As a founder, you are not simply paying people for their time. Executive compensation is how you attract and retain the right senior leaders. Structured properly, it also helps preserve control of the company as it grows.
Your employees and advisors are the ones moving the gears that drive the organization forward, so their equity compensation, employee benefits and other compensation arrangements must be tied to legal authority, corporate governance and scalable growth.
At Crowley Law LLC, our lawyers advise startups on executive and equity compensation structures, deferred compensation plans and executive employment agreements, each designed to comply with securities laws and support long-term growth.
Executive compensation covers the fixed and variable rewards given to senior leadership for guiding the company. Incentive compensation, by contrast, focuses on performance-based rewards that align key employees and advisors with the company’s growth trajectory
Together, these arrangements form the framework through which startups attract and retain key personnel, maintain accountability and preserve the stockholder control needed to pursue funding on favorable terms
Below are the core components of this compensation framework and the legal infrastructure that supports each one:
Compensation Element | What You’re Providing in Practice | Required Legal Foundations |
Base Salary and Benefits | Modest cash, often below market, along with benefits programs such as health insurance or relocation support | Executive employment agreement or consulting agreement with confidentiality, inventions assignment and classification terms that comply with applicable employment and tax law |
Equity Grants (Options or Stock) | Ownership in the company, typically through incentive stock options for employees or non-qualified stock options for advisors | Board-approved equity incentive plan, signed grant agreements, valid Section 409A valuation, cap table update and timely filing of Section 83(b) elections where applicable |
Bonuses | Cash or additional equity tied to product milestones, revenue targets or performance goals | Clear bonus criteria documented in offer letters or employment agreements, tax review to avoid deferred compensation issues under Section 409A, board review and approval |
Restricted Stock Units (“RSUs”), Performance Stock Units (“PSUs”) and Phantom Equity | Equity-like rights that may vest over time without immediate stock issuance | Documented plan terms, vesting schedules, securities law compliance and tax strategy that considers Section 409A and Section 280G if near an acquisition |
Severance and Change-of-Control Protections | Acceleration of vesting, retention payouts or golden parachute arrangements triggered by termination or exit | Written agreements that define single- or double-trigger terms review for compliance with Section 280G, board approvals and alignment with investors |
Every startup takes on risk when designing compensation. But for life sciences and other technology companies, that risk multiplies. Here’s why:
You and a co-founder might begin developing a compound, device or algorithm while still working at a university or another institution. The startup is formed around that work, but no invention assignment agreements are in place. That creates a legal vacuum.
If counsel is not involved early:
This happens more often than most founders expect. And once venture capital or strategic partners ask about the IP chain of title, it’s too late to clean it up quietly.
As your outside general counsel, we help make sure executive compensation, equity compensation and IP control are legally sound and growth-ready:
Our attorneys are well versed in structuring executive employment agreements, deferred compensation arrangements and other benefits matters for emerging companies. Each decision we support balances legal risk, securities laws and long-term business objectives.
Your executive compensation plan likely goes beyond base salary and stock options. Many startup companies tie deferred compensation and milestone-triggered bonuses to major development events such as:
Founders and senior executives expect meaningful rewards when these milestones are reached. But without proper legal structuring, these arrangements can create hidden risks that are easy to overlook.
Under Section 409A of the Internal Revenue Code (“IRC”), any compensation that is earned in one year but paid in a later year is treated as nonqualified deferred compensation unless it meets strict documentation and timing requirements. Failure to comply can result in:
These traps are common in early-stage startups that promise large bonuses without clearly documenting the trigger date, payment terms or required compliance language.
As outside general counsel, our attorneys provide integrated legal oversight across the full stack of compensation, tax and governance systems where 409A risks often arise. We:
Our startup executive compensation lawyers advise clients on building compliant, investor-ready compensation arrangements that support funding, retention and long-term growth for emerging companies in life sciences, software and other high-growth sectors.
If your startup is acquired or experiences a change in control, senior executives may be entitled to substantial payouts. These often include:
But when the total value of these parachute payments exceeds three times the executive’s average taxable compensation over the prior five years, Section 280G of the IRC may apply.
Section 280G applies only to “C corporations” that are subject to U.S. income tax and that are not “small business corporations” under Subchapter S.
At that point, two costly outcomes occur:
A structure intended to reward long-term leadership can become a tax liability and a red flag for investors.
Our startup executive compensation lawyers assist private companies in designing compensation arrangements that remain tax compliant throughout the company’s lifecycle. As outside general counsel, we:
We help make sure your compensation and employee benefits strategy supports growth, withstands diligence and aligns with investor expectations.
Crowley Law LLC provides full-service legal support to life sciences and other technology startups across every stage of growth. We help emerging companies design executive and equity compensation plans that align with business objectives, comply with securities laws and hold up under investor scrutiny.
Our startup executive compensation lawyers work directly with founders, CEOs and boards to structure employment, severance and deferred compensation arrangements that support growth, protect equity and maintain legal clarity as the company scales.
Executive compensation typically includes salary, benefits and equity for senior leadership. Incentive compensation refers to performance-based rewards available to all employees, such as bonuses, RSUs or milestone-triggered payouts that motivate key contributors to meet company goals. Both must be structured carefully to comply with securities laws and tax rules.
As soon as your company plans to issue stock options or other equity interests to employees, advisors or contractors, you need an equity incentive plan approved by the Board of Directors and stockholders. This should be in place before any grants go out and must be supported by a valid Section 409A valuation and documented grant agreements.
Unstructured bonuses, especially in life sciences or R&D-stage companies, may trigger Section 409A tax penalties if payment terms aren’t clearly documented. Deferred compensation arrangements must follow specific timing, documentation and approval requirements or risk IRS penalties and tax consequences for both the company and the executive.
The foregoing analysis is for educational purposes only and does not constitute legal advice. You should engage an experienced lawyer to help you deal with any issues of this type as they apply in your unique situation.
