deferred salary for start up biotechThis question is more on behalf of my husband than for myself. He recently agreed to interview for a start-up biotech company in Maryland. In the midst of the communications the company mentioned stock options and a deferred salary since it was a start up operation. I know there are a lot of risks and rewards that go along with start-up companies, but can anyone offer advice regarding deferred salary? What does that typically mean in this situation? Thanks for any help! It probably means your husband should run like hell--the other way. Sounds as if they may not have the working capital they need to pay people their full salary every week. Yeah, they'll ask him to forgo salary at this point, then pay it to him later (if all goes well), at present value instead of at the inflated value. How much of an adventurer is he? Does he have the background to understand the business plan and to evaluate the management and its chances of success? If not, there's a really big down side to this proposition. I don't think this is as a huge red flag as others. Deferred salary is nothing new. You really need to understand the business plan and the chances of success before agreeing to this kind of arrangement. It may not be a 100% deferral nor could it be present value vs. future value. You could have a salary of $100K with $50K deferred for three years and receive $60K when paid. The key is to understand the business and your own financial need and tolerance of risk. I think you' re spouse needs to be very cautions about this job prospect, assuming he' s offered a job. Something like 8 out of every ten start-ups fail within the first two years. Therefore, stock options could be worthless if the company tanks. Deferred compensation is a nifty term to use instead of saying, "We really don' t have enough working capital to pay you the full amount of the salary upon which we agreed." That doesn' t necessarily mean your spouse will receive no pay at all, but probably not the full amount. This sort of situation really boils down to your husband doing his homework on their business plan and the revenue projections this company has put together, not to mention taking a very hard look at where their start-up funds are coming from. How interested he should be also depends on your personal financial situation and how much risk you can tolerate if this company doesn' t turn a profit for the next five or six years. Can you afford to wait that long and bet that heavily on this company' s near-term success? Frankly, I' d be lots more interested in negotiating an "employment contract" with the owners who should be personably liable for his compensation package. If they' re not willing to consider that, I' d be really skeptical. I'm in biotech and I've never heard of this. Biotechs with potential have investment partners, therefore, they have enough money to pay people. I'd be very leery of a biotech with no money because it probably means that the investment community won't touch them. You don't say what stage of development their drug is in, but it's usually 10-12 years of development and testing to product approval, and approval doesn't guarantee a profit. There are enough Biotechs/Pharmaceutical companies out there with money to consider working for one for free. | |
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