General counsel equity compensation at private companies.

The award in front of a private-company board is a stock option. The letter has to name the number of shares, the exercise price, and whether the option is an incentive stock option or a nonstatutory stock option. Incentive stock option status is a statute, not a label on the offer letter. Under 26 USC 422, the plan must state the share reserve and the eligible employees and be approved by stockholders within 12 months before or after adoption. The option must be granted within 10 years of plan adoption or stockholder approval, whichever is earlier. The term cannot exceed 10 years from grant. The price cannot be less than fair market value at grant. The option cannot be transferred except at death.

The annual cap is easy to miss on a large new-hire grant. Section 422(d) says that, to the extent the aggregate fair market value of stock for which incentive stock options first become exercisable in a calendar year exceeds $100,000, the excess is not an incentive stock option. Fair market value is measured at grant, not at exercise. Options are counted in the order granted, across the employer and its parent and subsidiary. On a four-year award with a one-year cliff, the shares that vest at the cliff all become exercisable in one calendar year. That bunching is how a large grant crosses the $100,000 cap, and the excess is a nonstatutory option, with ordinary income at exercise. If the holder already owns more than 10% of the voting power, section 422(c)(5) requires a price of at least 110% of fair market value and a term of no more than 5 years. If the grant would put the holder over 10%, the award has to be priced at 110% of fair market value, with a term of no more than 5 years, from the start.

The strike is a section 409A problem before it is a recruiting problem. If the option is deferred compensation that fails the statute, the holder — not the company — includes the deferred amount once it is no longer subject to a substantial risk of forfeiture, then owes an additional tax equal to 20% of that amount, plus interest at the underpayment rate plus 1 percentage point (26 USC 409A(a)(1)(B)). A nonstatutory option stays outside that regime only if the exercise price may never be less than the fair market value of the stock on the grant date, and the share count is fixed then (26 CFR 1.409A-1(b)(5)). The last preferred round is not automatically the common-stock value. The board uses a current appraisal. A stale one is how the general counsel inherits a tax bill the founders did not price.

The shares come out of a finite pool. Across 32,922 cap tables on Carta, the median employee option pool at seed-stage valuations was 14.5% (Peter Walker, 16 October 2024). That is the whole employee reserve at seed, not a general counsel grant, and not a Series B-C pool. Carta's note uses a four-year grant in a worked example of the first hires. It does not publish a general counsel percent, and neither does the Sartori research programme. The quarterly survey has run since 2019 and records equity-path sentiment. It does not publish an ownership percent for this seat. A round percent of the company, with no cap table under it, is a rumour.

One securities limit sits above the tax rules. Rule 701 (17 CFR 230.701) is the exemption private companies use for compensatory grants. The disclosure trigger is $10 million of securities sold in a 12-month period under that rule, the threshold stated in the Commission's 24 July 2018 concept release on compensatory offerings. The threshold is a company total for the year, not a line on one offer letter. The award agreement is not the place the company discovers it has already crossed.

Sequoia's severance note of 25 June 2025 draws a line private-company boards blur. Broad-based severance is often a formula, weeks of base per year of service. Executive severance is a stated multiple. For the C-suite, Sequoia describes the typical range as six to 12 months of base salary. For a chief executive, up to 24 months. Bonus treatment is less common; when it is offered it is a prorated or target amount, and companies that are conserving cash leave the bonus out. Health-care continuation, a release of claims, and the restrictive covenants sit in the same document. They are not implied by the option plan.

Stage changes the document, not the arithmetic. Sequoia says Series A and Series B companies usually limit executive severance to the C-suite, and that startups at that stage typically offer minimal severance and focus on equity. They often do not write a plan until an executive is being exited or a candidate asks for a separation agreement during the negotiation. That request, Sequoia says, is what starts the conversation, and the conversation should have happened before the search. A general counsel who is the company's first officer is a C-suite hire at the stage where the plan usually does not exist. The six to 12 months either goes in the offer now, for every officer at that level, or it gets invented for this one person and becomes the precedent.

From Series C to pre-IPO, Sequoia says it is common to see six to 12 months of severance pay, a partial bonus, and some equity acceleration. Those are three different promises. Months of base are cash the company must have. A partial bonus is last year's target or a fraction of it, and it has to name which. Acceleration is a vesting event, priced in the change-of-control section below, and it should not be smuggled into the severance paragraph as "customary equity treatment." Customary is how the acquirer's counsel reads a dispute.

Two drafting failures Sequoia names are worth copying into the checklist. One executive's generous terms, agreed in a quiet side letter, become the policy without a board minute. And the award never says what happens to unvested shares on a termination without cause that is not a change of control. Cash of six to 12 months with no answer on the unvested grant is an incomplete offer. The general counsel will price the silence in the negotiation. So will the person who leaves eighteen months later.

A general counsel search on this desk is retained. The fee is 25 to 30 percent of total first-year compensation, and 30 percent of the fee is paid as a retainer at engagement. The replacement window on a retained GC or CLO search is 12 months. We do not recruit from the client's legal department for 24 months after a mandate. Those terms go in the letter before outreach. The equity terms belong in that same letter, because the fee is calculated on compensation and because a finalist who hears the share count for the first time in week nine is hearing it from a sitting employer as well. The method, week by week, is how to run a general counsel search. The commercial letter is the fees, guarantee and off-limits guide.

The clock on that book is public. Median shortlist on GC and CLO searches is 24 days. Median brief to accepted offer is 11 weeks, range 8 to 16, of 52 files since 2017. The California company hired its first general counsel inside that range: day 24, week 10, equity that vests, still in post at 24 months. Programme retention of placed in-house leaders is 97 percent at 12 months and 91 percent at 24 months. Those rates are not evidence that any particular grant was well designed. They are evidence that the seat, once scoped to the stage, is one people stay in. An award copied from a listed company is a scoping error, the same error as a job description copied from a listed company.

Offer acceptance on the offers that go out is 96 percent. The misses are packages assembled in the room. For a private company, "the package" is the $240,000-$340,000 base, the 20-40% bonus, the option with a current strike, the vest, six to 12 months of severance if that is the officer standard, and a double trigger whose second event is written in English. A board that has agreed the share count and not the window has agreed the line the candidate cannot use. Settle whether those clauses exist before names are released: talk to us, or brief the search.