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CMO Confidential
Dissecting Compensation - A Primer on Understanding, Negotiating and Managing Pay
00:49:04
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The CMO Confidential Podcast is a proud member of the I Hear Everything Podcast network. Looking to launch or scale your podcast, I Hear Everything delivers podcast production, growth and monetization solutions that transform your words into profit. Ready to give your brand a voice then visit iheareverything.com welcome to CMO Confidential.
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The podcast that takes you inside the drama, decisions and choices that go with being the head of marketing. Hosted by five time CMO Mike Linton.
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Welcome marketers, advertisers and those who love them. The Chief Marketing Officer, Confidential. CMO Confidential is a show that takes you inside the drama, the decisions and the politics that go with being the head of marketing at any company in what is one of the most scrutinized jobs in the executive suite. I'm Mike Linton, the former Chief Marketing Officer of Best Buy, ebay, Farmers Insurance and Ancestry.com here today with my guest, Richard Sanderson. Today's topic, dissecting Compensation. A primer on understanding, negotiating and managing pay. Now, Richard began his career at Russell Reynolds and Booze and Company and he moved on to Spencer Stewart where he leads the marketing, communications and sales practice. He leads approximately 25 searches a year for CMOs, CROs, CCOs and Sales Leadership position. Now this is his fourth time on the show in our three year run and we consider him a CMO Confidential OG Full disclosure, we've known each other for quite a while. Richard recruited me to the Allworth Financial Board. Welcome back, Richard.
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B
Thank you, Mike. Fourth time is a pleasure. Does that mean I'm getting a cut of some of the advertising revenue soon?
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A
As soon as we get some, yeah. And then we're going to send you a hypothetical jacket that you can wear conceptually. So, hey, I. Let's, let's just start about, you know, why. Why we want to talk about compensation is. It's a. It's a topic that everyone thinks about. It consumes a lot of discussion and backroom thinking, but it's not often discussed in the open. And so, you know, it'd be great to break it into sections. The basic elements, negotiating comp and then managing comp. And I thought we'd start with the building blocks, salary, bonus and equity. Give us just a takedown on that.
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B
Okay, well, first of all, Mike, you're right. This is a fascinating topic. It's actually a bit of a mysterious topic because certainly at the marketing leadership level, the reality is there is very little public information out there. And not only that, as we all know, compensation is, is, you know, it's a topic which you don't talk about in polite company. So it is a somewhat mysterious area shrouded in mystery. And yet it's all we want to know about, and we all want to talk about it, and we all want to make sure we're doing the best we can. And I'll just tell you how little public information there is out there. I mean, for example, we have looked at the proxy statement. So the largest 1,000 Fortune 1000 companies, that's the largest companies by, by the revenue or market cap. And as folks may know, if you look at the proxy statement, they are required to list named executive officers, which is typically the five highest paid offices in the company of 1,000 proxy statements. Mike, for 2024, we can only find references to marketing leaders at 41 of those.
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Wow.
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B
So approximately only 4% of companies have a marketing officer as one of their top five compensated employees. And even then, when we do look at those titles, the role is often broader than pure marketing.
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A
Yeah, that's where you're getting your super cmos, right?
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Exactly. These may be the CMO pluses. The CMO plus pluses. Call them what you like. Chief Revenue Chief, Commercial Chief growth. There are a handful of what I call pure CMOs in there, but the sample size is really small and hence it sort of adds a little bit to the, you know, am I being paid at market? Is it fair? Am I getting the best deal? Can I do better? It all adds to the, to the difficulty of this conversation, especially when you.
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A
Throw in the equity component, which can skew a year or two years versus a true pay plan.
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B
Yeah, correct.
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A
Because you got salary, bonus and then equity. So, so, so kind of just take us through those three things and then, then we'll jump into equity.
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B
So yeah, so let's start with salary. That's obviously the piece that everyone knows this is. I would say base salary is the number that when we are negotiating compensation, this is the number that most people focus on. I think your base salary is a bit of a psychological anchor for everyone. I think to some extent it's a reflection of where you are in your career and your recognition. I think to make a move, most people are expecting their base salary to increase. To me, it's the most visible and emotionally resonant part of the package. And the base salary number itself is nearly always open to negotiation when you change roles. What I would say to people is be aware of either company or industry norms around base salaries. For example, financial services firms may offer low base salaries but higher bonuses. And many large companies have essentially what they call salary grades or salary bands. Sort of certain level of seniority. There is just a, there's a, there is a window. It may be small, it may be large, but there is a limit to that puts a range on, on salary bonus. Your bonuses are most commonly expressed as a percent of base salary. There'll often be conditions in there. It's tied to either company performance, business unit performance, individual performance, some blend of all of the above. I find when negotiating offers actually bonuses is actually probably the hardest bit to negotiate on because they are set percentages of base salaries and that percentage is often reflective of the level or the band or the range of the role that we were going into. I think the key question to ask about bonuses is what has been the bonus payout history over the last three years. So where has the bonus paid relative to target, above target, at target or below target. And I think that reveals whether the targets are realistic. And also a little bit about recent company performance. The final big area and you hinted at this Mike. It's. It's equity. This is complex. The devil is in the detail as they say. And there's a, and there's a lot of detail here. Long term incentives equity really are a major part particularly of CMO pay, particularly in public companies. There are lots of different types.
