Practical, Easy to Understand Advice
The Offer Letter v. The Employment Agreement
Offer Letters and employment agreements describe your position and compensation. If you’re smart, or shrewd, or lucky, or any of these in combination, they are your professional prenuptial agreement!
Most protective employment agreements and offer letters in at-will states are nothing more than severance agreements negotiated on day one.
How important is the professional prenuptial agreement? The answer depends on how important it is to you to protect yourself. Or to protect your equity. Or cashflow. Or other things that are important to you, for example, company-paid medical insurance.
Don’t waste time worrying about whether your would-be employer gives you an offer letter or an employment agreement. What is in the offer letter or employment agreement matters, not how many pages the document is. A contract is a contract. A two-page offer letter can give you much more protection than the longest employment agreement.
Consider, for example, a two-page offer letter with one sentence you insert that says: “If your employment is terminated by our great Company for any reason, our great Company will accelerate the vesting of all unvested shares subject to all of your employee stock options.”
Compare this to the twelve-page employment agreement that spends half-a-page defining “Cause,” and then provides: “If our great Company terminates your employment without Cause, then our great Company will accelerate the vesting of 25% of the unvested shares subject to your employee stock option.”
If you care mostly about protecting your equity, which document would you rather sign….
Living and Dying by Commission and Bonus Plans
What’s the difference between a commission plan and a bonus plan? Sometimes not much.
Generally, commission plans involve payments based on sales, whereas, bonus plans pay based on many different types of metrics (or sometimes they are completely discretionary).
If you’re in sales, you’ll probably earn commissions on your sales, assuming you sell the amounts necessary to trigger the commissions.
The commission plan describes the commissions you may earn and the conditions under which you earn them. Commissions may be paid on any type of sale, from tires, to software, to services, to cars, to computer chips, to hot air balloons.
Make sure your employer gives you a commission plan in writing. Make sure you sign it (or accept it via email or another traceable medium if your state allows that type of acceptance – check with a lawyer to make sure).
Some sales superstars spend their careers searching for strong up and coming companies with uncapped commission plans, probably the holy grail of commission plans.
Uncapped plans mean the more you sell, the more you earn, with no limit. If the product is a good one, and you know what you’re doing, you can earn more than the CEO with an uncapped plan. So, if you work under a plan that pays 5% of all sales then you earn $50,000 on one million in sales, $500,000 on $10 million in sales and $5 million on
$100,000,000 in sales. The sky is the limit.
But there is usually a cycle to companies and their uncapped plans. Often what happens is that when you earn “too much” for too many quarters, the manager running the business – sometimes an MBA who takes lesser risks – becomes jealous and puts in place a capped commission plan. And the most talented often move on.
It always amazes me how some companies don’t like to pay the commissions they’re bound to pay. It seems so short- sighted. Employees earning good commissions drive revenue and are likely to find jobs elsewhere if they’re cheated out of pay. Nevertheless, commission disputes happen all the time.
Beware – some states allow your employer to change or cancel your commission plan mid-year, although generally benefits already accrued cannot be cancelled. Nefarious employers, however, will “interpret” their plans in ways that hurt you, which is how disputes often arise.
Other times, malcontents will fire you after the end of the commission period, but before the commission is paid, and then assert that you must be employed on the day you’re paid to receive your commission.
Make sure your commission plan is ….
Excerpts from Just 2 of the 59 Fictional Stories that Underscore the Practical Advice
How Much Do They Want You
“How would I know whether you’ll be able to negotiate for seven percent of the company’s equity and full accelerated vesting if they terminate you?” I answered honestly.
“But, you’re the guy,” David insisted. “You’ve been telling me about this stuff for years. I want to know what you think.”
“What I think is: it’s all about leverage. If the investors, or Board, or whomever you are going to negotiate with, wants you enough, they’ll give you what you want.”
“But what I don’t know is how much they want you. What I also don’t really know is how successful you’ve been over the years.”
“I’ve told you all the companies I’ve been with and how well I’ve done,” David asserted.
“Yes, you have … but on the soccer field. I’ve never drilled down to really understand. The fact is I don’t know all the details of your past successes.”
“And with this CEO position you’re planning on negotiating for, I certainly need to know more than just your track record to be able to help you. You haven’t even told me how much dilution you expect will occur at the company in the next year or two. How could I even begin to figure out whether seven percent is a reasonable ask if I don’t know what kind of dilution you expect going forward? Plus, there’s lots more information I need to know if you want me to help you….”
“My boss put me on a performance improvement plan about ten days ago, and I’m calling to see what my rights are.”
“What do you do?”
“I’m senior director of marketing. I’ve been doing a really good job. My performance reviews for the past four years have been 5’s, that’s ‘exceeds expectations.’ Eight months ago, the Chief Marketing Officer left, and since then, the new CMO has been ignoring me. I’ve been working 14-hour days, every day, to show him how committed I am.”
“When you say the CMO has been ignoring you, what do you mean?”
“About four months ago, at weekly staff meetings, I became invisible. Whenever I said anything, there was dead silence. When someone else said exactly what I did, there was all this discussion. Two months ago, I stopped getting the weekly emails inviting me to staff meetings. The department went out to dinner three weeks ago, and I wasn’t invited.”
“Did you ask the CMO about why he’s ignoring you?”
“Yes. Twice I told him I can’t do my job if he excludes me from meetings and doesn’t provide timely feedback. He told me to stop worrying and keep working hard.”
“Have you been looking for a new job?”
“It’s so hard when you’re working 14-hour days. I’ve got my resume updated finally.”
“How long is the PIP?”
“The PIP says I have 60 days to correct my performance and meet the goals.”
“How many goals are there and can you meet them?”
“If I can keep up my 14-hour a day pace, I should be able to satisfy eighteen of the goals. But the last two are really subjective. Goal nineteen says I have to support my colleagues with positive and creative suggestions. Goal twenty says I have to perform consistently to management’s satisfaction.”
“How did they give you the PIP and what did they say when they gave it to you?”
“About 10 days ago, the CMO scheduled a meeting with me. HR was in the room. They gave me the PIP and explained how it works. They asked me to sign it, which I did. They also told me that if I didn’t want to go on a PIP, they would give me a separation agreement with five months of separation pay, but if I go on the PIP and fail, then I’ll be terminated without any separation pay.”
“Did they say anything else?”
“No. What do you think?”
“I think your employment is going to be terminated on day 60 because there’s no way you’re going to meet the PIP….”