Stock Rights That Protect the Value of Your Executive Equity Compensation

On Thursday September 1, 2022, 2022, CEOWorld magazine published an article I wrote on “Stock Rights That Protect the Value of Your Executive Equity Compensation.”

This new article is designed for CEOs, C-level and senior executives, who have recently received a job offer or expect to receive a job offer and will be negotiating terms of executive compensation which will include executive equity. 

In those negotiations, executive equity is often a very significant and often a major part of the executive compensation and a often a driver to accept a job offer.  This is so because executive equity offers the prospect of greater financial upside value than from your fairly fixed and limited cash compensation.  This special upside potential for executive equity arises from three different factors: (a)  Appreciation – with your service the stock price or value might rise significantly, (b) Liquidity Event – a potential acquisition or an IPO  might also significantly increase value, (c) Favorable Taxation – with appropriate structuring, appreciated equity on cash out may be taxed at a much lower rate than cash compensation for much greater take home pay. 

Thus, given the high importance of equity in the CEO’s or C-level executive’s compensation package the focus of my article then moves to discuss these five (5) critical areas of stock rights and terms you want to be sure to give proper attention in your negotiations to give you the best chance to achieve the potential value from the equity you are granted: 

• Meaningful Level of Equity – to be sure that sufficient equity is granted so that if success is achieved, it will be impactful for you,
• Tax Favorable Structure – negotiation over the form of your equity at the outset is quite important because in tax law – “form is substance” – different forms produce very different tax results and you want tax-favored equity if possible,
• Severance Protection – if midway through the buildup you are forced out, you want your severance buy-out to embrace your equity as well as less important cash components of your comp package,
• True Up Adjustment – especially if you are brought in to secure a financing raise, you don’t want to be a victim of your own success and seeking a level anti-dilution protection is a fair ask,
• Cash-out protections – if after a number of years, no liquidity event is on the horizon, it is helpful to have a put option with the company to assure at some point you can tap into the value you achieved.

To see my full CEOWORLD magazine. article, go to LINK: https://ceoworld.biz/2022/09/01/stock-rights-that-protect-the-value-of-your-executive-equity-compensation/

Or on my website at https://www.executiveemploymentattorney.com/stock-rights-that-protect-the-value-of-your-executive-equity-compensation/

This was my 38th article published in CEOWORLD since 2016.  Previously, the editor advised that I can use “Featured in the CEOWORLD magazine” and the CEOWORLD “Logo” on my website and add CEOWORLD magazine in my LinkedIn profile’s “Experience Section” as an “Opinion Columnist.” and authority in the field.  

On its own initiative, CEOWORLD magazine created on their website a library of Robert Adelson published articles.   You can peruse this library and/or read as many of my 38 published articles as you wish.  See https://ceoworld.biz/author/robert-adelson/

With more than 12.4+ million-page views, CEOWORLD magazine is the world’s leading business magazine written strictly for CEOs, CFOs, CIOs, senior management executives, business leaders, and high net worth individuals worldwide. https://www.linkedin.com/company/ceomagazine/

Negotiating Favorable Executive Equity Terms in an LLC – Capital vs. Profit Interests

Two weeks ago, on Sunday April 20, 2022, CEOWorld magazine published an article I wrote on “Negotiating Favorable Executive Equity Terms in an LLC – Capital vs. Profit Interests”

This new article is designed for CEOs, C-level and senior executives, who receive a job offer from a limited liability company where LLC equity will comprise an important component of your executive compensation package. Most senior executives are familiar with executive stock and stock options, including ISOs and non-qualified option grants offered by corporation employers.  But how do you evaluate equity that is not stock or stock options? What issues should you be concerned about when your executive equity package is comprised of LLC “member units”, called profits interests or capital interests?  

This article will cover issues important to the executive when your equity compensation is units in an LLC, including

• The difference in rights of the two kinds of LLC interests – profits interests and capital interests,

• The difference in taxation of profits and capital interests,

• The advantages that an LLC profits interest can offer over a corporation’s equity interest, whether stock or options, if significant equity appreciation is likely,

• The importance of determination of profit interest threshold amount,  

• Important protections to assure your share of the value appreciation if the LLC succeeds,

• Other valuable protections to assure your right to a cash payout with others if the LLC succeeds.

My article concludes with discussion of key terms to watch for in the LLC operating agreement.  My article stresses the importance of negotiating in your own equity grant, job offer or employment contract that those key fixed Operating Agreements terms will be applied in a manner to assure your reasonable protections and the benefit of your bargain in accepting the job offer with this LLC.

To see my full CEOWORLD magazine. article, go to LINK:
https://ceoworld.biz/2022/04/20/negotiating-favorable-executive-equity-terms-in-an-llc-capital-vs-profit-interests/

Or on my website at https://www.executiveemploymentattorney.com/negotiating-favorable-executive-equity-terms-in-an-llc-capital-vs-profit-interests/

This was my 37th article published in CEOWORLD since 2016.  Previously, the editor advised that I can use “Featured in the CEOWORLD magazine” and the CEOWORLD “Logo” on my website and add CEOWORLD magazine in my LinkedIn profile’s “Experience Section” as an “Opinion Columnist.” and authority in the field.  

