Manoj Tripathi had a great job with a great company. He worked as chief information officer for retail giant the Body Shop and was there during its fast-growth years. Then in late 1997 he got a call from a recruiter about a small chain of juice bars called Jamba Juice.
Jamba what? At the time, Jamba Juice was doing about $23 million in sales and had little name recognition outside California. Even though Tripathi had never heard of it before, in March 1998 he left his prestigious post behind and took a new job with the fast-growing little company.
How did Jamba hook Tripathi? "Stock options? That wasn't the lever. I can get a similar equity payoff elsewhere. It was, 'Oh man, I'll be back in the game again. And oh, stock options, too?' That just made it a no-brainer," he says.
When Tripathi joined Jamba Juice, he got an equity stake equal to about 1% of the private company. One day those options may be worth a lot, so Tripathi was willing to settle for less hard cash up front. Jamba matched his salary (about $150,000) to bring him to San Francisco but offered no signing bonus other than agreeing to cover his relocation costs. But that was fine. All Tripathi wanted was to be "adequately compensated in the short term and well compensated in the long term."
For all their inherent risk, stock options have not lost their luster. "You would have thought so after August of last year," quips recruiter Bob Rollo, referring to the sharp downturn in small-cap stock prices. "Everyone was saying that people were going to decorate their walls with stock."
But, he adds, if there's potential for the stock to go up, "that's still a very nice way to have your tax deferred." And deferred income is, for many, the name of the game.
It's the classic entrepreneurial equation: most senior managers want a piece of the action. "The game everyone plays is getting to a company at the right time," says Jim Peters, a partner at Ernst & Young's entrepreneurial services group in Los Angeles.
So instead of fading away, options are becoming much more common. The National Center for Employee Ownership found that on average, not only do small companies give out more options than large corporations do, but the options they give are worth more.
Stock options remain one of the cheapest incentives on the books and are a powerful tool for customizing a job offer to suit an individual candidate. Recruiters and compensation consultants estimate that the average award for each member of a company's senior team is between 0.5% and 2% of equity. But it can go higher. For example, Jack Troia, the newly hired chief financial officer at $14 million technical consulting company Intervise Consultants, in Rockville, Md., came on board with a guaranteed 2.5% of equity. That share could increase to as much as 5% over three years if the company achieves certain goals. "My CFO is a millionaire on paper," boasts Intervise CEO Michael Priddy.
Priddy figures his newest hire was well worth it. Within a month of joining, the CFO had several banks fighting for Priddy's business.
Even if you are reluctant to start dishing out precious equity, don't rule it out as good currency for the future. It's not that everyone believes that every small company is the next MCI or Amazon.com. In fact, today's job candidates are much savvier than that (as well as more knowledgeable about the companies they approach, thanks to the Internet and other sources of ready information). But the surge in merger-and-acquisition activity has proved there are other routes to liquidity besides going public.
The bottom line is that "there are lots of opportunities in an organization to create wealth," says David Nosal, Northwest regional managing director of Korn/Ferry, which recruits high-level executives for young companies in a variety of industries ranging from high tech to manufacturing. "You don't have to be the CEO to become extremely wealthy. You just need to add significant value and be willing to work 15- or 20-hour days for three years. I've seen people come in at a $100,000 base salary and become wealthy. There are more millionaires being created today than at any other time in history."
Field of Dreams
Executive-style perks are trickling down to field managers. Jamba Juice has what is called "The Juice Plan." Each store manager receives a quarterly bonus and, at the end of the third year, a retention bonus and three weeks of paid time off toward a sabbatical of up to two months.