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A
Hey, before we, before we go into different types, I just want to get your advice for our listeners on this. Why base salary is often the most emotional. Really where you make end up making usually a lot of money is in the equity piece. Maybe sometimes you get a big kicker in the bonus, but it's really equity. And, and when you're younger maybe you're not paying that much attention to equity and you're more fixated on. On base salary. Is that true or not?
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B
Partially. So where we'll come back to equity in a second because we were talking about equity, sorry, a base a salary components. Where you're getting to Mike, is a slightly different point which is compensation mix.
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Yeah. Okay.
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Now this is an important point too. So this is a balance of what's. Short term compensation is basically referring to base and bonus. Long term reflects equity. Now the mix depends on a whole bunch of issues. So let me give you some example. Ownership. If a company is public versus private or private equity or even nonprofits. Nonprofits. Some private family held companies for example, simply may not issue equity in the form of a private equity portfolio company. There's all sorts of conditions attached to that. And we may come back to that in a moment. The more Traditionally understood is this sense of either restricted stock, units, options, equity. Now the mix bit is important, Mike, because there are some stylistic differences not only around ownership structure, but I'll give you another example. Geographic differences. In my experience, American based companies do lean much more heavily into equity as a part of the compensation mix. Companies based out of Europe, on the other hand, actually do not. I typically will see if we're negotiating an offer with a client for a, for a European headquartered business, typically equity is actually a smaller part of the total compensation package. So there are all sorts of stylistic, ownership and other structural issues that impact that mix that you're talking about short term versus long term.
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So give us the little primer on the various types of equity.
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Yeah. Okay. So look at it at its highest level. The two most common forms were what were called RSUs, restricted stock units and options. Restricted stock units are essentially straightforward issuance of equity at the market price. You can sit there and work it out. People have their online portals they can go into and it directly correlates with the rise or fall in share price.
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A
And the way an RSU would work just to make sure everyone gets it right, is you get a bunch of Stock, it's at $10 a share, you get 100 shares that vest at X time. If it's at $10, that's what you get. If it's at $12, that's what you get. And if it's at $1, that you just get the same number of shares, right?
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Correct. So they have value essentially no matter where the share price is, as long as the share price is not at zero value associated with them. There's a whole talk about vesting cycles. We can come back to that in a second. The next variant is options. So options have something called a strike price. So you'll hear people talk about, am I in the money or not. Valuing options is a lot more complicated. There's various mathematical models, Black Scholes being the most commonly attributed one. It's complex. I would say options are essentially a little bit more risky if they go up a substantial increase in value. If they go below the strike price, there's no value whatsoever. And you're on what's referred as being underwater.
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And that's where we go back to our example. If you get the options at $10, you don't make any money unless the stock goes up. And if the stock goes down to $9 versus 10, you're $1 underwater.
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Yeah. And more recently, I've seen now a significant part of equity compensation is what's called performance share units. So PSUs. Now these are essentially in my opinion, a juiced up variant of restricted stock units. They're essentially issued conditionally and it will often be associated with the company meeting various strategic targets, various KPIs or metrics. And performance share units can have accelerators or even decelerators on them based on where the company is meeting those particular targets. The most common example I've seen is that they'll tell you, look, here's the value and they can increase 0 to 200% based on whether we're going to hit some of these key metrics that are defined in the market.
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And those metrics examples might be either sales targets or total shareholder return.
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Correct. It's defined by the board of directors. It's trying to align the entire company and the team around various targets. It can be sales targets, can be profitability targets, can be earnings per share targets. I mean, there's almost an infinite array of metrics against which you can set these performance share units.
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Yeah. I ran two comp committees and public boards and there is an infinite amount of arguing that could go with this infinite amount of metrics as well.
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Right. So that's the types of equity, then there's, okay, so when can you actually realize them? When can you take them off the table? And so this is obviously vesting. Fundamentally there's two types of vesting. By far the most common is time based vesting. So literally you are running out the clock. The most common form used to be what was referred to as a cliff vest at three years. So in other words, at three years from issuance, you could essentially sell them.
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And to make sure everyone knows what you mean by vesting, that is when you get a chance to buy it. Yeah.
