Field Manager Pay Works Better In Cash Than Options

A yard supervisor handed me an option grant letter on a Tuesday morning and asked me what it was worth. He had four pages of vesting schedule, a strike price, and a written offer from a company forty miles down the road that paid $15,000 more in cash. I read the letter twice and could not give him a number.

He was not being difficult. He was asking the only question about pay that a man in his position can afford to ask, which is what the package is worth to him this year, and I did not have an answer he could use. My name is Rosser Newton, I have spent more than 35 years investing in privately held energy companies and sitting at their board tables, and I have watched that letter lose that conversation more times than I care to count.

Why Equity Does Not Work Below The Executive Line

An option in a private company is a claim on an event nobody can schedule. There is no market for it, no quoted price, and no way for the holder to sell a slice of the grant to cover a truck payment in March. Its value waits on a sale or a recapitalization that may be five years out and may never come at all.

A chief executive can carry that uncertainty. The rest of his pay already covers his life, and he sits close enough to the numbers to form his own view of what the company is worth on any given quarter. A field manager sits two hundred miles from that conversation and finds out what the company is worth when everybody else does.

The paperwork does not help him. The federal tax treatment of stock options and the basic mechanics of an employee grant are written for a reader who has an adviser on retainer. The man in my story had a wife who kept the household books and a brother in law with opinions about everything.

So he did what any sensible person does with a document he cannot price. He set it against a number he could price, which was $15,000 a year, and the letter lost.

Pay that a man cannot explain at his own kitchen table will not hold him, whatever it is worth on a spreadsheet.

What A Cash Bonus Plan Has To Do To Work

The argument for cash below the executive line is not that cash is generous. It is that cash is legible. A supervisor can check the plan against his own work, and a plan he can check is a plan he believes.

That puts a real burden on the design. The plan has to pay on two or three numbers the man himself moves, and on nothing else. Utilization on his units, revenue per crew day, a safety measure, a receivable aging figure if he has any say over how tickets get turned in.

Company profit is the wrong basis at that level. A supervisor who runs a good year and gets nothing because a different district lost money learns that the plan is weather, and after that he prices it at zero and goes back to comparing base salaries. I would rather pay a strong bonus in a losing year than teach forty people that the plan is theater.

One more thing about legibility. A supervisor talks to his counterpart at the competitor in the parking lot of a supply house, and the two of them compare packages in about ninety seconds. Whatever cannot survive that ninety seconds is not really part of your offer, and a four page grant letter never survives it.

The arithmetic should fit on one page. If a supervisor carries eight units, and the plan pays $1,200 for each full point of annual utilization above 62 percent, then he knows by the middle of August roughly where he stands and what a slow September costs him. That is the whole design goal, that a man can run the calculation in his truck.

Timing matters as much as the formula. Quarterly beats annual for anybody who does not have three months of savings, and a bonus that arrives eleven weeks after the quarter closes has already lost most of its connection to the work. The money also has to be there on the day the plan says it is, which is why a bonus plan and a cash floor belong in the same discussion, and I have argued elsewhere that a minimum cash balance deserves covenant treatment for exactly this kind of reason.

A company that skips a bonus payment once to protect its cash position has bought a quarter of relief and sold five years of credibility. The ordinary discipline of managing a small business covers most of what a plan like this needs, and none of it is complicated. It is simply unforgiving of a company that treats its own written commitments as flexible.

Where The Cash Argument Breaks Down

Here is the part I get argued with, and the argument is a fair one. Cash rewards the year and never the decade. A company that pays entirely in annual bonuses has bought loyalty with a renewal date on it, and every January it starts the negotiation over from the beginning.

There is also a line above which the logic reverses. The two or three people who will actually decide what a service company looks like in ten years should own a piece of it, because the horizon of their decisions has to match the horizon of their pay. Putting a district manager on the same cash plan as a crew supervisor keeps him thinking about this quarter, which is precisely the thing you do not want from him.

Finding that line is a judgment, and I have put it in the wrong place. At one company I replaced a small option pool with a richer cash plan on the reasoning in this piece, and inside eighteen months two of the best supervisors left for a competitor that offered them a stake. They did not leave over money in any year we could count. They left because somebody handed them a reason to think about the year 2035, and I had taken that away without noticing I had it.

So the honest version is narrower than the title. Cash is the right instrument for the men who run the work, options are the right instrument for the handful who set the direction, and the whole difficulty of the thing lies in naming which is which while a company is growing and both answers keep moving.

What does not move is the test. I sign my bonus letters Rosser Newton and I keep them to one page, because a pay letter that needs a second page has already lost the man it was written for.