Don’t Just Sign: How to Negotiate Your Total Job Offer
You have an offer (or multiple) in hand. You’re excited!
Don’t relax yet…It is time to negotiate!
Accepting a position in a company should be more than how much they will pay you. If you are negotiating an offer, you should have good faith intention to accept the offer if you can come to a mutual agreement on terms. Negotiation is a delicate balance of getting most of what you want in the offer but approaching it with professionalism and reasonableness so you don’t ruin the relationships with the recruiter or hiring manager.
Here are the main components to consider plus some bonus considerations at the end. You need to consider the entire offer. You may have to give up a little in one component but gain in another.
Base compensation
Do your research! But apply common sense.
Research - Sites, such as Glassdoor and Levels.fyi, will provide compensation ranges. You also need to consider company size, industry, and your experience level. I use this information along with my current base compensation to set a base compensation target in my head and add a markup. I want ‘my number’ to be high enough to be aggressive but also not so far outside the range that they will walk away laughing. I add the markup because I have found that I have lowballed myself on more than one occasion.
Salary Band - Another factor to consider with base compensation is where you are within the salary band at your level. Established companies, but probably not early stage startups, have salary bands by level. For example, Amazon has 12 tiers signified by number. You may negotiate to be classified at the next higher tier even if your compensation stays the same. During performance reviews and compensation adjustment considerations, the discussion sometimes considers an individual’s compensation within their salary band. If they are at the top of their band, they are likely to receive a lower increase than if they are in the lower end of the range in their salary band. This is a long shot since budgets are set by salary band, but worth asking.
Salary Increase - You should understand the timing of performance reviews and compensation increases. For many companies, you must have been employed for a number of months before you would be included in the upcoming review cycle. For example, if a company conducts reviews in December, they may require that an employee started prior to October 1 to be included in the review cycle. If you started on October 4, you have to wait a full year to receive a compensation increase. This creates an opening for you to negotiate an increase to make up for missing the review cycle.
Particularly if you are taking a pay cut for this role, negotiate a term in your agreement that you will receive an agreed upon compensation increase at a milestone (e.g. successful fundraising) or timeframe (e.g. 1 year). This tactic is more relevant for early stage startups with tighter cash flow until the next fundraise.
Bonus
Bonuses can take different forms.
Signing bonus - This is a one time payment and at times, must be paid back if you leave within a specified amount of time (e.g. one year). Consider negotiating a signing bonus if you must pay back a signing bonus at a prior employer, missing out on a performance bonus/401k match due to timing of your departure, etc.
Relocation bonus - This is a one time payment and at times, must be paid back if the employee leaves within a specified amount of time (e.g. one year). As the name suggests, this bonus covers relocation for the company.
Performance bonus - Some companies have pre-determined bonuses - stated as a percent of current base salary - by level based on individual and company performance.
Achievability - Depending on your position, you may have specific performance bonus targets. If another person held the position previously and they had the same performance bonus targets, ask questions if they were paid the bonus in the last 3 years and amount of the bonus. Get a better understanding of the targets and ask about how achievable they are. These questions should give you a good idea on the likelihood that this bonus will be paid out or if the targets are so unattainable that the bonus is essentially zero.
Prorated Bonus - If the bonus is paid annually, rather than quarterly, you may negotiate that you will receive a prorated bonus if you have met your performance targets prior to leaving the company.
Guaranteed Bonus - If you join the company mid or later in the year, you may negotiate that your bonus for the year is guaranteed.
Equity
For many companies, part of your compensation may be paid in stock, restricted stock units, stock options, or other company securities. Public company equity is traded in the open market so you can easily calculate the value. However, private company equity is not traded in the open market and thus, there are limited options to convert your equity into cash until there is a liquidity event (e.g. IPO or acquisition).