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Well, when you actually get a chance.
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To monetize, it becomes yours.
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Correct. It becomes more than just a number on an online portal that says what it could be worth to a point where you could actually sell it.
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Yes.
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If you want to do it before then. It's all paper. It's all paper money.
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Yes. Thank you.
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It has some value, but you cannot monetize it until you get to the vesting.
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And if you leave before you vest, often you're forfeiting everything. Right.
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Often that's also often negotiation, that. Sure. That's probably one of the points we'll come to. I would say we're seeing lots of variance on time based equity. The three year cliff vest was very typical. Certainly. I'd say west coast or more technology Companies have moved to an accelerated schedule. There's often now a cliff at one year and now in some cases even monthly vesting, 124 or 136 for example, or even 148 each month. Now, now that helps with cash flow. But just to say that three year cliff vest that used to be very typical, even that now has iterated quite substantially over different types of time vesting for any public company. By the way, I mean this is all stated in the proxy statement. What you can't really do is individually negotiate what your vesting cycle is going to be. I mean there is a program that is the structure. You cannot negotiate it. You're either in or you're out. And so I don't want people thinking they can start individually negotiating components like that. It's not. I think we're simply identify that there are many different types of equity vesting cycles of equity and how they exist and valuation models as well.
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And then so there's time and then there's performance. Which performance equity or performance RSUs, which is. Yeah, we kind of talked about them.
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And there's one more. There can be event based vesting. I mean this can be linked for example to an ipo, a sale of a company. So if a company comes in and buys your company, I mean they're essentially buying up all the equity on the spot. So that's an example of more an event based trigger as opposed to a time based trigger.
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So, so we're going to talk about like negotiating now because you got to figure out this is super complicated when you really get, particularly when you get into the equity portion. We just talked about how do you recommend candidates think through comp. You know, you know, usually even before they're, they're looking at gigs and how they get paid. But give us advice for how to think about this.
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So I think there's at least three or four subtopics here, Mike. I'll just lay them on the table and you can decide which ones you want to go through here. I think first of all, and I'm now really in the mode, sort of in the executive recruiter mode, which is what I'm in, which is how and when do you negotiate compensation? And I'm specifically in the situation of when you may be considering changing roles or changing companies. So topic number one to discuss would be when is the right time to discuss compensation. Topic number two that I encourage people to be aware of is what are some of the new compensation and pay equity laws that may frame that? Conversation number three is you know, how do you manage the expectation setting elements of compensation negotiations and then what is the right style or posture to take during a negotiation? So there's lots of different things. And Mike, I'm very happy to go through these at a high level one by one.
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Yeah, let's just touch on the first one because also in that is know what you're getting paid now, you don't like. You know, I've had people leave like two months ahead of getting massive grants because they weren't paying attention.
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Right. So first of all, when to discuss compensation with a recruiter or a company. So when in the process, I think timing is delicate. I think if you start asking about compensation too early, you risk coming across as overly focused just on the money side as opposed to the challenge or the opportunity. On the other hand, if you leave the conversation too late, you may be wasting time if your expectations don't align with where the company or the role wants to pay.
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Right.
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You know, there is an element of negotiation theory that says, look, the first person to put a number out there is essentially setting the anchor, right? Negotiation. I do think there is some, some truth to that. But that anchor that you throw out also has to be grounded in some sort of reality. You can't just throw out, I think silly numbers because I think you lose.
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Your, your expectations unless you are Elon Musk, apparently.
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So I think we're looking at a trillion dollars, I heard.
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Yeah, I think so.
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And then, you know, I think also be ready with what is the right response. And we'll come to this in a second. Because increasingly now, recruiters and their representatives are essentially trained to ask about expectations, not about compensation history. And the reason for that, Mike, is a number of compensation and pay equity laws have passed on a state level, not a federal level, to be clear, on a state level over the last 10 years, California, New York City, Oregon, Delaware, Massachusetts, Illinois, the state of Washington and others. I mean, put bluntly, it's the blue coastal states, right? Is where a lot of this is happening, where now recruiters are actually prohibited asking about compensation history. Instead, now, and certainly everyone at Spencer Stewart is trying to ask about expectations, not about history. To be clear, candidates. And you can still volunteer your history, it's not required, but we cannot directly ask it. Now, here's my honest experience of handling this, Mike. When I ask the compensation expectations question, most people do not know how to answer that question for exactly the reason we say that I said a number too high or too low, I'm going to look stupid. Or I'm leaving something on the table, I'm going to come across as greedy. I'm not going. 80 to 90% of people do not know how to answer the expectations question and they end up reverting to well, look, here's where I am because that's the one number they know Inadvertently. Candidates may choose to share history, but just be aware. Recruiters in many jurisdictions cannot and should not and will not directly ask you about your compensation history. What they can do and should ask you about is what's referred to as forfeitures. So if you were to walk away, what are you leaving on the table? This was your point. I mean, are you leaving at the right time? When is something vesting? What do we need to be aware of? What short term annual bonus could you be leaving on the table?
