- Counsel, VLP Law Group focusing on emerging growth companies.
- Head of business development for J.Thelander Consulting, which provides statistics, analysis, trends and strategic compensation consulting to established and emerging client organizations.
- 16-plus years experience advising companies and their founders, with a particular focus on pre-IPO companies, through varied transactions, including equity compensation plan adoption, complex financings, mergers and acquisitions, and initial public offerings.
- Corporate and securities attorney at Wilson, Sonsini, Goodrich& Rosati, working in both the Palo Alto and Seattle offices.
- Served as corporate counsel for Mozes, Inc. (acquired by HelloWorld, Inc.).
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Executive and Companywide Compensation Strategies
- Companies lack the expertise to create a compensation infrastructure.
Companies will come to us who don’t have any kind of a compensation infrastructure in place. They may have obtained some compensation data – you can purchase such data from a number of sources. But they don’t know how to use their data because that’s not their expertise. This is a very common issue. Putting data in place into a sound, rationale compensation structure is a job that require specific expertise in compensation strategies.
- Companies often begin developing their compensation programs without good data.
- Companies may start out by designing pay and equity packages on an employee-by-employee basis. They then find themselves all over the map. Some of their employees may be relatively well paid for their positions in the industry, while others may not be. They don’t have good data on which to base those decisions. As companies develop, they are constantly struggling to attract and retain good employees. If the compensation structure is inconsistent, it can create significant friction within the organization. Employees know how to do the research even if their company does – they know if they and their peers are not getting market-rate compensation.
- Companies wait too long to put a compensation infrastructure in place.
One way this comes up is on the eve of a liquidation event, on the eve of a merger, or just as a company is embarking on an initial public offering. The company hasn't already put a compensation infrastructure in place and now is scrambling and trying to negotiate with their potential buyer or over the value of the company. A compensation system should be in place well before such an event. If it is not, it can be very difficult to come to agreement on a valuation for the company. You may have key employees who are not being paid what the market would suggest, or you have key people who are being paid more than what the market would suggest. Either way, it makes it very difficult to agree on a valuation for the company.
- If no one in the company focuses on compensation, no one in the organization gets the compensation they deserve.
A common problem in biotechnology companies especially is that it is the nature of the business that people are in it for the long haul. The leaders of the company, the scientists, are passionate about the science and what they’re doing. They get so focused on their work that they don’t compensate themselves. When that happens, nobody in the organization gets adequate compensation. People say, “I don’t want to be greedy,” and that's a wonderful mindset. But the leaders of a company that is creating wealth deserve to share in that wealth creation.
- Employees are not compensated with consistency across the company.
For whatever reason, a company may find itself with some employees who are over-compensated and some who are under-compensated. It may be based on when they came into the company. Some people who came in early may have compensation disproportionate to what they are contributing now.
An employee's legacy with the company should be reflected in the equity package. That person has vested options from early on, which adds to his or her compensation. Are they over-compensated? We can provide the data, we can give advice on how to make adjustments, but then it's up to the company how it handles it.
An employee whose mindset is on company growth but is no longer the key contributors that he or she was from the beginning becomes a personnel issue the company must address.
- Employees are sometimes hired with an understanding as to their compensation that was never properly documented.
Company founders, especially in technology companies, often don't feel the administration piece of creating the company is that important. They don't understand the importance of documentation. They may think they've told someone something and that there's an agreement. But the other person heard something else and now has a different expectation. That can be really disastrous.