Compensation heavy on bonus than salary
What is your take on the following compensation structure for someone with 5-10 years of experience.
$115K base. 15% of acquisition fee (for $10M acquisition with 2% fee, that equates to $30K) with 5% promote at sale. Only catch is promote has a 3 year vesting period after each acquisition. For example, once they sell the asset and total profit is $2M, I would get $100K but if I am fired on day 364 of year 3, I don't get the promote. How would you structure the deal to be aligned with key principals of the firm so I don't get screwed? I am struggling with this structure because if owners decide to fire me, I am screwed with total comp of $145K. Shops tend to hire someone with my skill set at a total comp of $200-$250k and once you get to director, you are getting promote and earning more. Am I being nuts to turn down this offer? It's a startup environment to hunt deals in the southeast with some experienced syndicators. Risk is around capital raising efforts if the market softens. I think I should get a portion of the carry even if I quit. Is this irrational on my part? Thanks in advance. They want me to implement asset management strategies which they dno't have today and built out a pitch deck to share with investors, etc. Thanks in advance.
Pretty much no matter where you are, unless you are a top executive, if you get fired for cause you always lose deferred compensation like this.
If they lay you off, then they should pay you based upon the agreed upon vesting period (e.g. if you get laid off 1.5 years in, you wouldn't receive your cut until the property was sold even if that was 4 or 5 years later).
If you quit, then it is generally accepted that it is your decision to leave and then you forfeit the money (usually there is an exemption if you are 60+ and retiring vs. quitting to go to a competitor).
All that said, this is a negotiation, so you can write anything you want into your contract.
Good luck.
Pretty unfamiliar with the RE scene but would it be at all possible for OP to negotiate that 3 yr vest into a more continuous vesting period as opposed to the discrete way it is set up right now?
In his example he would get 100k on day 365 of year 3. Could he negotiate it to a bi-annual vest of 16.666k every 6 months?
The bigger issue is that it is a rolling 3 years. So every deal he does in 2019 vests in 2022, but every deal he does in 2020 vests in 2023 and so on. It makes that you really never want to leave because you are always leaving something on the table (which is the point), unless your next firm buys you out/you retire.
I'd make a caveat in the contract that if a property is bought and summarily sold within the 3 year vesting period, your promote automatically vests at the sale date.
Sounds like you are talking about an operating asset acq platform instead of development. In pure play development deals, it's definitely market to break out the vesting schedule--say, 25% after a year, 25% at construction loan, 25% at first CO, 25% at sale event. I agree with the concept that some of your promote should be vested before a full three year period and think it is a valid concern to raise with them, especially given that your other comp (salary/bonus) is lower relative to market.
A few comments:
Agreed. If you have 5 years experience, $115K base and 15% of acquisition fees is a great compensation package, completely ignoring carry.
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