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Right, if I'm three months ahead of bonus, I'm leaving a lot bonus, maybe on the table.
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Particularly acute for searches being run this time of year. So late Q3 and Q4, most companies run on a fiscal year that aligns to the calendar year. Bonuses are paid tips typically January through coming to the final quarter. Now you are essentially, if you leave in Q4, you are essentially giving up most of your last year's accrued bonus. How is that going to be taken care of or accounted for? That's an example of a forfeiture. All the equity we spoke about, what is it worth? Over what period of time? When is it going to vest? If you leave, are you giving it up? That is a forfeiture. A recruiter can, could and should ask you about that and you should be ready to address and answer that question. This is a broader point around what these compensation laws are and what you need to be ready for this expectations thing. As I said, look, that is the topic that I think most people struggle with. What I would say is, look, do a little bit of research, use recruiters, use your peer networks, maybe even use some proxy statements where relevant. Although as I said at the beginning, 4% of companies even have a marketing leader on their proxy statement. But be thoughtful, put an aspirational. Anything that's too high or too low can frankly send the wrong signal.
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And beneath all this I'm hearing know how you get paid, know how your company rules are in terms of vesting bonus because the bonus may get paid at the end of the year, but you also may have to be in seat in February 15 or March 15 to get it.
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That is correct.
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So you really want to know the rules and you don't Want to be fumbling around with it. And then you were telling us how to manage the question about what are your expectations? Are there any other best practices in there?
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Well, here's where I would go with the expectations question. I get all sorts of responses to this. I mean, part of it is, you know, a savvy candidate will actually turn the question around on me.
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Right.
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I mean, it's not, you know, and in most cases, I'm not flying blind. I mean, most recruiters are going into a role in a search with some knowledge, roughly speaking, may not be gospel truth, but directionally where the role is, again, a recruiter doesn't want to tip their hand too much or give too much away. So it's a really delicate dance. But I find the more savvy, sophisticated candidates will actually push it back and put me in a slightly and do.
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A
A thing like, hey, Richard, do they have a range they are thinking about for this job?
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Precisely. So I would actually think about pushing back on that. It's not so much pushing back, but actually responding to a question with a question, almost making it rhetorical and seeing, you know, what information that may reveal. I mean, at the end of the day, Mike, this is all about information asymmetry.
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Yeah.
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The recruiter has more information than you do about compensation's role. And they're trying to. This is not the right. I don't want to say that they're trying to exploit that. That is not the case. But they are trying to get to a solution that works for their client. Remember, recruiters, executive search consultants are paid by clients, they're not paid by candidates. Right. And so they want to do what's right by the, by the, by the client. Now what I will say to my clients is you are not only looking to recruit a candidate, you're looking to retain a candidate as well over the long term. So being, you know, penny wise but pound foolish on compensation negotiation often can backfire.
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A
So you had your four things. Did we get through all four here?
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I'll give you one other which I think is really interesting, which is once you get into a negotiation. So how does the negotiation actually work? My general feeling and experience is there is, there's typically one round of negotiation.
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A
So you get one big ask after you get correct.
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In other words, let's say you're the chosen candidate, you've gone through all the interviews, probably the referencing has been done, all the background checks have been done, the offer is forthcoming, there may have been some expectation setting or there may have not before you Received the offer, but now you get the offer. In most cases, the offer is expressed verbally first, right? And then, you know, can you accept this offer, yes or no? In my experience, that is your moment as a candidate. That is your moment of highest leverage. They've made it clear they want you. They're probably maybe even switched off most of the other candidates. So, you know, the eggs are all in the basket here. They want you. They want to make it work. You haven't committed. This is your greatest moment of leverage. That said, it is about doing the right thing. In my experience, there is. This is your opportunity now to respond to this and very clearly say, look, based on this, this is what I think I need to make it work.
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A
And you really get one shot at this, right? You can say, look, you know, I understand the rules, but I would, you know, I'm leaving a lot of equity on the table. Is there anything you could do with that?
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Right?
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A
And then how many things can you ask for?
