Negotiating Questions for Portco Sr Exec

When stepping into a C-level position at a portfolio company (portco), especially coming from a background in public companies and startups, it's crucial to understand the nuances of compensation, equity, and severance terms in the private equity (PE) context. Based on the most helpful WSO content, here are some key points to consider and negotiate:

1. Equity Details:

   • Vesting Schedule: Typically, equity for C-level executives in portcos comes with a vesting schedule. It's common to see a 4-year vesting period, with a one-year cliff. This means you don't earn any equity until you've been with the company for a year, after which the equity vests monthly or quarterly.
   • Valuation and Ownership Percentage: Understanding the valuation of the equity and what percentage of the company your shares represent is fundamental. While it might be uncommon in some circles to disclose the overall ownership percentage upfront, in the context of a senior executive role, having a clear picture of what your equity stake translates to in terms of ownership percentage is reasonable. It's essential for aligning incentives and understanding the potential upside.

2. Severance Terms:

   • Expectation in Portcos: Severance provisions are indeed expected for senior executives in portcos. These terms should be negotiated upfront and can include aspects like the length of severance pay (often tied to the length of service), conditions under which severance is paid, and any acceleration of equity vesting upon termination.
   • Negotiating Severance: If the initial offer doesn't contemplate severance, it's within your right to bring it up for discussion. Severance terms provide a safety net and are part of the total compensation package for senior roles.

3. Other Considerations:

   • Clawback Provisions: Be aware of any clawback provisions related to equity. These conditions could affect your ownership stake under certain circumstances.
   • Change of Control Provisions: Understand how a change of control (e.g., the portco being sold) would affect your equity and role. Negotiating acceleration clauses for equity vesting in such events is common.
   • Performance Milestones: Sometimes, equity or bonuses are tied to performance milestones. Ensure these are clearly defined and achievable.

4. Recruiter's Role: If you feel the recruiter is not accustomed to placing senior executives or negotiating such terms, it might be worth consulting directly with the PE firm or seeking advice from a legal or career advisor specialized in executive compensation.

In summary, it's not only reasonable but advisable to seek detailed information about equity, negotiate severance terms, and ensure you have a comprehensive understanding of your compensation package before accepting a C-level position at a portco. These negotiations are standard at the executive level and critical for ensuring alignment between your interests and those of the PE firm and portco.

Sources: Private Equity Operations / Portfolio Career Path, Q&A: 3rd Year PE Associate ($10bn+ AUM, MBO/LBO, equity, mezz, distressed debt), Q&A: Equity Analyst at a Sovereign Wealth/Pension Fund, Q&A: VP in Private Equity (Growth Equity + LBO)...Post-MBA...Formerly IB Analyst, Random Things I Wished I Knew About PE