At my current employer, I’m a member of the management team and a shareholder since the leveraged buyout a few years ago. As a result of this LBO, however, the business model has changed and the balance of power has shifted. This has made me decide to look for a job elsewhere.
Recently, I was triggered by a key position at a startup in the chip industry. It’s a challenging role in which I’d be responsible for setting up the entire supply chain and building a European branch from scratch. The job fits me perfectly. I’ve built up a solid background in design, process technology, program management, R&D management and, over the last five years, in operations management as well. The conversations with the startup’s management went very well. I have a good connection with the team and my enthusiasm is growing by the day.
As the company I currently work for has grown substantially through several acquisitions, I didn’t expect any problems with selling my shares. However, in my discussions with the private equity owner about my options, I was told that pulling out now would classify me as a “bad leaver.” This would mean that I’d lose a significant value of my shares, amounting to approximately half a million euros.
After hearing this, I obviously needed some time to think. Honestly, I don’t see how I’m going to explain this at home. Ten years ago, I quit another employer under similar circumstances, leaving behind an option package valued at 200K. I’m afraid I won’t be able to change jobs again unless I come up with a good solution. What do you think?
The headhunter answers:
In a leveraged buyout, the takeover is financed with borrowed money, to be repaid by the acquired company, the assets of which are used as collateral. This minimizes the capital the investor needs to put in himself while the interest on the debt is generally tax deductible (although there are restrictions within the EU). The debt thus acts as a kind of leverage for tax payment. In addition, it’s an incentive for management to improve profitability.
As the construction can cause share value to explode, getting involved in an LBO can greatly benefit an executive – even to the extent of financial independence. To prevent members of the management team from leaving the company on their own initiative, ‘golden handcuffs’ have been built in through a good leaver/bad leaver clause. This means that the price you receive for your shares is much lower when you’re classified as a “bad leaver” than when you’re a “good leaver.” Circumstances leading to a bad-leaver qualification include termination of the employment or management agreement during the ‘lock-up’ period or “serious” or “urgent reasons” such as incompetence or fraud.
Such handcuffs are not uncommon for highly trained employees in key positions. Consider, for example, restricted stock units that are awarded per year and that can only be converted into cash after a predetermined period. The financial constraints undeniably have the advantage of strongly linking the employees to the company. Sometimes, however, they impede people in their professional development.
The choice is up to you: you can either take the money or go for job satisfaction. Unfortunately, you can’t have both.