On its own initiative, CEOWORLD magazine created on their website a library of Robert Adelson published articles. You can peruse this library and/or read as many of my 37 published articles as you wish. See https://ceoworld.biz/author/robert-adelson/

With more than 12.4+ million-page views, CEOWORLD magazine is the world’s leading business magazine written strictly for CEOs, CFOs, CIOs, senior management executives, business leaders, and high net worth individuals worldwide.

https://www.linkedin.com/company/ceomagazine/

It is my hope that this article will be of benefit to CEOs, C-level and senior executives who, at some point in your career, are offered equity interests in an LLC and need to know what to watch out for also what opportunities LLC interests can offer. Feel free to tweet or share this article. If you or any colleague of yours has a need in this area, please do reach out to me at 617-875-8665.

Gaming CEOs traded salary for stocks. Their ‘gamble’ is set to pay off

 Two weeks ago, on December 18, 2020, I was quoted on the utility of corporate CEOs taking restricted stock units (RSUs) in lieu of cash bonuses, in an article, with the title above, published in the  Las Vegas Review-Journal.

The newspaper that published this article, Las Vegas Review-Journal is the largest circulating daily newspaper in Nevada and ranked as one of the top 25 newspapers in the United States by circulation. https://en.wikipedia.org/wiki/Las_Vegas_Review-Journal

The article was about casino company CEO compensation, and how a number of Las Vegas-based CEOs had reduced their salaries in exchange for RSUs amid the pandemic, with the reporter  wondering what their compensation might look like down the road.

In the course of our interview, I suggested a number of benefits from this exchange executive compensation strategy of a cash bonus exchanged for RSUs – both to benefit the executive personally but to benefit the company and company stakeholders, including the following:

• Deferral of taxation that would come from immediate payment of the bonus, and deferral of taxation on the unvested portion until vesting has later occurred.
• Leverage of the amount of bonus magnified by the growth potential of the RSU, still further enhanced by the current low value due to the pandemic
• Assurance of a future payout to the CEO by use of RSUs rather than options because RSUs after vesting always retain some value.  RSUs effectively have a floor on value. They can never go underwater and become worthless as often happens with stock options.
• Use of the extra RSUs / redemption strategy to minimize effective taxation as RSUs vest, where in this way the company would typically pay for or assist in payment of the taxation, and the executive is more willing to pay a portion of the taxes since vesting has occurred.
• The benefit to company morale from the “vote of confidence in the company’s future” by the CEO choosing company stock over cash.
• The potential cascading benefit to the company with current employees and future hires who are heartened by the example of the man or woman at the top choosing company equity over an immediate cash payout.
• Benefit to investors, alliance partners and other stakeholders by enhanced “alignment” of the CEO’s financial prospects tied to company growth.

To see this full article on CEO use of RSUs in the Las Vegas Review-Journal , go to LINK:

Gaming CEOs traded salary for stocks. Their ‘gamble’ is set to pay off.

 Or https://www.executiveemploymentattorney.com/wp-content/uploads/2021/01/Attorney-Rob-Adelson-in-Casino-CEOs-trade-bonuses-for-stock-Las-Vegas-Review-Journal.pdf

The business reporter who authored this article, Bailey Schultz, said she had found me and reached out to me after reading an earlier article I wrote on RSUs that was published in CEO World.  That article, published February 28, 2017, was entitled “The Advantage of RSUs in Your CEO Compensation Package.” 

My 2017 RSUs article, targeted toward CEOs, C-Suite executives and other senior level executives, discussing the benefits of RSUs as a key part and often the most important part of their compensation package.  The article discussed how RSUs are most useful in mature companies where the CEO or C-suite executive takes a position where stock has considerable value, but growth is still expected in the public company or perhaps an IPO or liquidity event is not far off or in a turnaround situation in a mature company where there is no assurance of appreciation and the CEO needs assurance of a floor in his or her equity value.   

As part of my overall discussion of RSUs, my 2017 article covered these topics –

• What are RSUs?  When are RSUs paid out? 
• How are RSUs taxed?   How do you pay the taxes that come due on RSUs?
• When are RSUs most useful?  When are RSUs least useful? 
• What sort of RSU package should a CEO or C-suite executive look for? 
• Key Terms to negotiate in RSU grants

To see my full article, go to LINK:   http://ceoworld.biz/2017/02/28/advantage-rsus-ceo-compensation-package/   or http://www.executiveemploymentattorney.com/articles-section/the-advantage-of-rsus-in-your-ceo-compensation-package/

It is my hope that this article will be of benefit to CEOs, C-level and senior executives who might benefit or whose companies might benefit from the use of RSUs as part of the executive compensation package. If you or any colleague of yours has a need in this area, please do reach out to me at rob@attorneyadelson.com.