The dreaded signing bonus is back

(Editor’s note: We asked Amy Vernetti, an executive recruiter in Silicon Valley, to report what the high-tech executive job market is like these days, now that the economy is humming and unemployment rate is down.)

It’s time to put the fatigues back on…the War for Talent is escalating. We’ve all watched as valuations for venture capital backed start up companies have risen over the past year.

We are now seeing the inevitable return of rising cash compensation packages, candidates with multiple offers and yes…the signing bonus is back!!! The bonus was popular during the silly period of the late 1999, but universally hated by employers and investors. It’s surprising to see it come back, but the good news is, we haven’t seen too many of them • yet.

Here at Taylor Winfield where all we do is recruit executives for investor led technology companies, we’ve seen some very 1999-like behavior from candidates and companies. For obvious reasons, Taylor Winfield is not at liberty to discuss company names or candidate names while describing these incidents. We think the scenarios are instructive without jeopardizing the confidentiality of either party.

Lessons Learned

• Savvy investors who understand the competitive landscape for talent are winning.
• It’s critical to move candidates quickly and efficiently through the process.
• Dangling a liquidity event in front of a candidate is no longer an effecting recruiting tool.
• Candidates are far savvier this time around about equity compensation but cash is now equally important.
• Candidates know the market for talent is heating up and the best ones aren’t in the mood to negotiate,
• Reference checking must be done discreetly and quickly

Anecdotal Evidence

This past week, a private, profitable consumer internet company on an IPO track extended its fourth offer to a candidate for an executive position.

After receiving a very respectable offer of $300K base, 50% bonus opportunity, $50K signing bonus and more than 500,000 stock options, the first candidate turned the offer down for a better offer of $400K base salary, 50% bonus, restricted stock worth approximately $1M on day one and a complete relocation package.

This is the crazy part: The winning offer came from a company that had been contacted during a reference check on him, and that company decided to make an offer themselves • stealing the him away from the original client.

Another candidate turned the client down to remain in his current position because 500,000 stock options in a private company with strong prospects for a liquidity event was not enough to mitigate the risk of him leaving a $2B publicly traded company.

But candidates be warned…the competitive landscape cuts both ways. A sub $10M telecom software company extended an offer to a Chief Financial Officer last month. This CFO candidate had taken two companies through Initial Public Offerings, an important qualification for CFOs.

The start-up offered the CFO a $200K base, 30% bonus opportunity and 1.5 percent of the company. This is a healthy compensation package from a company with $8M in revs.

Twenty-four hours after receiving the offer, the candidate was wavering about joining the company. The hiring CEO got wind of his wavering and promptly pulled the offer and went with another candidate. The first CFO candidate came back a day later to accept the position but it was too late. The CEO said, “If he was wavering on this opportunity, this is not the guy I want in the foxhole with me.”

During another CFO search for a private company on the path to a liquidity event, a candidate received an offer of $300K base, 50% bonus and the highest number of stock options in the company, next to the CEO. During the 72 hours it took to negotiate this compensation package, this CFO received another offer to work with a CEO he had worked with previously. The cash package was comparable but two things sealed the deal: the equity compensation and the expediency of the recruiting process.

This CFO was granted restricted stock that by conservative estimates was worth $3M on day one. The higher value of the restricted stock, the favorable tax treatment on restricted shares and the fact that as restricted stock vests it is owned by the individual (versus stock options that typically must be exercised or forfeited within a tight timeframe) made this a no-brainer for the CFO.

“In addition to the more attractive compensation package, the management team at this company jumped through hoops to get me in front of all the decision makers over a four day period,” said the candidate.

Yet another Silicon Valley start-up recently made an offer to a Vice President of Sales. The base salary part of the compensation package was $10k less than this candidate was making in his current position, which the company thought would be more than compensated by the stock package. But to their surprise, the candidate was not willing to make that tradeoff. The candidate said, “The market being what it is, why would I accept a $10K pay cut?”