Equity · Contract negotiation

How do I renegotiate my equity agreement?

Nathan Frerichs Digital Media Director at American Trade Magazines

November 10th, 2015

I currently have a single-digit equity share in a company for which I work full-time. I came up with and idea that is completely unrelated to the current business, and I’ve been working on the project for about six months … mostly on company time and with the president’s approval. This was 100% my idea and I have done 100% of the work, though we’ll eventually have our salesman selling ads on it. I think I deserve a bigger share of this property. How do I renegotiate my equity agreement and what is a reasonable percentage to ask for?

Shobhit Verma

November 10th, 2015

No you don't. 
You took minimal risks and don't seem to value the infrastructure around you which made it possible. 
If your idea doesn't work, will you pay back your salary? Will you pay back the lost opportunity cost of the value the company would have derived from you and other people's time that were involved? (Much more than your salary).
If you do not take risks you do not deserve the rewards.That is just the way things are. 
The right way to do it next time is to take the risk, quit your job and see if you can still develop partnerships in a way to create and share revenues. 
Way harder than working on the project full time for six months without worrying about salary.
It would suck to have an employee like you. 

Frank Agliotti Financial Advisor

November 10th, 2015

Dear Nathan, don't despise small beginnings. As an employee and shareholder as revenue increases from the team within the company you collectively share in both the upside and downside. Allow your dividends to accumlate and when shares are made available position yourself to acquire. Take a long term view in accumulating wealth.

Kindest Regard,

Daniel Marques Director of Application Development at Pragma Securities LLC

November 10th, 2015

Your company compensates you for the time you work for them, but it also compensates you for the value you add to them. Part of that value is bringing ideas to them.

Employees give ideas to their companies, rather than go off on their own, all the time. Once you gave that idea to them, it became the company's idea, and the fact that you came up with it is no longer relevant. The fact that you're the only employee working on it is entirely irrelevant.

The only thing that is relevant is if you believe you are under compensated, and if you can convince your boss of that. A strong argument might be based about the really good ideas you've given them, and the good ideas you'll presumably give them in the future.

Good luck!

Rob G

November 10th, 2015

Take the long view.  As has been said, your employer owns the IP.  Your compensation is based on the value you bring to the company.  Part of that value is the gray matter between your ears and how you leverage that to the benefit of your employer.  You already have equity and thus as implementation of ideas such as your new idea add value to the company (with no risk to you), you are rewarded by the increasing value of your equity.  employees that bring and share good ideas are typically rewarded with continued employment, promotions, bonuses, etc.  Employees with the attitude that they should receive additional compensation for doing their job tend to not last long. 

Clive Butkow Chief Executive Officer at Grotech Venture Capital Company

November 10th, 2015

Nathan as you did this on your employees time they own 100% of the IP to your new technology. Legally you have no rights to any equity in the new venture or more equity in your current company. With that said a conversation with your CEO to see if he/she has an abundance mentality and is open to this conversation can cost you nothing, as long as you do this appropriately. Best of luck 

Steven Mason Brand Strategist & Ideator; Patent Strategist; Patent Broker; Negotiation Expert

November 10th, 2015

Nathan:

The situation you're in illustrates an essential point: never -- but never -- enter into an arrangement of the type you have until you have in advance worked out and agreed on the terms that will apply should certain outcomes be achieved. I'm not saying this to be captious, but because I see this time-and-time again. Agreements should anticipate all reasonable -- and even unreasonable -- outcomes; and then specify what will happen if and when those outcomes occur. This is how lawsuits are avoided!

Now, in your situation, this is somewhat complicated. The President approved it, but with what understanding, if any? Depending on the state you live in, you may otherwise have rights if it's unrelated to the company's business, but that depends on your employment agreement (yes, it's really worth reading this and negotiating them!). But as, Clive rightly points out, if you've done this on company time, then any rights you may have otherwise had likely revert to your employer unless you have an express exception codified in writing and signed by the relevant parties.

If your President has, as Clive says, an abundance mentality, then you may be able to clarify and codify additional benefits to yourself. But even if the President doesn't, that doesn't mean you have no possibilities here. For example: are your skills needed going forward and in a significant way? That's negotiating leverage. Will the project fall apart if you're not there? An abundance mentality isn't needed for you such leverage if you're a critical success factor. If that's not the case, then your leverage is weak. Renegotiating is muchharder than negotiating properly and fairly in the first place.

Last, you need to look at this objectively. Perhaps the deal you have now isfair. You did all the work, but how much work, how much brilliant ideation? You won't be selling it. Will you be marketing it? If you invent something and another company manufacturers, distributes, markets, and sells the product, then 5% isn't unreasonable. So perhaps your single-digit equity share is fair. Good negotiators are looking for something that is fair and equitable to both parties, that avoids litigation in the future. In some cases, a 1% share is fair; in others, it's 80%. It all depends. So before you even consider renegotiating, you need to determine if you've already been treated more than fairly, and if so, you should be ecstatic. If not, then you can apply some of the points I've made above. Good luck to you.

Adam Metz Vice President at TerrAvion

November 13th, 2015

This equity situation is called "tuition". It's money you paid to learn something.

Brian Keller Technical Solutions Leader, Mobility/Cloud at AT&T

November 17th, 2015

As an employee of a company you have to always understand that the employer does bring things to the table that enable your ability to act on ideas you have. This is a good thing in most cases.

The challenge you have is one of "regret" or "buyers remorse". It was fine when you had an idea but now that this idea is proceeding you think you deserve more compensation for it. That's not unnatural to think that way however, if your employer didn't give you room to roam would you even ever get to the place you are at now?

My view, follow through on your idea. Finish the work. There is nothing worse than having a good idea and never seeing it through. Learn from the situation so that when you have your next idea, if you feel you deserve more compensation, you get that before you start. In the mean time, I would highly recommend an attitude of gratitude. It will allow you to complete your work, realize it's potential, fully learn the process of innovating and deciding if you have the chops to something on your own or you need the help and support of others ... like your employer has done for you in this situation.

Good luck. Hope you follow through.

Mark Wing Client Engagement Director at Small Back Room

November 11th, 2015

Thought you might find this interesting:

How 3M Gave Everyone Days Off and Created an Innovation Dynamo

Joanan Hernandez CEO & Founder at Mollejuo

November 11th, 2015

Nathan,

Your question has many angles. It's frequent that employees with ideas to improve the company are not listened, thus they end up being frustrated and leave the company (although you have -as you said- an small share in the company). So, kudos for the president for listening to you and taking the plunge and the risk on this project. If it works great! If it doesn't you won't lose you job, right? If it works, you can have it in your resume that you successfully generated this product that cause an increase in revenue of X for the company you worked. This is an important achievement.

The famous 20% rule of Google brought products like: google Talk, Gmail, Google News, etc. Those products were not part of Google when it started it. Those products were created when the company encouraged side projects. Do you think that the employees that created these products got a bigger chunk of Google? No! For sure they received bonuses for it, but that's about it, and -of course- the standard stock options compensation within the company. So, they didn't received more money that their salary for creating these monstrous products. Might not be fair, but at the same time they didn't lose their mortgage/rent while trying it. But, these people have in their resume that they created those products. Amazing!

Best of lucks!