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Well, okay, so we'll come to that in a second. So. All right, so now, look, a good recruiter should have worked with you to uncover the issues, right? Forfeitures that we spoke about. Ideally, Mike, that should be covered weeks ago. This should not. There should not be, at this point, new news or surprises to either party in this negotiation. Now, what you also have to understand, and I try and get this from my clients is, look, some. Some clients come with a what I'll call a full and fair offer up front. This is it. It's basically best and final, or I'd say very close to best and final. There may be a little bit of wiggle room, but. But this is it. We're not trying to, you know, we're not trying to do any funny business here. We're trying to give you a full and a fair offer. Or look, legitimately, some companies that love to negotiate, that love to go through a round, maybe two, of negotiation. And again, working with your recruiter, whether it's an external agent or an. Or an employee in the talent department of the company, just getting a sense of how a company runs negotiation, what rounds of negotiation you should expect, understanding the company's approach, that is. That is really critical.
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A
And when. When the recruiter says this is their best and final offer, how do you know if that's true or that's a negotiating tact from the company? Because no one says, this is my first offer. Give me a counter.
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B
So this is where, look, there's a little bit of brokering that goes on. This is why I actually think it's helpful to sometimes use an executive, not so much, but to use an executive search firm. Because I think it can when there's a third party involved. I mean, it's the same, you know, when anyone buys or sells a house, it can get quite heated. You will have different views on what your house is worth and what someone should be paying for it. I think the same is true about ourselves and our services. And I think using a broker to try and take some of the heat out of the negotiation that can truly broker a win win relationship for both parties. That is where I'd say, look, trust your recruiter. Many of them have been doing this for many years, if not decades. They generally know what they're doing and they're just as vested as you in getting this done and moving on when they're there.
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A
They don't want to go back to go unless they have a really.
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B
No recruiter wants to go back to a restart. Yeah, so. So look, I think there is some sense of, you know, being open, being honest. All parties. You know, I haven't found that anyone comes to these negotiations trying to screw someone over. Mike. I just have not experienced that it is about how do we find the best available outcome for all parties involved. I do think there is some, a lot of good faith that exists in these situations. How about.
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A
Other things like the one offs? In an earlier show you mentioned about moving horses.
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B
Yes.
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A
You know, they're severe. There's severance deals which is, I know I'm going to a higher risk job. Are you going to give me a severance package? How do people think about those?
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B
And so this is where I say, look, even if you, if you, even if you can't get the, the base salary number or the bonus number, for example, to be exactly where you want it to be, There are so many other potentially negotiable elements beyond pay.
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A
Right.
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B
So severance, sign on bonuses. We'll talk about that in a second. Maybe relocation, start date, work location, travel allowances or even, you know, there are some unusual perks. I think that joke which you always bring up with me is when there was a negotiation about the horse stabling costs. Yeah, I mean there is some literally crazy stuff that can occur from time to time. But my point is there are many other elements beyond just base and bonus to think about here. I mean the one we probably should talk about because this does come up a lot is severance and separation.
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A
Let's talk about it.
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B
So look, Spencer Stewart, as you know, for Many years has been publishing a tenure study about the average tenure of a chief marketing officer. And guess what? It's 4.3 years. That is not particularly long. Now as you and I have discussed, Mike, it's not that different from the average C suite member, which is actually about 4.9 years. But it, look, it's below average. And given the short tenure of chief marketing officers, there is a discussion around should they quote, unquote, protect themselves?
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A
Yes, and that's average. So on the bottom end of that curve, it's one in two years. So yeah.
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B
Now look, this can be really quite interesting. Here's what I'll tell you up front. Look, there are some companies that just have a straightforward policy around all their C suite members or however far down the organization they choose to extend this, this offer are essentially, there's a company policy, we're all going to follow it. And you know, if something happens, then you know that will, that will come into force. To be clear, if you involuntarily leave. So for example, you know, if you resign, if you're in a court, take another job, there's no severance or separation there. Similarly, if you are fired for cause, so you know, you commit a crime or something, there's clauses where this doesn't apply. So first of all, check number one. Is there a company wide policy under which this role falls? If not, again, you know, when we spoke about being at that moment of negotiation, of greater leverage, that is the moment to ask. And what I say to candidates is, look, the worst thing they can do is say no.
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A
Right?
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B
It's the worst thing they can do. And then in many instances, look, where there is a severance or separation policy, again, it's company by company. I'd say the most common might be around six months. Occasionally I'll see 12 months, it might be three months. I mean, everything's there. But in most cases there will be a standard policy. You are not the first person to ask about this, I can assure you. But you know, do ask because again, this is your moment to do it.
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A
And is this a thing you should ask through the recruiter? Because all this stuff is way better through the recruiter than directly through the company. Right.
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B
I look, I look, I am of the belief that you are correct, Mike. I think that using a third party broker negotiated, as I said, just takes the sting, the heat or the emotion out of this. I'm most concerned if people are seen, you know, candidates are seen as greedy. I know in many cases that's, that is not the case. They're generally trying to protect themselves. And this may be a very pertinent issue for a company that is going through some sort of transformation, is having some major performance issues. I think, you know, I think it is the right thing to ask about, but at the same time, you don't want to offend people.
