Why Compensation Consultants Often Mess Up Their Own Equity

It's a common blind spot rather than negligence: consultants spend their billable hours on client deliverables, and internal administration tends to get whatever time is left over. The fix isn't more expertise, your team already has that, it's simply applying the same documentation discipline internally that you'd insist a client follow, starting with an actual independent appraisal rather than an internally estimated number.

Yes, if you're granting stock options rather than cash bonuses or profit-sharing. Section 409A doesn't carve out an exception for small headcounts or for firms that happen to be experts in compensation design themselves; the strike price still needs to trace back to a defensible fair market value, and self-assessed numbers carry real tax risk for the people holding the options if the IRS later disagrees.

At minimum: a board-approved equity incentive plan, individual grant agreements with clear vesting schedules, documented approval dates, and a valuation report the strike price ties back to. Whichever platform administers the cap table, every option holder should be able to log in and see their own vesting status directly, rather than relying on a verbal update or an outdated spreadsheet somebody emails once a year.

A firm with a handful of equity holders and infrequent grants can sometimes manage with a simple spreadsheet, a signed plan document, and a periodic appraisal. Once grant frequency picks up, headcount holding equity grows, or staff start asking pointed questions about their own vesting that a spreadsheet can't answer quickly, that's the point where a proper platform starts paying for itself in administrative time saved.

Run your own firm through the same audit checklist you'd hand a client: is the option pool sized appropriately for the headcount, is every grant traceable to a board approval, does the vesting schedule match what was actually communicated at hire. If your own firm wouldn't pass that review, that's worth fixing before the next round of client work, since a compensation consultancy with a demonstrably clean internal plan has a stronger credibility argument with prospective clients too.

Run your own firm through the checklist you would hand a client:

• Check whether the option pool is sized appropriately for the number of people who actually hold or expect equity.
• Confirm every grant traces back to a board approval and to a valuation report that supports the strike price.
• Verify that the vesting schedule in each grant agreement matches what the employee was told at hire.
• Make sure each option holder can see their own vesting status directly instead of relying on a verbal update.

If a senior hire was told years ago that they'd get 'meaningful equity' without a specific number, strike price, or vesting schedule attached, resolve that ambiguity directly and in writing rather than letting it linger. Bring in outside employment counsel if the gap between what was said and what exists on paper is significant, since an informal internal negotiation carries real risk of becoming a formal dispute the longer it stays unresolved.

Say your compensation consulting firm has a dozen people, three of whom hold verbal equity promises made at different points over the last several years, none formalized. Fixing this doesn't require a big project: order one independent appraisal covering the current date, draft one equity incentive plan document the firm's leadership approves, and convert each of the three informal promises into a signed grant agreement referencing that plan and that valuation.

The whole process, for a firm this size, typically takes a few weeks once the appraisal is ordered. Most of the delay is usually internal, deciding on final grant sizes and getting partner sign-off, not anything technical about the valuation itself. Once it's done, a lightweight platform, or even a well-organized shared document updated consistently, easily supports a firm this size until headcount or grant frequency changes meaningfully.

The bigger win isn't the software choice; it's simply having gone through the exercise once. Every future hire's equity conversation gets easier once there's an actual plan document to reference instead of improvising a new verbal understanding each time, and every current staff member gets a concrete answer instead of a vague one the next time they ask.

Revisit this same exercise annually, not just once. A firm that fixes its own equity plan and then never checks it again tends to drift back toward informal promises the next time a strong candidate negotiates hard for a specific ownership number, and the whole point of doing this work is to make that negotiation go through a documented process instead of a hallway conversation.