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.

 

Hustlin’ as an Entrepreneur

When you decide to make the jump from employee to entrepreneur, it is important to consider how this transition will affect your financial life.

How will you support yourself?  Do you have a family to support?  How long will you be able to sustain before you need further income?

Three ways to prepare for the entrepreneurial rollercoaster of cash flow

Emergency Savings:  This requires a bit more foresight and commitment.  When leaving an employer to launch a start-up, it often takes over a year to reach sustainable cash flow and salary to a founder.  The best way to prepare is to keep a separate emergency savings account with at least a year of savings for basic budgeted needs + a small fund for unlikely incidents (i.e. Car breaks down, roof needs update, etc.)

If you don’t have this much in savings, you may need to continue to work in some capacity to supplement your financial needs.  Time for the side hustle!

Side hustle to your business: Many founders use previous experience to consult while they build out their business model and acquire clients. This can help reduce the amount of emergency savings you need on hand, as long as you are meeting your financial needs through the consulting fees.

Side hustle is your business: Other founders flush out their business model in the evening and on weekends while maintaining full time jobs.   They set specific milestones or level of client traction before moving forward with quitting their job.

When considering these alternatives, ask yourself:

  • How much risk am I willing to take pre-revenue?
  • How much revenue do I need to support my salary?
  • What milestones can I hit working on my product part-time?
  • Am I compromising my client relationships by not being available or is my current position flexible on work hours?

Don’t forget you are leaving your company’s employee benefits behind as well.  Make sure you have a full understanding of your additional expenses and risks in starting your own business.

Good luck in your journey of entrepreneurship and let us know if we can help you with the financial side.

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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.

Top 3 things to do in your 20s & 30s

In the greater Seattle area, tech jobs are in the Top 10 entry-level jobs with high earnings potential and a fast rising salary. So how do you maximize the cash flow early on for a head start?

  1. Pay down student loans
  2. Commit to saving and spending based on your values
  3. Invest for long-term goals

First Stop:  Pay down student loans

Debt takes away from your ability to accumulate wealth. The PEW Research Center found college-educated millennials without student loans have seven times greater net worth.

Did that add to your stress level?  I hope not.  This is just a reminder that paying off an amount you borrowed in the past + interest takes away from building your current wealth.

The next step is to bulldoze over debt and stop building someone else’s wealth.

Next Stop:  Commit to the process of saving

I know you’ve heard it all before, but pay yourself first. Saving money may not feel natural at first, but like any good habit, time and consistency are key.

Is this easier said than done? Maybe. Many millennials believes it’s difficult for their generation to live within their means and not overspend.

Keep the long-term strategy in sight: we all fall off the wagon, but staying the course over time will make all the difference.

Don’t forget:  Investing for financial freedom

Millennials have it tough.  Through two dot.com busts making it hard to get jobs, stuck in jobs you dislike, and taking on money stress early on.  It isn’t easy.

If the economy is so volatile, why even invest?  The recency effect makes you remember how hard the last 5 years have been, but clouds the growth seen over your youth.

Remember when gas was less than a dollar?  Investing in a diversified portfolio keeps up with inflation.  Investing means passively participating in business growth around the world. By investing in the total market, you focus on protecting yourself from minimizing future risks.  Rising prices, fluctuations in different sectors of the market, and takes a global approach instead of a local approach.

As a starting point, invest for diversification. Diversification means looking at more than just the U.S. market. Home bias occurs often – don’t fall into the trap! We see it in our 401(k) options that may offer one international market mutual fund while offering 10 U.S. large company skewed funds.

Stay invested and focus on long-term growth rather than short-term “wins” at a higher cost as an active player in the market. When you’re learning to cook, the best recipes tend to be the simplest ones.  Fewer ingredients, minimal kitchenware needs and simple instructions. Investing is a similar experience.

Extra Fun

Here are some great resources for starting down your path of growing your wealth:

Do you have other helpful tips?  Share your thoughts in the comments below.

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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.
If you live in a state with it’s own form of state AMT, this further complicates the matter. AMT calculations can be difficult and you may need professional help, such as that of an accountant, tax attorney, or someone experienced in complex tax returns.