TRACEY’S PRACTICAL EMPLOYMENT TIP
OF THE MONTH*

OCTOBER 2008: THE NEW TREND IN STOCK AWARDS: YOU BUY IN*

Executives looking to take a position with a “start-up” company should be aware of a recent trend in the way equity is being distributed. The trend is to have executives “put their money where their mouth is” by making an equity investment in the company.

Given the current state of our economy, and the grumblings from Main Street about executive pay, this seems at first blush like a reasonable way to tie compensation to performance. On the upside, by investing in the company an executive will feel like he/she has a personal stake in the company’s future while not having the pressure of meeting certain vesting dates. On the downside, the executive will not have the same ability or resources to perform due diligence and in some instances there may still be a vesting period despite the buy-in. In addition, most stock plans give the company a right to repurchase your interest if your relationship ends, meaning you may lose your job before you realize any gains on your hard work.

While I am a big believer in my Torts professor Aaron Twerski’s admonition to “bet on yourself,” I am not advocating a position here as it is still too early to tell who benefits most from this trend. What I am saying is that it is important, as it is when evaluating any personal investment, that my clients educate themselves about the risks of this compensation component.

Next Month’s Tip: CAN ANYTHING BE DONE IN THESE TOUGH TIMES TO PROTECT YOUR JOB?

Monthly Tip Archive

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* Disclaimer: The contents of this page are for informational purposes only and nothing herein is intended to constitute legal advice nor should anything contained herein be taken or relied on as such. Each individual executive and employee has a unique set of facts and circumstances that the general discussion set forth above may be wholly inapplicable to. Only through consultation with a lawyer from our firm in which all of the facts and circumstances of an individual’s unique situation are explored and considered can a true legal assessment of your rights and remedies be ascertained. Any use of this information is taken solely at your own risk.