Co founder equity and paying a salary to a senior member of staff with red flags - I will not promote

Hi there we have a lean start up with lots of early traction in the B2B LegalTech SaaS space. We onboarded a senior member of staff (55M) as a head of partnerships - stole from a large PE Backed competitor - we were paying a handsome salary which now we cannot afford. So we offered equity (7%, cliff and vesting over 4 years) plus £4k retainer each month to give him the comfort of paying family bills whilst working on something he really enjoys. Unfortunately, we’re not seeing much of a return with his work. He’s lazy, refuses to put in more effort (by his own admission) until the equity paperwork has been signed. He is also trying to hijack commission entitlement on leads he hasn’t originated or contributed to, simply been there for the conversations. We have already been clear that commission for him (10%) is earned only on leads originated by him. Another red flag is he’s treating us a bit like a bank, we have loaned him money to offset against future payments. I’ve come at this from empathy, knowing I can recoup the money, but it’s like…. You wouldn’t ask this of a normal job? Anyway, I’m a 28 yo female, I’m CEO of the company, and he keeps waiting to see me in person to back me in a corner around equity without my co founder present (he’s in the US). The most recent conversation last week was around upping his retainer to £6k a month. Which I said is not possible. In my eyes, that extra £2k a month could go towards another operative salary (a body we need!). Anyway, when I say no, he just keeps asking and asking and chipping away and trying to negotiate. I hear him out, but it’s starting to leave a sour taste in my mouth, not least because he’s tying his effort with us to having his “ultimate package”. For example, not going 100% until he has equity paperwork terms that he likes, and the retainer he desires. In the meantime, I just feel like we’re paying 4k a month for no reason. I’m young, with no Rolodex or network of contacts. Unlike him. And yet I’m outpacing him on sales and closing deals (which is his background and experience with a ton of network). I know I’m a founder, and founder-led sales generally have a higher rate of success. Saying this, he’s got a partnership in motion with one of the UKs biggest law firms which could be a real land and expand account. Also when he started with us, we were still working out ICP and maybe we hadn’t enabled him with all the marketing materials he needs. Part of me thinks I should cut ties and cut the partnership with the law firm that comes with it (his personal buddy btw, however this firm really need us and have already pitched us as their partner in RFPs and tenders to winning massive clients - they need our tech). Sorry if I sound indecisive guys, I have a lot of work I need to do on myself and becoming an actual leader. But I’m curious on what someone reading, might make of this situation? (Oh and on top of this, me and my co founder would love to work with someone with B2B tech sales or partnership experience in exchange for % - we think there’s someone out there that can sweat out with us whilst still in this initial traction zone, and we’re not imposing “you must work with us 35+ hours a week”. Just someone who is passionate and wants to contribute to the growth knowing the upside could be huge. 7% is a lot - I told this guy that most people would work for sweat equity for this amount - but he said you absolutely would not find someone like that. So am I realistic?)

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u/[deleted] 1 1 day ago

[removed] — already gone when the archive first saw it
u/TreadEasily 1 1 day ago

I think you know the answer to your own question, it's time to cut ties. The fact that he continues to negotiate even with agreed terms means it'll happen in the future. It's better not to stress and allocate those resources to something else. Yes it may sting with that law firm lead, but at the end of the day you need to think about the company first. Having resources held up because this dude wants to keep renegotiating while not getting any work done is such a momentum and morale killer.
u/Monkeyboogaloo 1 1 day ago

I dont blame him for bot busting his balls until paperwork is signed. I wouldnt either. £4k a month is not nearly enough for a seasoned professional. I certainly couldnt afford to work for that for any length of time. Partnership deals take time and he wont see more than £4k a month for the forseeable future. You have a couple of choices. Get rid of him and accept that you cant afford the level of person you would like right now. Or Pay him more. Or structure a decreasing retainer. Agree to the £6k for 3 months but on the understanding that from month four it decreases by £330 a month back to £4k by which time commission has started to flow. And I hate the 10% on deals that he origonates. Make it 10% on deals that he has material involvement in. He is experienced and his input on other deals is invaluable. Or at least 5% on deals he has material involvement in. Also a partnership lead is not a new business hunter. Its a different beast.
u/yutelove OP 1 1 day ago