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A
Right. I think it's way better to go through the search firm and also if they've had a CMO or two blowout in the last three years and you're coming in, you know, there's a little bit of a track record where you don't want to ask that question, but the search firm can probably do a better job of it.
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B
Yes, I think that's right.
- [32:27]
A
Hey, so I want to make sure we're done with negotiation, and if we are, I want to flip over to kind of just thinking about comp in general. But anything else on negotiation you want to. You want to talk about?
- [32:40]
B
No, I think we've covered the main topic.
- [32:41]
A
All right, so let's talk about. You're looking at all these proxy statements and you think, wow, I'm not in the name executive officers. And all my peers feel like they are. I feel undervalued, I feel underpaid. Or I read about so and so getting this ginormous stock grant, and I don't have any of that. How do you recommend marketers think about how they get paid here?
- [33:09]
B
Yeah, so look, I think there's probably two things to think about here. One is for yourself, what you do if you personally are feeling underpaid. There's another sub topic here which we might want to come onto, which is how do you manage subordinates?
- [33:24]
A
That's going to be the next. Yeah, I'm going to pop on that because first you got to get your head on right about Am I paid fairly?
- [33:32]
B
Right. So look, this is always such a difficult topic. I mean, I challenge you to find anyone who thinks that they're overpaid.
- [33:38]
A
I mean, I always wanted one of my people to come in and go, mike, you're overpaying me. I want to give some money back.
- [33:45]
B
I mean, let's go. I mean, everyone to some extent probably feels they're leaving a little bit on the, on the, on the table. But look, this is a really difficult topic. I mean, I'm, I'm a fair. I think I'm a fairly data driven individual. But as I said at the beginning, Mike, there's actually very little public data out there. It's really hard. And so inevitably, these conversations get tricky because it comes down to anecdotal data. Worse, you may be comparing yourself to your peers, your colleagues, your co workers in the company. So then it seems either resentful or even jealousy. It's really difficult. Look, I'd simply say this. If you truly believe you're undervalued, try and gather some data and have a direct conversation with your manager. Try and use where you can and where it exists, market data, peer benchmarks, even recruiter insights to support, to support your case.
- [34:39]
A
Right. And then, so if you conclude you are actually relatively fairly paid, but you realize, gosh, the company values, you know, say I'm a financial institution and they value loan officers more than they value the marketers, which makes actually a lot of sense. Or maybe they, in retail, they value the merchants more. How do I manage my subordinates through this in a way that calms them down and keeps them from getting a bug about how they get paid?
- [35:13]
B
Yeah, look again, I recognize this is a tricky one. I'm sure everyone on there has team members that at some point have probably approached them about this topic. I mean, I have always felt when it comes to compensation that sunlight to the extent that exists in this is the best disinfectant. And what I mean by that is, look, be transparent about pay structures and market realities. I would often say, hey, by the way, to a team member, have you actually read the proxy statement? I mean, there's actually a lot of detail in there.
- [35:45]
A
A lot of detail in the proxy.
- [35:48]
B
I mean, often 20 plus pages of excruciating detail.
- [35:53]
A
Yes. It's not, not going to make a movie out of it.
- [35:56]
B
No, no. I mean, it's not exactly riveting stuff, but at least it is transparent. Now look, I recognize this is only for public companies, for a private company, and then obviously this is not, this is not an option. But I would, at a public company, I would strongly encourage, you know, sharing with a team member. Go and read the proxy statement and, you know, tell me what your concerns are based on that. We are all operating under the same, you know, we're all operating on the same structure to some extent. But there's some insights that you'd like to learn further about from the proxy statement. Then, you know, let's, let's have that, let's have that conversation.
- [36:33]
A
And one of the things about the proxy statement is, you know, all the shareholder services groups have torn that thing apart for say, on pay. So, so this is not, this is not something that is some esoteric thing. This is like you should you should go read the proxy statement to understand a lot. How about when the equity is underwater and your team comes in and says, hey Richard, you know, all my equity is underwater. The best thing I can do right now is change companies and reboot my equity and, and just because, you know, they'll start me at zero and I'm already underwater by five bucks.
- [37:13]
B
Well, first of all, I think you have to be empathetic in those situations. I think you have to acknowledge the frustration that may exist. But I think as a manager, as a leader, as a chief marketing officer, this is your opportunity to communicate the long term vision and the potential upside. I mean, let's be honest, I don't know many chief marketing officers that single handedly can move the share price of a company, part of a larger entity or organism. But in many instances, and you've heard me preach about this before, the reason I am so excited about the long term future of marketing is because it is the growth driver of the company. So everyone there is with you there in the engine room and you have perhaps more control over your destiny than perhaps you might realize. So I do think this is a moment to, as I said, acknowledge the challenge, but also very clearly, I think set the vision and restore the faith.
