Google recently hired Ruth Porat as its Chief Financial Officer. Porat will earn a whopping $650,000 in base salary, but that’s not all she will take home. In actuality, her total compensation package is worth $70 Million.
Here are some of the aspects of her package that you should look into before accepting an offer:
1. Signing Bonus. Porat will be receiving a signing bonus of $5 Million dollars. A signing bonus is generally a one-time payment made at the start of one’s employment.
Signing bonuses often come with some strings attached, requiring the employee to serve at least one or two years before the bonus will vest. In Porat’s case, she must spend at least one year with Google to be able to keep her $5 Million signing bonus.
2. Annual/Quarterly Bonus. Most employees are familiar with bonuses. Typically, they are based on certain performance metrics. Performance can be gauged by any number of things, such as profits or revenue growth, return on equity, or share price appreciation.
For executives, bonuses are generally defined as a percentage of base salary or as a percentage of revenue.
3. Stock Ownership. Stock is a great form of compensation, particularly if the company is relatively stable. Stock grants help align the executive’s interests with that of the company: namely making the stock price go up.
Because capital gains are taxed at a lower rate than income, stock grants are a particularly attractive form of compensation. Porat will receive a $25 Million stock grant, as well as $40 Million in biennial stock grant in 2016.
Most stock grants, such as Porat’s, are on a vesting schedule. This means that if Porat leaves before her stock vests, she forfeits that stock.
4. Stock Options. Stock options are similar to stock grants, except that rather than being given to the employee, they are an option for the employee to purchase company stock at a discount or stated fixed price.
If the stock goes up, the employee enjoys a great profit. However, if the stock drops, then the options may not be worth anything.
Stock options are also generally on a vesting schedule, which means the employee will lose them if the employee leaves before they fully vest.
5. Exit Package. Most executives do not stay with a company for more than 5-7 years. Sometimes this is due to the board’s prerogative, other times it is due to mergers and acquisitions, and sometimes executives just choose to retire or leave for another company.
There’s no better time to negotiate an exit package then when starting employment since the company is eager to have you start.
An exit package is a great place to protect against vesting. Many executives will negotiate to have their stock and bonuses be granted pro-rata in case they are forced to leave due to no fault of their own. Severance is also generally negotiated in advance.
6. Perks. Many employers will also offer certain benefits in-kind, for example food, gym memberships, cell phone, insurance (health, life, travel, legal, etc.), commuter benefits, expense accounts, etc. There perks can add up and be worth a considerable amount.
Google is well known for its delicious spreads at the company cafeteria provided to employees for free. Google also provides massages at work, health classes, great paternity and maternity leave options, and even death benefits that provide 50% of salary to surviving spouse for up to ten years.
Because many employees put too much emphasis on base salary, they miss out on potentially lucrative options by failing to negotiate for other forms of compensation. Porat’s package is a great example of all the possible compensation options you should look at before agreeing to a compensation package.