Cashless Compensation For Your Employees

1. Cashless Compensation For Your Employees Presented by Robert Coleman President, Pacific Venture Club http://www.pacificventureclub.com

2. A few ground rules… • The goal is to stretch your cash while hiring quality employees • If you are an employee (or want to be) you can offer to negotiate on these terms I am not a lawyer or CPA- this is NOT legal or tax advice! This is a strategic guide.

3. What are your non-cash options? • Some form of ownership • Future income for work today • Goods and services at a discount • Intangible benefits

4. Generally speaking, if you give somebody something of value TODAY you create a legal or tax consequence for your company or your employee • Also generally speaking, if you give somebody something that is not valuable today but will be at a later time you postpone the legal and tax consequences. • Did I mention that I am not a lawyer or CPA? Guiding Principals

5. Let’s evaluate your company • Is your company charismatic? • Is it likely to generate significant future value? • Is it likely to generate significant future income? • Is it likely to be acquired for a high return? • Do your employees consider your company valuable beyond the Founders’ expertise? • Do you have an inside track on low-cost goods and services?

6. Making compensation decisions based on the previous questions • Charismatic companies that generate future value or might be acquired for a high return lean towards compensating employees with some form of equity such as stock options, or warrants • This is particularly the case when the company does not rely on the Founders’ expertise.

7. Making compensation decisions based on the previous questions- continued • Companies that will likely generate substantial future cash and income lean towards compensating employees with bonuses, profit-sharing, and debt instruments.

8. Companies that have access to goods and services for a lower cost than employees can obtain them individually can compensate with these goods and services • This includes healthcare, retirement plans, company cars, and other valuables. • In the Dot Com days it even included massage therapists, childcare, and company gyms! Making compensation decisions based on the previous questions- part 3

9. Let’s look at ownership options • Founder’s equity • Stock options and warrants • Phantom stock (Not really!)

10. Are you really willing to have your employees as your partners? • If you hand out stock today, your recipients will have a potentially taxable event • The window of company formation is a great time to offer stock with fewer tax consequences Ownership considerations

11. Options typical for employees, warrants for consultants and outsiders • Vest over time or defer the acquisition of stock • Allows the company to increase in value while also ensuring employees earn ownership • Postpones tax consequences (not always a good thing) Options and warrants

12. Phantom Stock Boo!

13. Now let’s look at debt • Commissions • Bonuses • Notes • Debts and obligations • Profit-sharing • Check your CA employee regulations

14. Employee benefits- tangible and intangible • Healthcare • Company car • Retirement plans • Debts and obligations • Ability to work from home • Work environment and atmosphere

15. Add back your benefits to calculate total compensation • How much saved on healthcare? • Equivalent compensation for car and other allowances? • Savings in childcare, etc.

16. Use your benefits to gain hiring leverage • Cash is not always the motivating force • Ownership and participation can change attitudes • Intangibles matter more than you think

17. Robert Coleman President Pacific Venture Club 707-762-2170 Robert.coleman@pacificventureclub.com http://www.pacificventureclub.com