- [38:12]
A
And the other thing is, hopefully your company is refreshing, not repricing, but refreshing the option pool or the RSUs every year so that you're getting them at a low price this year. So understanding that proxy statement is a big deal.
- [38:29]
B
Correct. Look, and I'll be honest, some of it is dumb luck. Here's another data point I'll give you. Most companies when they're issuing annual equity are typically doing it around March or April.
- [38:41]
A
Yeah.
- [38:42]
B
Guess what happened this March or April of 2025. We had liberation day. Yeah, Markets took an absolute dump for a short while and now, by the way, they're up stronger than ever. And I understand the S and P is hitting new records every day. If you through dumb luck happen to get your equity issuance at a certain, I forget exactly when it was, but a certain date in late March or early April.
- [39:07]
A
Right. You're just in money the day after.
- [39:09]
B
You get probably already looking at a 20% return this year. You know, on the other hand, if you happen to, you know, be issued equity, you know, the day before. Yeah, it probably wasn't looking great. So look, some of it is just in the lap of the gods here, Mike. We can't control everything.
- [39:27]
A
And the other thing I would say, you know, having spent a lot of time with Comp is if you look at one year, there's always something where either really lucky or you really got screwed. And you should try and look at comp over time and think, am I getting fair comp over time versus can you fix the Liberation Day problem? That just smacked me. I also have never had anybody come in and go, you know, we got the stock the day after Liberation Day and we're up. We feel we're being compensated unfairly, positively. We, we'd like, we'd like to take a lesser bonus.
- [40:00]
B
Yeah, no, exactly. You're never going to hear about someone complaining about the upside. You're only going to hear about the downside.
- [40:04]
A
Hey, any other comp practices, best practices we have missed in our chat?
- [40:11]
B
There is, there is one, one very important one. And this is something I will do on pretty much every offer for any major role that has a lot of complexity to it. And that is you need to do what. I mean, it's simple. It's a multi year cash flow analysis, typically a five year cash flow analysis. You got your, what I'll call your steady state. So, you know, here's where you are today, here's your base, here's your bonus of target, here's your expectations of equity. And you know you're going to do it by investing. So it's actually, you know, a real cash in hand. W2 sort of look at what you're getting and then you're going to compare it to the offer.
- [40:48]
A
Yeah.
- [40:49]
B
And you're going to do this over five years and you're going to figure out where there's a delta. Now, in my experience, there is typically a, sometimes a negative delta or a negative gap sometimes in year one and year two. Here's why. When you are issued equity, for example, as part of your compensation package, we spoke about vesting cycles, Mike, at the top of this podcast. Sometimes it's a three year cliff. So in other words, the numbers look good on paper, but you're not cash flow perspective, you're not seeing any of it until year three. Whereas if you stayed where you were, you've got that cash flow continually coming through. As you're now in the middle of these or realizing these vesting cycles, this cash flow analysis over five years can really reveal where there are going to be some meaningful gaps as to what you would actually experience. Literally cash in your bank account or in your wallet. That can be very, very revealing and very important to do. What I nearly always find is there may be a gap in year one and two, but Nearly always. Once you hit year three and beyond, I mean then it really takes off as the equity accelerates. So now again, this is part of a point of negotiation. Do you go back to your counterparts and ask for some sort of sign on or bridge payment? Call it what you will in year one and year two, Will they handle that or not? Is that negotiable? Yes or no? And what does that gap look like?
- [42:12]
A
Right. Especially if you have to buy a new house or something in a higher cost neighborhood. You really want to do your homework here.
- [42:19]
B
Well, so now you bring up another point which I wasn't sure we're going to get to. But you know, one of the challenges now it is financially punitive to, to relocate. I mean many people have locked themselves into a sub 3% mortgage and you know, until a few weeks ago, I understand, you know, 30 year mortgage is running close to 7%. Yeah, I mean there are some substantial financial costs now associated with relocation which we, you know, we didn't, we didn't really see a few years ago.
- [42:51]
A
So lots to think about. Anything else before we get to our traditional last question?
- [42:57]
B
Look. Yes, look, all sorts of things cover the negotiation titles. Do you have the C title?
- [43:05]
A
Yeah.
- [43:05]
B
Svp, vp, Head of Marketing. I mean look, there's a whole bunch of things that again that would normally be established upfront. You've probably seen even a job spec that spells out what the role should be. But sometimes there's some negotiation on, on, on, on titles. Again, the reporting line, you know, typically that's fixed. That stayed in the job spec that's typically not open for negotiation. Here's something that does come up. Non compete and non solicitation agreements.
- [43:31]
A
Oh yeah, that's a good one.
