Prepare to Attract Rock Stars from Day One: A Framework for Considering Equity Compensation in the C-Suite

by Foley & Lardner LLP

As your company grows, you may reach a point when you want to bring in big talent, whether it be a new CFO, Director of Marketing, or someone to take your brand into a new space. Many of these so-called “rock stars” may be coming from big Fortune 500 companies with big salaries to match. Your fledgling company may not be able to offer them comparable salaries, but you can offer an obvious alternative: equity.

Founders beware, however: adding the phrase “and equity compensation to be determined as mutually agreeable to the parties” after the dollar number on an offer letter doesn’t add much value unless it has context. It leaves the company in a weaker bargaining position, too. This is where it becomes important to plan from Day One, well in advance of the recruitment of your rock star C-suite. So, how do you give that equity grant some context and make it appealing?

  1. Start with a Plan. If you know that you will grant equity to your employees, create an equity incentive plan the same day you incorporate your company. While it can be set up later, sure, creating an option pool from the outset will help your attorneys better advise you on how to structure your company’s capitalization table. Think about how much the founders’ shares will be diluted and what the company’s reasonable expectations for equity grants might be in the near term. One rock star employee in the next year? Five? Will you also have board advisors who need small bits of equity for compensation, too? What about low-level employees? What about not-so-low level employees outside the C-Suite, the “lifers” who came on board in the company’s earliest days? While difficult to think about at the outset, putting a plan in place well before prospective grants arise also means that the heavy-hitting C-Suite recruit will have less leverage with respect to changing the terms of the plan when the time comes. If a plan is in place, it provides a basis for granting equity without reinventing the wheel.
  2. Optics Matter. When you initially determine the total number of shares that the corporation will have (the “authorized capital”), don’t start with a low number: your life will be easier (and your legal fees will be lower) if you start with more authorized capital and don’t need to manage a stock split or increase in authorized capital down the line before you’re forced to do so for a preferred financing. Setting aside issues related to authorized capital and Delaware franchise tax for the time being, from an optics standpoint, an equity grant of 15 shares (with 1,000 total shares authorized, for example) simply doesn’t look as good as an offer of 150,000 shares (with 10,000,000 total shares authorized). Same percentage of shares, but the difference in number can affect a recruit’s first impression about the value of your offer of employment.
  3. Make it Objective. Before you even begin making equity grants, think about what amount of equity each level of employee should ideally receive. Your attorneys can provide good context about what’s “market” in their experience on this matter. If you start with a basic framework for grants, not only will you be able to ensure that equity grants to current employees are fair, but you will also be able to give valuable context to new recipients when making an offer. For example, you can then offer: “Based on past experience with similar executives, you’re receiving equity compensation that is in line with what other executives like you in our company have received.” No one becomes an outlier inadvertently.

As always, consult with an attorney as you’re making these initial decisions for advice on “market” terms, ideal language for your equity plan and forms of restricted stock or option grants, and working around prospective tax issues.

View This Blog


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Foley & Lardner LLP | Attorney Advertising

Written by:

Foley & Lardner LLP

Foley & Lardner LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.