Opinions on Comp/equity package for an inexperienced Operator

March 06, 2024

by a searcher from University of Oxford in Orange County, CA, USA

Recently acquired company offered me a role as Operator. I’ll be working along side new Owner who is starting a holdco. This is the first acquisition.

My experience: ~4 years of sales in same industry, young, never operated before. Also on table for me is MBA offer + MBA internship in searchfund. Career goal: become my own owner/operator in ETA (ofc)

Offer has a 10 week trial, then full time.

Company: Rev is ~950k with 15% margins (many inefficiencies in the business ops)

Yr 1 goal is ~950k with 20% - 30% net margins

Comp is as follows:
80k base (5k benefits)
Bonus 1: If yr 1 goal met with 20% net margins, 20k bonus (bonus not part of net margins)
Bonus 2: if yr 1 goal met with 30% net margins, 30k bonus

Total comp is 135K

Equity:
3% four years vested
3% $3M organic rev @ 30% margins
4% $5M organic rev @ 30% margins
5% $8M organic rev @ 25% margins
5% $10M organic rev @ 25% margins

Total 20%

Thoughts? Is this common?
What is worth negotiating?

Reply by a professional
from Harvard University in Lynbrook, NY 11563, USA

Are you going to be the main operator (as in CEO or its equivalent)? Seems like a pretty bad deal to me. You get max salary of 135k and then just 3% of a biz you've grown to 3-5M in revenue/.9M-1.5M in profit?!?!

And then just 5% of a 10M revenue/2.5M profit biz? That's $125k in profit for you plus your salary of 135k. Total of 260k max annual earning when you turned the biz into a wild success.

Unless I'm missing something or you're more of a hired hand rather than running the biz, sounds like a pretty bad deal.

Also re MBA, first, I personally think actually operating a business is generally far superior to doing an MBA. True learning comes from doing. Second, I'd prefer to compare to what earnings you would get as a sales guy in another job. If you're getting paid less for this operator role, I would consider any amount you're foregoing as the equivalent of an equity investment. (In other words, if you'd earn 150k and you're taking 80k instead, your putting in 70k a year in exchange for upside. The upside should reflect that at minimum.)

Would love to hear from wiser minds on this platform too.

Reply by a searcher
from Rutgers in Philadelphia, PA, USA

I think those bonuses are very aggressive targets for the first transition year. While the inefficiencies can be low hanging fruit to get the margins up, it could be very difficult to get that accomplished in the first 12 months. Many times the first 12 months you'll see almost no improvement over the prior year while you make necessary investments and redirections in strategy.

Also, how is "organic revenue" being defined?

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