My fault or theirs? Equity way lower than offer my company implied
Hey all, so about a year ago, I moved from PE to a director-level role in strategy at a PE-backed company. The offer included management incentive units, which was presented to me as "$150k of equity." The terms of it were really bad (50-50 time/performance; five year vesting the time units and >5x MOI / a very high IRR threshold for full performance vesting), but the cash comp was pretty good + I was totally burned out, so I accepted the offer.
We're now doing something that required I look at the cap table for the first time, and I was shocked: it looks like the company cited my $150k in equity value assuming the company's equity value reach ~5x MOIC, rather than the value of my equity assuming full vesting at my company's current equity value. At the company's current valuation, my equity (if it were fully vested) would be worth something like $8k.
Obviously I'm stupid for not clarifying this before I signed, but how much of this is my being stupid vs. the company being purposely misleading? When I was in PE, we would never cite equity value like that--we would show management equity value using a fan of MOIC outcomes (e.g., 1.0x, 1.5x, 2.0x).
Any guidance would be helpful. Should I bring this up with the CFO? Should I just look for other jobs? Should I just take it on the chin? In retrospect, the offer now feels insultingly low.
Based on the most helpful WSO content, this situation seems to be a mix of both your oversight and the company's potentially misleading presentation. Here's a breakdown and some actionable advice:
Your Oversight: It's true that you should have clarified the equity valuation methodology before signing. In PE-backed companies, equity offers can be structured in ways that are not immediately transparent, especially with performance hurdles like >5x MOIC or high IRR thresholds. Always ask for a detailed breakdown of equity value under different scenarios (e.g., current valuation, base case, and stretch case).
Company's Role: While you bear some responsibility, the company does seem to have presented the equity in a way that could be considered misleading. Citing "$150k of equity" without clarifying that this assumes a 5x MOIC is not standard practice. As you mentioned, in PE, it's more common to present a range of outcomes, which is a more transparent approach.
Next Steps:
Is the Offer Insultingly Low?: If the equity is worth only ~$8k at the current valuation, and the hurdles for full vesting are extremely high, it does seem like the offer was not as competitive as it appeared. However, if the cash comp and other intangibles (e.g., reduced burnout, better hours) are strong, it might still be worth staying for now while you plan your next move.
Ultimately, whether to stay or leave depends on how much you value the other aspects of the role versus the equity disappointment. If you feel the company acted in bad faith, it might be a sign to start looking elsewhere.
Sources: https://www.wallstreetoasis.com/forum/job-search/bluffing-a-job-offer?customgpt=1, 2 successful years at the firm, 2 years of 0 bonus and minimal pay rise, Urgent: PE Offer after being fired, https://www.wallstreetoasis.com/forum/consulting/just-got-promoted-how-to-negotiate-salary?customgpt=1, https://www.wallstreetoasis.com/forum/job-search/negotiating-offer-before-during-and-after-interview-follow-up?customgpt=1
Assuming you and the CFO are relatively tight, I'd probably bring it up. 5x is highway robbery. Be prepared to get some shit for not understanding the waterfall dynamics going in though, especially considering the fact that you came in from PE.
ALWAYS ASK FOR CLEAR SPREADSHEETS OF HOW EVERYTHING WILL WORK AND VALUE!!!
This is a pretty nooby mistake on your end, so no, it doesn't sound like your comp is low. Nobody else will say that because they're being nice, but I'd probably consider firing someone if they came to me with this and were this confused about their comp... Especially given I'm sure your base pay is ~$200k - $300k+. It's an extremely dumb mistake to make @ your comp/experience lvl, especially coming from PE.
We've all done dumb stuff I guess...
I would start looking for a new job -> then bring this up with the CFO and team if you like working there.
Itaque non vitae adipisci similique impedit neque hic. Temporibus sunt illum quibusdam debitis. Ea placeat minus reprehenderit sapiente deleniti nam.
Ipsam magnam eaque quas sed quis et et. Eveniet dolorem consectetur voluptatem praesentium repellat dolorem rem. Rerum quos nihil dolores consequatur natus. Veritatis iste fuga praesentium deserunt harum maiores. Dolorem hic dolorem aspernatur sunt culpa voluptatem maiores.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...