Finding a career-making CTO position is as much about technology as it is about personal networks. CTO and other executive-level technology job opportunities are often uncovered through a technologist’s contacts – and a little luck.
When such an opportunity is identified, it is those steps prior to signing an employment contract – the actual negotiations – that can make some technologists uncomfortable.
Despite this, many dyed-in-the-wool CTOs say that the opportunities to align business and IT and be the technical visionary for a company outweigh other job benefits.
“You always have to have a theme in the career,” says Phil Wiser, CTO of Sony Music Entertainment Inc. (SME), in New York. For Wiser, that theme is advancement of the technology surrounding digital music. Wiser previously worked with SME as CTO of Liquid Audio Inc.
Last July, Wiser sent out a mass e-mail to members of his professional network letting them know he was in the job market. Word got around to the right person, and in September, Wiser began talks with SME’s president of new technology. The CTO reported to work in December 2001.
Before joining SME, Wiser had not considered working for a large conglomeration; he enjoyed the entrepreneurial process of building a company and pursuing emerging technologies. But the opportunities that SME presented intrigued Wiser enough to spend considerable time with SME executives discussing the company’s technical mission and defining SME’s first-ever CTO role.
“We discussed how this [job] fits into the rest of the company, what the job is and isn’t. It was very important for me to understand what I’d be able to get done…and what charter I would have,” says Wiser, who drives SME’s overall technical strategy as it relates to digital music distribution.
Networking also helped Jon Williams land his job as CTO at Grey Healthcare Group, a health care communications company in New York. Williams, who was working as a CTO-for-hire, says he “was concerned about the industry backlash from Sept. 11, since technology consulting work had been cut way back in New York.” At an industry breakfast, Williams spoke with the CEO of MedPanel, where he had consulted previously.
“This CEO had just met with the CEO of Grey Healthcare Group, a MedPanel partner, and asked her if she was looking for a CTO. Not only did the [Grey] CEO say yes, but it turned out I knew the Grey Global CIO who was assisting the CEO in filling the position. It always helps to know someone,” Williams explains.
The CTO and Grey executives quickly came to an agreement about his role and compensation – it took approximately three weeks, Williams says. “Since I was their first CTO, we did not spend much time defining the CTO job duties. It was basically, ‘Do this, then that.’ There was a lot of flexibility in the position].”
Reasonable Expectations
Armando Cardenas-Nolazco also found negotiating his CTO position relatively easy. Finding agreement on a difficult issue – compensation – was eased by VCs (venture capitalists) working on behalf of DevX, says Cardenas-Nolazco, who joined DevX, an IT content provider in Palo Alto, Calif., in January 2002 as CTO. This same VC firm that aided in getting him the DevX job was the same one that had previously helped place Cardenas-Nolazco in 1999 as vice-president of engineering at speciality foods retailer Dean & Deluca.
This illustrates an important point, says Carl Gilchrist, an IT executive recruiter at placement company Spencer Stuart in Atlanta. Working from a reasonable initial verbal offer and finding a good fit leads to placement success.
In fact, after meeting DevX’s executive team and defining the CTO role, Cardenas-Nolazco “was pleasantly surprised by the first offer [from DevX]….Going through the same VCs, they knew where I was at [financially].”
The process of working with an intermediary can reduce the time from offer to acceptance. “A VC or recruiter will have a pretty good understanding of where the individual is as to base and bonuses,” Gilchrist says.
The recruiter works with a term sheet, which tracks deal components including base salary, bonuses, options, moving and living expenses, office location, change of control, job responsibility, and vacation. “CTOs should look at the package in total. It usually takes two to three passes to get the deal done,” Gilchrist says.
The initial compensation offer is important to set an unofficial but controlling ceiling, Gilchrist adds. “The delta isn’t normally more than 20 per cent. Say, if there’s a US$300,000 package, they will be off by US$60,000, and that could be made up in either base or bonus.”
Compensation isn’t always the deal breaker that many people imagine it is. “Usually deals crumble before the negotiation on compensation and legal issues,” Gilchrist says. “If both the client and candidate have done a good job of figuring out whether there’s a fit, they’ll find a way to make it work.”
Fine Print
“Things beyond compensation come out in the written contract,” says SME’s Wiser. Negotiating the details with SME was not a great concern for him; he had significant contract negotiations experience with Liquid Audio.
But not every CTO is as comfortable with the process as Wiser. “Just to speak, the reason the CIOs are better [with employment contract negotiations] is because they are generally more involved with vendor negations than CTOs,” Wiser says. But he and Spencer Stuart’s Gilchrist say that is rapidly changing.
Still, the finer points of an employment contract can be difficult to negotiate and understand – and the long-term ramifications can be significant, says Joseph Hoffman, partner in the Vienna, Va., office of the law firm Kelley Drye & Warren.
Some points that CTOs should carefully consider when negotiating an employment contract, Hoffman says, include indemnification, termination, and expiration – particularly surrounding change of control and bankruptcy.
Executives whom Hoffman counsels are “without exception” asking for protection in change of control, an issue that may arise if the company is bought out. Some executives seek severance, “compensation – base pay, options, bonuses – for a term of 12 [months] to 24 months after change of control,” Hoffman says.
With the recession in IT and particularly in telecom, “executive candidates are more sensitive to the company’s bankruptcy prospects going in. They have an eye on the company’s ability to pay deferred compensation, particularly retention bonuses and compensation,” Hoffman says. In some financially troubled companies, if the executive lasts six months, he or she receives a six-figure payment. “There are a number of techniques to insure payment, escrow or letters of credit,” he says.
Change of control and any type of bankruptcy filing can trigger problems with noncompete clauses that many CTOs hadn’t considered. “In the past, the company could file bankruptcy, [but] the company can linger a long time. The executive leaves and is subject to the noncompete. Or the bankrupt company’s assets are sold to another company and the [CTO’s] noncompete stays in effect,” Hoffman explains.
The indemnification clause spans all sorts of situations and “comes up in innocent ways,” Hoffman says. “With shareholder lawsuits, every company executive that sells within three to six months prior to the filing gets named whether he sold properly or not. It’ll cost US$25,000 before you can blink to get out of suit. That’s one example of where indemnification is needed.”
The attorney says that it’s not uncommon for the written contract to go through three revisions. SME’s Wiser, for example, says he went through “three or four iterations” of his written contract.
“The differences between the iterations become decreasingly important and come down to details. It’s important to come in with understanding. You need to know what your thresholds are. Get to that quickly,” Wiser says. “Otherwise the person on other side may get frustrated and think that you’re not being up front.”
Deal Makers
Technologists may find that defining the job and the fit with the company are the better parts of negotiating a new CTO job. To ease discussions surrounding compensation and executive risk issues, experts say to clearly define your make-or-break points.
