Equity instead of cash, which is the common case
If the reason for offering equity is that the day rate is unaffordable, the honest reading is that the seat is unaffordable, and equity does not change that. It moves the cost into the future and makes it larger.
It also changes who applies. An operator willing to take equity instead of a rate is usually either early in their fractional career and building a portfolio, or not in demand. Neither is disqualifying, but it is a different pool from the one the published rate would have reached, and you should know which pool you are fishing in.
The better move is almost always fewer days at the full rate. One day a week of somebody excellent beats three days of somebody who accepted a discount.
Equity as alignment, which is the good case
When the engagement is working, the work is genuinely strategic, and you expect it to continue for a year or more, equity does something cash cannot: it makes the operator care about outcomes beyond the period they are being paid for.
This version comes on top of the rate rather than instead of it, and it usually arrives after a quarter rather than at the start, when both sides know what they are dealing with.
What a normal amount looks like
| Situation | Typical range | Shape |
|---|---|---|
| Advisory, a few hours a month | 0.1% to 0.25% | Options, two-year vest, one-year cliff |
| One day a week, ongoing, full rate paid | 0.25% to 0.5% | Options, two-year vest, quarterly |
| Two or three days, genuinely running the function | 0.5% to 1% | Options, two to three years |
| Equity in place of a material part of the rate | Negotiated, and rarely a good idea | Expect to pay more in total |
Three things to get right if you do it
- Vest over time, not on milestones. Milestone vesting sounds precise and creates an argument about whether the milestone was met, usually at the exact moment the relationship is already strained.
- Include a cliff, even a short one. Three to six months protects you from the engagement that ends in month two.
- Put it in a separate document from the consultancy agreement. Mixing the day rate and the equity into one contract makes both harder to change, and one of them will need changing.
The tax question, briefly
In the UK, options granted to a consultant do not qualify for EMI, which is reserved for employees. That usually means unapproved options with a different tax outcome for the recipient. It does not make the grant a bad idea, but it does mean the operator should take their own advice before agreeing a number, and it is a reason some of them would rather have the cash.
Questions
- How much equity should a fractional CFO get?
- If the full day rate is being paid, 0.25% to 0.5% over a two-year vest is a common shape for one day a week, rising towards 1% where the person is genuinely running the function two or three days a week. If equity is replacing cash, expect to give materially more and to pay more in total.
- Is it better to pay a fractional executive in cash or equity?
- Cash, in almost every case. Equity instead of a rate usually means fewer strong candidates and a higher total cost. Equity on top of the rate, offered after a quarter when the engagement is clearly working, is a different and much better proposition.
- Can a fractional executive get EMI options in the UK?
- No. EMI is reserved for employees, and a fractional executive engaged through their own company is not one. Unapproved options are the usual route, with a different tax treatment that the operator should take advice on before agreeing a number.