3 Levers to Negotiate a Better Offer Letter – Stock, Salary, Bonuses

Stock Comp Amazon

How do you negotiate an offer letter from a tech company or startup?  What are the levers you can pull to get to the opportunity you want?

Recently I received the following note: “I found the job I want!  I am pleased with the initial offer, but I asked the recruiter to go back and see if there was any more wiggle room to increase my total compensation. #negotiating

The recruiter came back with a new offer this morning. Total increase in my total compensation for year 1, but they increased the RSUs and lowered both of my signing bonuses.   How do I decide which offer is best for me?”

Stock compensation, cash salary, and cash bonuses are the levers available for companies to work with in your offer letter.  If you require more cash salary to meet your current expenses, then your stock compensation component will be smaller.  Everything is a trade-off.

How much less stock compensation should you expect compared to the increase in cash?  It all counts on the company’s analysis – so do your own as well!

The main consideration to keep in mind is that you and the company may value these levers differently.  Make sure of how you feel about each component to ensure you negotiate for the best agreement for YOU.

First:  Review similar job positions at the company for salary and bonus parity.

I love using Glassdoor.com for a quick review of whether my compensation looks right for the market and the position.  The more of your type of position at a company, the more accurate and timely the information posted will be.

If you are looking at a tech startup, make sure you review similar compensation packages at similar sized startups (i.e. both Series B).

If you are looking at Amazon or Microsoft, a friend may help you find the salary band for the position.  Generally, they will need the Job ID to review internal documentation (if they are comfortable looking it up for you).

Second:  If you have an offer with RSUs or Stock Options, think about the trade-offs.

Look for reviews online or ask startup friends what the usual RSU / Stock Option grant is and take some time to decide how you value this component.

  • What is your risk tolerance when it comes to investing in stock? RSUs will automatically become stock in the company once they vest.
  • Where do you see the company going?  Is their stock currently at an all-time high?  Is it a private company raising its next Series funding?  What does growth look like?  Do you believe in the company’s strategy longer term?

Stock Options in a private company may not be sold until a liquidation event (merger or acquisition or IPO).  So you may need to hold onto the stock for 5-7 years and the company may end up closing its doors in the end.  Stock Options are definitely a long-term play for most private companies.

  • Is the grant larger than expected, based on the information you could find?  This may be a signal that the stock is at an all-time high price range, so they are cushioning you for any volatility in the next few years.  I’ve seen Amazon doing this for some recently.

Third:  If you negotiate for an updated offer, consider the differences between the levers and how you value those differences.

Most large companies analyze where they believe the value of their stock will be over the next 5 years and the volatility surrounding that.  This is how they determine how much stock compensation equates to cash compensation changes.  They want employees to be satisfied over the longer term, but they also want to use their stock well considering the future value.

Consider how you will use the stock compensation.

  • Will you sell vested RSUs immediately or plan to hold onto some/all for a significant time period?
  • If your stock options vest, will you exercise the options?  Do you have the cash available to buy your options?  Will you make an 83(b) election once granted to you?
  • Does the cash portion of your offer cover your expenses + adequate savings?  If so, are you interested in the greater risk and reward in stock compensation?

In determining how you ‘value’ these levers, decide what makes you most comfortable.  Are you more comfortable with a bit more cash salary than the unknown RSU or Stock Option value over the next few years?  Then discount the value of the stock compensation you will receive in your mind.   If you do a great job, more RSUs/Stock Options will be on the way.  Many companies in the tech industry prefer to give bonuses of stock compensation instead of cash.

A higher cash salary gives you a greater bump when they assign increases in compensation.  This is generally done as a percent change (i.e. Amazon) or in line with performance (i.e. most small startups).

One final note: Review the invention assignment clause.  Pay close attention if you are working on, or think you may want to work on, something outside of the business during your tenure.  You may need to determine whether it makes sense to buy a website and throw a splash page up and carve it out in the agreement.

Where are you in your start-up adventure?

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The above discussion is for informational purposes only. Recommendations are of a general nature, not based on knowledge of any individual’s specific needs or circumstances, and there is no intent to provide individual investment advisory, supervisory or management services.

 

Our Attention Span and Money

The average attention span and short-term memory recall has declined over the last ten years.  Some say it’s due to our ability to look up anything we need so our brains no longer find it a vital function.

Either way, I have strong memories of 9-11 and the 2008 crash.  I can remember exactly where I was, what the room looked like, who was around me, etc. Why do I remember the bad instances so much more?

Human psychology is so much more focused on the bad due to evolution.  Those who remembered the poison berries another ate lived longer.  Remembering bad moments in great detail allowed us to survive a longer time.

Thanks evolution – you take away my good memories and attention span and leave me with the bad ones?!

So what does this mean for today’s millennials?

We remember what it felt like and what is looked like, but we didn’t know the problems were primarily at home, and not worldwide.

The table below is a great example of how different types of stock (U.S. large stocks, U.S. small stocks, emerging markets, international, real estate, etc) can widely differ in performance from year to year.

Follow the S&P 500 (U.S. large companies stock) for example.  In the late 90s the S&P 500 was on a roll, and then when 2000 hit it became one of the worst performers for the year.  This chart ends in 2014, but I have a feeling if you saw the last 2 years the S&P 500 would be near the top again.

callan-periodic-table-investment-returns

    [link to larger version]

Looking at the changes in this 10 year period of time, I can only imagine how frustrating it must be for new investors.  How can you consistently pick the right asset classes for greatest return?

In my mind, you can’t.  This is why I believe markets are efficient and few investors can outperform, because it is all priced into the stock over time.

This allows me the freedom to ask:  how do I protect and maximize my return while reducing the likeliness of large jumps like the S&P 500 in the above table?  I do this by holding a portfolio of many types of stock.  When one type dips, I have another that may rise in value or help counteract the effect.  Thus providing a more stable return over time.

So what about keeping my money in all cash?  There is no risk to that, right?

I am all for maintaining an emergency fund based on your lifestyle and needs in cash.  I also believe large expenses in the next few years are better left in cash.

However, I do believe there is a strong argument for investing into the stock market to combat long-term inflation.

Remember when you could get gas in the 90s for less than $1.00?  Remember when bread was less than $1.00 and you could scrape together a lunch with the change you found in your parent’s stash?

The changes over the last 20 years are a prime example of what could happen to your cash pile over the next 20-30 years.  In fact, we’ve seen inflation every decade since the 1940s and only over the last three years did it momentarily slow down.[1]

Our memories can be fickle friends and keep us from making good long-term decisions.  Adding to an already emotional topic – money.

If you are interested in talking to someone about growing your wealth, start now and schedule a time for your free 30 minute consultation with me.

Did you enjoy this post? Sign Up for my newsletter so you won’t miss another article.

The above discussion is for informational purposes only. Recommendations are of a general nature, not based on knowledge of any individual’s specific needs or circumstances, and there is no intent to provide individual investment advisory, supervisory or management services.

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[1] For more information and a great chart, check out InflationData.com, “Average Annual Inflation Rates by Decade” by Tim McMahon on June 18, 2015

This post was inspired by the article in The New York Times, “Praise Is Fleeting, but Brickbats We Recall” by Alina Tugend: March 23, 2012 and the book Moonwalking with Einstein: The Art and Science of Remembering Everything by Joshua Foer