stock-options, consulting, compensation, commissionsOur product is in the market, we have clients and we are profitable. I brought consultants on board to assist with:
All which are steps deemed necessary to grow the company towards an exit. They could some day become part of the board of directors, but we are in the beginning of our relationship and decided to start with a consultancy relationship.
They get:
Additionally, we established some performance based compensation. This is tied specifically to bringing in new clients. They get a cut of the first invoice and a smaller cut of the subsequent 11 invoices (the cut of the first invoice alone is likely worth more than an entire year of scheduled compensation).
For the board of advisors, we worked out giving incentives tied to specific milestones, including bringing in new clients, in the form of phantom stock.
The consultants suggested that I also give them phantom stock. I am fine with that, but is it reasonable to keep cash incentives and put the phantom stock on top or is it reasonable to ask them to chose one or the other. I understand we could lower the %s on both (and give both), but the question is if it is reasonable to start the conversation from the angle of pick one or the other.
UPDATE: framing the situation - it seems that this is being understood as I am just looking for sales people. These consultants are post graduates/PhDs with extensive experience in their fields. The advisors they brought in are all PhDs. They have experience developing companies like mine. Each deal they close is 6 figures, and becomes a 7 figure deal over the lifetime of the client. This is a B2B market.
Relevant related reading that you might want to dig into:
TL;DR could be: be wary of not overpaying for underperformance. And be picky when it comes to the consultants you hire.
The consultants suggested that I also give them phantom stock.
Remember that they are salespeople. ;-)
the question is if it is reasonable to start the conversation from the angle of pick one or the other.
The devil really is in the details. Put yourself in your consultants’ shoes so to gain perspective on what the deal may look like from their standpoint:
My $0.02 on your question: Speaking for myself, I tend to view stock grants and options as a bonus. Assuming they’re in it for the money, the basis of your relationship with them is whether them selling what they’re supposed to be selling is worth their time. Anything short of that won’t cut it. Once you got that part right, you can throw in some equity if you’re really comfortable with it, but if you do make sure it’s thrown in as a (vested) performance bonus.
As an advisor, board member, investor, and former serial entrepreneur … and based on what you wrote: I would say no .. no stock. or rather ONE OR THE OTHER.
It is a little hard to decode what kind of people you are talking to right now. Are these senior people who are indeed Board-level quality? Then stock.
if they are performing hands on tasks that you normally would hire someone for (like preparing an advisory agreement) … then compensation…
Hands on tasks get compensation … you can certainly create a scenario for deferred compensation (the job is worth $Z if I had the cash now…. I will pay you $Z x 25% in 3 months plus a guarantee of $Y additional business.
What you don’t want is a freelancer (or consultant) who normally would be paid - to end up an owner of your company - particularly if their fee converted into stock because you could not pay them.
For those senior level people who are helping you with strategic, long term stuff - they get options or stock.
If you want sales (ie of your product) then you can structure typical sales-performance compensation.
If you are looking for introductions to investors, or to high-level partners or clients … then almost no credible advisor would do this for pure money (essentially you are paying them for their rolodex). This is an equity (stock) compensated role + title (advisor, board member).
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