How to Protect Your Executive Equity as Your Company Goes Public

This article was published in IvyExec on October 21, 2025.

If you’re considering an executive role at a private company planning to go public – or you’re already in one – it’s easy to assume a major payday is around the corner. But an IPO alone doesn’t guarantee a windfall. The true value of your executive equity depends on the fine print of your executive employment agreement and how well your compensation terms are structured before the company goes public. In fact, without careful planning and negotiation, your equity could turn out to be far less valuable than you expected – or even worthless.

This article explores how executive equity packages differ between private and public companies, what typically happens to equity and other compensation in an IPO, and what protective terms you should seek – both before and after the company goes public.

Understanding Executive Equity: Private vs. Public

At public companies, executive compensation is subject to public and regulatory oversight. The Securities and Exchange Commission (SEC) requires detailed disclosure of executive pay through the Compensation Discussion and Analysis (CD&A) section of the company’s annual proxy statement, which outlines how top executives are compensated. In addition, shareholders participate in an advisory “Say on Pay” vote, offering input on executive compensation policies. Equity awards are usually performance-based, tied to multi-year financial or market-driven targets, aligning executive incentives with sustained company growth and shareholder value.

Equity of public companies is liquid and market-valued, providing executives with clear visibility into the worth of their compensation. However, these shares are also subject to SEC regulations, including blackout periods, insider trading restrictions, and short-swing profit rules.

On the other hand, executive equity in private companies is typically delivered through time-vested restricted stock and stock options , as well as performance-vested stock options. Because pre-IPO companies often operate with limited funding, they tend to offer lower base salaries and make up for this shortfall with equity grants. However, equity in a private company is inherently illiquid – meaning it can’t easily be sold or monetized – making it unattractive as a substitute for cash compensation. Yet, private equity can also provide financial benefits for the executive. Since private shares are not yet priced by the public markets, the company’s Board can set a reasonable internal valuation, typically formalized through an IRC Section 409A appraisal. Executives receiving common stock often benefit from a substantial discount relative to the preferred shares issued to institutional investors when the company goes public.

Another key benefit is the potential for tax-advantaged gains. If the private company’s stock price increases significantly after the IPO, executives may realize substantial gains and tax savings — particularly when equity is structured as restricted stock and a timely 83(b) election is filed.

What Happens to Executive Equity When a Company Goes Public

As a company prepares to go public, it must redesign its executive compensation program to align with regulatory requirements and investor expectations. This process typically involves benchmarking compensation structures against a peer group of comparable public companies.

During this transition, private companies – which traditionally rely on restricted stock and stock options – begin shifting toward performance-based equity awards. However, because it can be challenging to establish multi year performance goals for a newly public company, this transition often occurs gradually over the first few years following the IPO.

When equity grants prior to the IPO have been minimal, or when existing awards will be fully vested at the time of the offering, companies often issue a special equity grant, commonly referred to as a “founders grant.” These awards serve to increase the equity holdings of senior executives to levels consistent with public company norms and help incentivize key leaders to remain through the IPO and beyond.

In addition, targeted equity or cash-based incentives may be awarded to key employees who take on expanded responsibilities during the IPO process or who are deemed to be at high risk of attrition. These are often referred to as transaction bonuses or retention incentives. To achieve the most favorable tax treatment, companies may structure these as restricted stock grants, often called founders shares, which can offer significant upside if properly timed with a Section 83(b) election.

Key Terms to Negotiate Before the Company Goes Public

To avoid surprises, you should secure a retention agreement with tax advantaged equity before the IPO process is underway. Here are the key terms to negotiate:

1. Fair Compensation: To determine how much you should be paid, it’s helpful to benchmark your compensation against executives in comparable public companies. If that data isn’t available or the comparison is imperfect, aim for a package that aligns with your company’s financial position but also reflects your value to the organization – especially if you are instrumental in the IPO process or a key figure in the leadership team presented to investors. Your visibility and contribution can offer significant negotiation leverage when it comes to both equity and cash compensation.
2. Structuring Equity for Long-Term Value: As the company’s stock increases in value leading up to and following the IPO, it’s critical to ensure your equity is structured to capture that upside efficiently. Equity forms such as restricted stock or RSUs can offer better capital gains tax treatment when structured properly – particularly if accompanied by a timely Section 83(b) election. This can be far more beneficial than realizing the same gain as ordinary income. My earlier articles cover these nuances of equity structuring.
3. Structuring Bonuses: Bonuses remain a significant component of executive compensation in public companies and are increasingly formalized in the run-up to an IPO. You should negotiate for a performance-based bonus structure that reflects your contributions to the company’s milestones and strategic goals. For more detail, refer to my prior article on structuring bonuses.

Additionally, negotiate for executive-friendly clawback clauses and acceleration terms to ensure that you get the rewards if you stay through the IPO and in case you are terminated before the IPO, you still do not lose out on the benefits as long as you have made significant contributions to the company’s success.

Planning for Post-IPO Scenarios: Mergers & Acquisitions

An IPO can significantly raise your company’s profile and valuation – making it a likely acquisition target. That’s why your executive employment agreement should also include change-of-control provisions to ensure that if the company is sold, you won’t forfeit equity or compensation that you’ve earned.

For more guidance, you may wish to review my past articles on change of control agreements and executive retention agreements. Of particular importance is to seek acceleration based on a single trigger – that you vest or accelerate when the change of control occurs rather than down the road. This puts you in position to later negotiate new employment terms with the successor company of to go elsewhere if you desire and not lose the benefits of the acquisition you worked so hard to achieve.

Why Legal Advice Is Critical

Pre-IPO negotiations are high-stakes and often fast-moving. Most executives are not familiar with the full implications of equity structures, taxation, and public company transitions.

An experienced executive employment attorney can:

• Redline and negotiate employment agreements to ensure you’re protected
• Align your equity with market standards and future upside
• Help prevent costly surprises after an IPO or M&A event.

Joining a company on the path to going public can be one of the most rewarding – or disappointing – moves of your career. While an IPO offers the promise of wealth, that promise depends on how terms of your equity compensation are structured and protected. By understanding the differences between private and public executive equity, negotiating for protective terms upfront, and continuing to assess your package after the IPO, you can significantly increase the odds of turning your equity into real value.

As a Boston executive employment attorney with more than 25 years of direct experience in tax, contracts, executive compensation and employee equity, I can help you maximize your equity position and increase your ability to achieve the maximum benefit and tax favored treatment from your equity opportunity. Contact me, the Massachusetts executive equity attorney, at rob@attorneyadelson.com or call 617-875-8665.

 

Photo by Vitaly Gariev on Unsplash