In 2021, venture capital funding flowed freely into the tech world, bolstering big funding rounds and even bigger salaries at SaaS companies. 

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But now it’s 2022, and that cash flow has slowed dramatically. Major layoffs have replaced funding announcements, and we’re staring down a possible recession. With outright cash and sky high salaries off the board, negotiating a strong compensation package can seem daunting. 

However, cash is only one piece of the compensation puzzle, especially at the executive level. Whether we are on the brink of a downturn or riding high on the waves of capital, I offer the same advice for compensation, focus marginally less on cash and more on structured payments that will set you up for the long term. 

In today’s market, you can flex these non-cash options to secure your financial future and protect you in the wake of layoffs. Here are five things to ask for.  

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Due diligence

This means you are provided with adequate due diligence around company performance and expectations before you join and are given enough time to review your offer–and I strongly believe that the review process should be with a good lawyer. 

In your due diligence, you’ll be able to ascertain if this company is likely to make it through this market relatively unscathed or if there is cause for concern. At the very least, you should be able to get solid answers on the product-market fit, the size of the total available market (TAM) and serviceable available market (SAM), the company’s ideal customer profile, and the culture of the company. 

If you can’t get this information or if the answers are unsatisfactory, don’t sign on. 

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Aligned compensation

In my opinion, the compensation of the executive team should be aligned with each other and tied to company goals. This helps foster a sense of collaboration, rather than competitiveness, among the executive team. 

I’ve seen firsthand how compensation structures that focus on monthly or quarterly cash can lead to resentment and shortcuts in order to max out bonuses. Aligned compensation keeps the executive team focused on what’s best for the business and rewards growth. My preferred ratio is 80/20 or 70/30 base salary to bonus, but the most important thing is to look at the executive team as your first team. This is how the best companies operate. 

If you don’t find executive alignment in the culture or the compensation, I would advise looking elsewhere.

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Liquidity

You might be wondering how you can generate wealth if salaries are capped in this market and, especially if you’re a sales executive, I recommend taking short-term bonuses off the table. Equity is the answer. 

Here are a few equity terms most executives should understand and be able to negotiate for: 

Double trigger: This means you will be paid half of your unvested equity no matter what, as well as guaranteeing that the remaining half will be paid if you are terminated without cause, usually within six months of the event. Double triggers are just one of many tools that protect you while you’re employed at your current job–accelerating as you work–and if you are let go. 

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Extended exercise: This agreement increases the time you can exercise your options once you leave a company. The current standard is 90 days, but it’s wise to push for 12 months or more. This agreement costs the company little, but gives you time to decide what to do with your equity after a job ends, helping to secure your financial stability long after you leave.

Cashless exercise: This allows you to convert options into shares using your other options as payment. It’s a smart way to choose when to liquidate your wealth in a company, and to do it without cash.

Milestone payments: Here, the company agrees to pay you for reaching specific, larger company milestones, like hitting your ARR target. The payment should be tiered relative to the goal.

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Severance 

As layoffs spread across SaaS companies, pre-negotiating severance is one of the smartest ways you can protect yourself financially. Three months’ severance should be the bare minimum, with six months standard for executives. If you need to compromise, you can tier your severance payments based on your time at the company. Be warned: Severance terms need to be very clear, especially on the definition of “cause.” Investing in a good lawyer upfront to review your severance agreement can save you a lot of heartache and lost paychecks down the road. 

Consulting

In tough economic times, it’s wise to have several streams of income. A compensation package that includes the right to monetize your non-competitive expertise through consulting or advisory work is one of the best ways to build recession-proof wealth. 

If you can balance these five areas with base salary and bonus potential, you will be setting yourself up for long-term financial gain no matter how the market plays out. But it’s important to remember that it’s okay to say yes, as long as you stay firm on your true bottom line. Look inside yourself to find what you can or can’t compromise and then work with your future employer to find an agreement that works for both of you. It’s okay to leave something on the table if it’s a nice-to-have, not a must-have. Alignment is the real trick to negotiating a compensation package, whether it’s an economic downturn or a bull market. 

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Sam Jacobs is the CEO of Pavilion, a private membership for high-growth leaders. He is also host of the Sales Hacker podcast and author of Kind Folks Finish First: The Considerate Path to Success in Business and Life. 


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