- [43:32]
B
That may exist in offer letters or in many instances it may not exist in an offer letter. You may be presented with a bunch of documents on day one that no one told you was coming your way. You should potentially just better understand how issues like that are handled and what are you walking into. So there's an almost infinite number of topics, Mike, but I think I'll leave it there.
- [43:55]
A
I have one more I want to ask. You know, a lot of people will say you should never get to the point where you turn down a written offer that that is a. Unless the company blows it up or changes it. How do you feel about that statement?
- [44:12]
B
Well, there's an assumption which is by the time you've got to a written offer, you have already negotiated the elements. And typically I'm working with my clients as I Said to agree to get to a verbal yes right before the before, before the written offer letter goes out. If you have got to the point where the written offer letter has gone out and you say no, something has gone terribly wrong either in the process or conditions that weren't being made aware of or, and this is sort of shame on the recruiter for not figuring this out, you may frankly be looking at two situations side by side. And look, the other firm has got to the finish line first. I mean here's the reality and most the offers that we're handing out from our clients, you've basically got a week max, right. Max to sign on the dotted line or the offer or the offer expires.
- [45:05]
A
And a lot of times they like the company has to go to the board of directors or other people to get specific approved. And so when you get to the written offer, if you don't close also makes you feel pretty bad as the hiring.
- [45:19]
B
Correct. So that's why we're doing all this sort of pre close work before we get a written offer. No Chro or even CEO wants to go back to their comp committee multiple times negotiating an offer. So I think that's a highly unlikely situation. I'll tell you one thing that really is problematic, which is you accept the offer verbally, you accept the offer on the written offer and you sign and then you renege on the offer.
- [45:46]
A
Wow.
- [45:47]
B
It's rare. But it does happen occasionally. But it's, it's rare. I would say in searches I'm working on happens once every two years or so. So it is pretty, pretty rare.
- [46:02]
A
But one out of 50. One out of 50.
- [46:04]
B
Yeah, one out of 50. So as I said, not a lot. Yeah, but it does happen. There are all sorts of reasons. It can, it can, it can, it can happen. The biggest risk is when there is a large difference between the moment when someone resigned and their start date. Which is why many companies are pushing you resign ASAP and would like you to start a couple of weeks later. I have very few clients that are comfortable saying, yeah, you know, you go resign now and we'll see you on January 1st. You're asking for trouble.
- [46:33]
A
You're begging for problems.
- [46:35]
B
You are asking for trouble. But it does occasionally happen, particularly in financial services where there's often required notice periods or gardening leaves build.
- [46:44]
A
Oh, the garden leave. Yeah. Where you just have to hang out.
- [46:46]
B
Can'T do anything built into employment contracts. So look, there is, there is some risk, but that is, that is, that is a real challenge. I think both for your reputation.
- [46:59]
A
Yeah, that's, that's a, that probably follows you around forever.
- [47:03]
B
That, that's a reputational challenge. That can be a real problem.
- [47:07]
A
All right, well, this brings us to our. This has been a great chat. Thank you. This brings us to our last question. You're very familiar with it. It's a two parter practical advice we haven't yet discussed for our listeners and or funniest story you want to share.
- [47:24]
B
Okay, well, I've exhausted all my funny stories, Mike, so now I'm back to some practical advice.
- [47:27]
A
All right, very good.
- [47:28]
B
Which is where I think I've been for the last couple of podcasts. So here's, here's what's coming up right now. In interviews, I obviously ask candidates and how the interview go. What do they talk to you about? What do they want to know? Here's what I'm telling people. You got to be ready for the AI question. It is literally coming up now in every interview for every Chief Marketing Officer role. How are you using it? What are your use cases? What impact is it having? How are you working with the cfo? You got to have now some nicely packaged AI anecdotes about the impact and transformation that AI is having on your business and on your team. It's not the first question out of an interviewer's lips, but I can assure you it's definitely the second, third, or fourth. And so this is moving away from walk me through your resume or tell me about the time you did this. The AI topic is front and center now in interviews. I think they use, it's being used as a proxy for broader based, I would say agility, transformation, learning, manage cost and optimize. But the AI question is being asked now in pretty much every single interview I'm hearing about.
- [48:38]
A
Well, I think that is a great way to end the show. So thank you, Richard, and thanks to everyone for listening to CMO Confidential. Look for our other shows on Spotify, Apple and YouTube, which include Colonel Mustard in the study with the job spec, why can or why Khan can't and Richard's earlier shows, two of which are a rapid evolution in the marketplace. The Spencer Stewart CMO 2024 study. And it was the best of times, it was the worst of times. A marketing perspective. Hey, all you marketers, stay safe out there. This is Mike Linton signing off for CMO Confidential.