BEFORE YOU FLY THE COOP...Don't forget to factor in your benefits
When David E. Maples was lured away from his lucrative job as a regional sales manager at Sun Microsystems six months ago, he left $30,000 in stock options on the table. But when he joined nearby NeTpower in Sunnyvale, Calif., he picked up options that could be worth $500,000 to $1 million when the computer manufacturer goes public in a few years. ''Sure, I walked away from some money,'' says 48-year-old Maples. ''But the options here were clearly worth the risk.''
Maples' move demonstrates the advantages of leaping in today's strong job market. But what are the ''stranded costs'' of the benefits you'll be leaving behind when you move on? When negotiating with a prospective employer, you mustn't forget to figure in the value of everything your old job offered from options to health insurance to vacation time. Taken together, these can be worth tens of thousands of dollars or even more. Fortunately, ''companies are getting more creative making people whole,'' says Ken Laverriere, partner with Shearman & Sterling, a New York law firm. Many are willing to cut deals with job candidates in a wide array of compensation and benefit areas. While you have more leeway with salaries and vacation time than with medical or retirement coverage, some companies will stretch the limit in these categories if it means hiring an executive they want. It's even becoming common for companies to offer huge signing bonuses to compensate for lost bennies.
CEO CLOUT. Top execs have the most bargaining power. CEOs often negotiate multimillion-dollar packages with the help of top-flight lawyers. In September, for example, former Andersen Worldwide head Lawrence A. Weinbach became chairman and CEO of struggling computer maker Unisys Corp. He's getting a $1.2 million annual salary, plus a $1.5 million signing bonus and a $1.2-million guaranteed first-year bonus. In addition, he was awarded options to buy 1 million shares of stock and given an unspecified grant of restricted stock.
But senior and middle managers are demanding--and getting--fat packages as well. You should look to boost your base pay 15% to 25% before making a jump, benefits experts say, though anyone switching to high-tech should expect a package that relies more on options and bonuses and less on salary.
With the stock market raging, many incoming employees want options to buy company shares at a fixed price--a way to boost their compensation. That was enough to lure 50-year-old Carl D. Stevens in November, 1996, from the security of a 26-year-career with IBM to ITC Learning Corp., a Herndon (Va.) training software firm with sales of only $30 million a year. Stevens became ITC's president and COO with the intention of boosting sales to $100 million. ''I had a fabulous package at IBM,'' says Stevens. ''But if I can leverage the performance of ITC, I can greatly exceed any earning opportunity I had before.''
When jumping to a startup, make sure you're paid enough in base salary to cover expenses, and view stock options as the cream. ''You don't want to be gambling with money for the rent,'' warns Yale Tauber, principal and compensation expert at William M. Mercer Inc., the human resource consultants. You also have to plan for the exercise of options you may have received at your old job. Most employees receive nonqualified options, which allows them to purchase company stock at a fixed price. Usually, these options are at least partially vested after one year. Many companies will give you a small window--say, three months--to exercise vested options after you've announced your intention to leave.
At this point you can go several ways. You can use your options to buy company stock and hold it. That means you'll owe ordinary income tax on the difference between the strike price of the options and the market value of the stock. You might also consider a cashless exercise--a relatively simple transaction that allows you to buy and sell shares simultaneously without putting up any money. You can do this through your company's broker, who will lend you the money to exercise your options, then immediately sell the stock. You keep whatever is left over after paying the broker's loan and commission. Your employer will withhold ordinary income tax on the gain.
You also need to consider what will happen to your medical coverage when you change jobs. Nearly half of midsize and large companies have waiting periods before new employees qualify for insurance. So you could be temporarily without a safety net unless you negotiate an exemption to the waiting period or purchase interim coverage from your new company.
If there's a gap between the end of your old job and the start of a new one, you can extend your previous company's coverage for up to 18 months under the Consolidated Omnibus Budget Reconciliation Act of 1986 (COBRA). You have to pay both the employee's and employer's share of premiums, however. But a recent law will soon make it easier to job-hop and keep your health insurance. Under the Health Insurance Portability & Accountability Act of 1996, workers with preexisting medical conditions--anything from allergies to cancer--can more quickly qualify for health coverage if they were protected in their old jobs. The change prevents insurance companies from refusing to cover ongoing ailments of new employees in an exemption period. The law doesn't kick in until 1998, so you may want to delay a move until then.
VESTED INTERESTS. A career move should force you to review your retirement plans. It generally takes five years to become vested in a corporate plan, so you may want to wait before you leave if you're only a few months away from the end of the waiting period. While many companies still offer traditional pension plans, 88% of the 334 medium and large U.S. companies surveyed by Mercer also offer 401(k) plans. When you switch jobs, you can leave your 401(k) in place, transfer it to your new employer's plan, or roll it over into an individual retirement account. You can also cash out--but you'll face steep penalties. If you roll money into an IRA, have it sent directly to that account. If the check is made out to you, the Internal Revenue Service will withhold 20% for taxes. You'll then have 60 days to move the money into a qualified account, you'll have to file for a refund on the withholding.
Vacation is easier to negotiate. If you've been in the workforce for 20 years, yet company policy says newcomers get only two weeks off, you might get the period extended. And more people are striking bargains for lifestyle benefits like telecommuting, reduced workweeks, or flex-time scheduling. Don't expect to see all these in the hard-driving world of Silicon Valley, however. ''It's culture shock for some,'' admits Alex Buccieri, president of Silicon Search Partners, an executive search firm in Menlo Park, Calif. ''You'll probably get an equity stake in a company, but you might not get your four weeks vacation.''
In the increasingly topsy-turvy world of managing your career, you must know which benefits are important to you. Then it's up to you to bargain for them.
By Mary Beth Regan in Washington
Updated Oct. 2, 1997 by bwwebmaster
Copyright 1997, Bloomberg L.P.