Stock Option Counsel, P.C. - Legal Services for Individuals. Attorney Mary Russell counsels individuals on equity grants, executive compensation design, employment agreements and acquisition terms. She also counsels founders on their personal interests at incorporation, financings and exit events. Please see this FAQ about her services or contact her at (650) 326-3412 or by email.
Mary Russell: Thanks for asking me to answer this. Public companies emphasize equity because it matches pay with overall company performance. If the stockholders are doing well, employee stockholders do well.
Silicon Valley-type private companies emphasize equity because -- historically, anyway -- they were strapped for cash. They can offer employees options to purchase common stock at a discount from the price investors are paying for preferred stock. So employees receive a discount on an unusual investment in exchange for lower salaries.
But in today's marketplace for talent at these private companies, employees are negotiating for higher cash salaries than in the past. I see two reasons for this. First, private companies are having a much easier time raising cash than in years past because of the wider world of investor economics. When equity is expensive, cash becomes cheap. So these companies can and do offer higher salaries. Second, private companies are having to compete with hugely successful local public companies who are aggressively recruiting and retaining talent with impressive cash and equity offers.