My wife works for a rapidly growing private company that sold last year for nearly $1 billion. They are in 30 states or so currently. She was promoted to a DFW regional level position immediately after the sale as quite a few higher up staff quit after the buyout/receiving their six figure bonus.

We grew up poor and ignorant on such things. Never thought we'd be in this position.

She has now qualified after 6 months and now "received" stock in the company worth $200,000 that cannot be sold. It is defined as follows:

1. She forfeits all if she quits before any payout. Can't sell it in secondary market.
2. Wait estimated 4-6 years for "more investors". No immediate timetable set for her position.
3. Upon investment, you will get a check for $200,000
4. If you quit immediately upon receiving the $200,000, no penalty.
5. Whether you own stock 1 day or 6 years prior to payout, the payout is same by position. Timing is all.
6. Repeat the process.
7. Company will not disclose to her how well they are doing financially via any metrics. 100% on trust.
8. They are an estimated 10 years away from transitioning to a publicly traded company. No discussion on any transition.


A few questions:

1. Anyone have a site or book where we can do more research?
2. Any questions she should ask the company when they meet next month to discuss and sign paperwork?
3. Private companies can do what they want. Question from me is this typical behavior? When she described it to me, it sounded like they will only payout the position when the company sells to a bigger fish or they have cash infusions from investors. I translate that as they are not making a profit despite growing rapidly.

Appreciate any insight.

Is there a non-compete or any other restrictive covenants?

One of the big drivers for this, if not the biggest, is to limit turnover of key positions. If there are 30 folks (making up a number) that qualify for this level that would be a $6,000,000 comp exposure, pretty modest for a key group that is impacting growth. Growth is what matters here when you are talking about getting from $1B to some bigger number and an IPO. Key person turnover is disruptive to the objective and costs way more than $200k/person to the PE company and Mgmt in the waterfall.

You are virtually always stuck with these terms so not much to learn about. Typically there is a route for the most impactful employees in this tier to leverage their role into profits interests, or other comp plans. But this would be folks that are close to big revenue, have very high future potential, or are highly critical on key relationships. It wouldn't be everyone, otherwise that would just be part of the plan for the tier.

Is it stock or a retention bonus based on getting the company to its next funding or change in control? Depending on her level in the company, $200,000 six or more years from now isn't that great of a retention mechanism.

ETA: if she has an employment agreement in place it would be good to understand what happens if she's terminated without cause or leaves on her own for good reason. It is reasonable to expect an immediate payout in either of those cases.