Private startup companies have a high failure rate so your equity can be worth zero or worth a lot in the future. That is the risk and reward of joining a startup company. To value your options, a rule of thumb is 35–60% of the last round’s valuation - closer to 35% in the early stages (seed to C round) and closer to 60% when an IPO is justifiably in the near future.
For example, if the company is valued at $10 million and your equity represents 2% ownership, upon full vesting, your equity is worth $70K ($10 million 35% 2%).
Note: You should request the Equity Incentive Plan so you can understand the terms.
Title/Responsibility
I have accepted a cut in base compensation to uplevel my title and increase my responsibility. The title and experience from this role set me up to achieve my goal of a C-suite position in my next company. Think about your career goals and the critical steps to get there. Sometimes you need to step back to take two steps forward.
You should also understand the subtitles. For example, I was hired into a Big 4 consulting firm as a Manager. If I had thought more carefully or researched with current contacts at the company, I would have understood that there are three levels of Manager - Manager 1, Manager 2, and Manager 3. I accepted an offer as Manager 1, even though I had one year of experience at a prior firm so I should have been hired as Manager 2. This is important because Big 4 consulting firms have a defined career path, so generally, you must be a Manager 3 to be considered for Senior Manager promotion. This meant that my promotion was delayed one year because of this one detail. And yes, I tried to make my case to be considered a year earlier.
Other considerations
You may negotiate other employment terms that are important to you, such as:
Start date - You may want to take a few weeks off before starting your new role. If it is critical for the company to have an earlier start date, negotiate this in exchange for a signing bonus, increased equity or something else.
Work schedule - Companies have much more flexible work options since the pandemic. Is it important for you to work a 4 x 10 schedule so you have one day off every week? Or do you want a hybrid work schedule so you can work from home a couple days a week? Or you work with a fully remote company and want the company to pay for a co-working space?
‘Good Reason’ clause - You should ask to include a ‘Good Reason’ clause in your employment contract that defines fundamental changes to employment that allow you to terminate your contract voluntarily, usually with severance benefits. It can protect you from employer abuse. For example, the company requires you to work from an office location outside a reasonable distance from your home, significantly changes your title or responsibilities, or alters your reporting hierarchy so instead of reporting to the CFO, you report to the Controller (Director level). These could be tactics to push you out of the company. This clause grants you severance if you quit as a result of these employment changes.
Team - You may negotiate adding headcount for your team. For example, you are building a new team so you want commitment that you can hire the headcount that you need to achieve your goals. Or you could negotiate a dedicated Executive Assistant. A friend was promoted into an executive position at her company, so she negotiated a dedicated EA to support her in managing her schedule.
Other accommodations - You may request certain equipment to optimize productivity, such as ergonomic workstation, multiple monitors, or co-working space reimbursement. For established companies, you may even negotiate a dedicated or shared executive assistant.
Other factors to consider that are generally not negotiable, but still important for you to consider, particularly if you are comparing multiple offers:
Retirement plan (401k) - Does the company offer a retirement plan? When are you eligible to participate? Does the company offer an employer match? If so, how much and what is the vesting period?
Health benefits - Does the company offer medical, dental and/or vision? How much premium does the employer and employee pay? What are the coverages? Is there a probation period? If there is a probation period that requires you to work for X months prior to being eligible for health benefits, you may negotiate that the company reimburses you for COBRA coverage at your prior employer.
HSA plan - Does the company offer an HSA plan? Does the company contribute HSA funds? If so, how much?
Note: If you are negotiating an executive level role, you should consult an employment attorney to review the offer letter and provide guidance in your negotiations. You may even negotiate for the employer to reimburse your attorney expenses.
The most important consideration in accepting an offer is your growth opportunity in the role, supportive team and leaders in the company, and overall rewarding experience. Without these, you will be unhappy even if you negotiate effectively. In my experience, choosing a role ONLY for the money rarely works out.
References:
https://medium.com/swlh/startup-compensation-misconceptions-youre-doing-it-wrong-345829223a28