This is a poor mindset though don’t you think? We have a consultancy agreement with him for 2 days a week (this is what the 4k is for). Hes barely working them two days.
u/debauchedsloth 1 1 day ago

You cut his salary to way way below market in exchange for equity and he's refusing to work hard until you get him paper. This is normal and expected. Do you pay him for unsigned deals? And he's not using you as a bank, he's asking you to pay him a bit more, still under market. Seems to be like you don't plan to come through with the equity, he knows it and is acting accordingly. At the very worst, he's not busting his balls without a papered agreement that he will be compensated as agreed. Would you?
u/yutelove OP 1 1 day ago

Sorry to clarify, he’s working 2 days a week and we have a consultancy agreement that he agreed to. He’s hardly working those 2 days, more like 4 hours a week. At the moment this is why I’m holding back, equity should follow effort, not equity before effort? The danger is this mindset too, in the future, does this mean we suffer no performance every time he’s unhappy with his current package
u/tonytidbit 1 1 day ago

He’s lazy, refuses to put in more effort (by his own admission) until the equity paperwork has been signed.
How much work would you do if your boss doesn't give you the paperwork that would mean that you're getting paid for the work?
He is also trying to hijack commission entitlement on leads he hasn’t originated or contributed to, simply been there for the conversations.
Being there for the conversations is either work that he needs to be compensated for, or he doesn't have to be there providing input, right? You're the boss, you says who goes where to do what work.
Just someone who is passionate and wants to contribute to the growth knowing the upside could be huge.
How can you expect this guy to be passionate about anything when you're not even able to produce the paperwork giving him what you've promised him? How passionate are you yourself if all you do is talk about growth and future upsides, but can't even lock in a key player by giving him the paperwork that you promised him? What type of a leader are you that don't keep up with your responsibilities and paperwork, yet expect people to passionately follow you for your vision of future gain? I'm not saying that he's good and you're bad, but I am saying that in your post you're showing a whole bunch of red flags yourself. And before moving forward you need to take a step back and try to reevaluate yourself as a boss, leader, and founder. Are you the founder that you want and should be? As an example we beyond the paperwork got that about calling it him treating you like a bank and giving out advancements like that. You can't call that a red flag on him alone when you're the one that's created the fundamental situation either enabling that or creating the need for it. That's a huge red flag on you, because if you had shut that down the first time it happened this wouldn't have been an issue right now.
You wouldn’t ask this of a normal job?
Early startups rarely are normal jobs, so there's always a bit of "make it work however we need to make it work" over everything, especially when combined with a lack of experience. So it's not a normal job, or you'd be paying him a normal-sized salary and that would be it. What that means is that you opened the proverbial floodgates when you no longer could afford his salary, and then you've made the situation worse by lacking the experience to clearly mark what's expected, as well as enforced those boundaries. Lots of red flags on you and the startup, but **red flags are teaching moments, if you let them**. Take that step back and do a post-mortem on this situation up until now, with a focus on yourself. Spot those moments where you did or didn't do something, that then led to you ending up with certain ongoing problems. Then try to get back into the control that you should have been in. Reevaluate your obligations towards him, as well as how you should have managed him as a leader, and approach this almost like a new deal, or at least a new day. Make the obligations and expectations clear, **both ways**. Make sure that you yourself actually follow through, and that you take responsibility as a leader meant to lead him. Which includes setting expectations, doing reviews, as well as getting him his paperwork and giving him reasons to feel passionate about the business and performing well as his positivity is aligned with the business's.
u/yutelove OP 1 1 day ago

Thanks for a thoughtful comment. He gets paid 4k for 2 days a week via a consultancy agreement with clear responsibilities. He agreed to this, and we’re letting him pursue other contracts around us. The problem is, he’s hardly working those 2 days and the data is proving he’s not been impactful. He’s working an average of 4-6 hours a week. Can you understand that reservations? Despite throwing his toys out of the pram, and any equity conversation/paperwork being finalised, we are still paying him for a service he is not even meeting.