Contractors’ Questions: How to handle a job offer for salary, plus equity in the company?

Contractor’s Question: I just had a recruiter telephone me about an opportunity that may include equity in the company. How do I handle the discussion and get the most from the package?

The client wants someone to set up a whole new division in the skill I’ve got, and template their approach across the organisation. I’m aware that some offers are made this way to ‘low-ball’ the salary, with promises of an IPO that never emerges, so is it fair to ask exactly what the equity will yield? I like the idea of setting something up; having a stake in it and it being bought in a few years. What are the essentials I need to ask about when the phone rings?

Expert’s Answer: First, a little note of caution.

In my direct experience of being a recruiter and consulting in the start-up space, I have seen both success and failure where candidates have taken equity as either the clincher or in lieu of salary.

While these offers of “salary + equity” will likely crop up in 2024, equity has actually long been used to entice both contract and full-time job candidates to accept a second company's offer instead of an initial, rival company's offer.

Your (stock) options...

Historically, stock options were both a tax-efficient way to reward success, but also a non-cash way to attain (and retain) staff.

When looking at the viability of what is on offer, it largely comes down to three key factors.

And be aware, these are factors not to air with the recruiter but that you’ll need to ask yourself - probably following the call:

1. Do you believe the company will actually exit?

Understanding the strength of the proposition; the runway to getting there and also understanding the type of exit are all key.

2. Do the company’s founders have a track record of doing exactly this?

History can be a guide to future success if this isn’t their first rodeo.

3. Am I happy being tied in here?

No matter how big the prize is, hanging around in a miserable role for a potential pay day is one of the most soul-destroying things I have seen with candidates during my career.

Ultimately only you can understand whether these magic beans will yield a beanstalk.

The expert was Andy Hallett, managing director of Recspand and RecWired.