Step by Step: How to get the most out of your offer
You are hopefully only looking for a new position every few years and it's hard to remember what the last time was like. Moreover, every step you take in your career most likely comes with some more leverage. As you gain skills and specialization, your ability to negotiate your offer goes up.
If this is your first time getting into startups, you will have less flexibility on each lever, but regardless of your experience, you should still approach every offer from a position of negotiation. There is almost always some room to negotiate, and having a game plan at the offer stage is important.
First, understand where you are at. Is this your dream job? Do you have multiple, interesting competing offers? What is your back up and what is your best career opportunity? Make sure you understand these things, as it will influence how much you want to negotiate.
With that, also keep the long term in perspective: Getting a little more compensation or equity for a truly unique opportunity may not be worth the even minimal risk that negotiation involves. If a company wants you, that risk is usually very small, but even in that case, sometimes it's worth taking a good offer for a great opportunity and just getting in the door.
So, you are getting an offer. It's your top opportunity. How should you approach negotiation?
There are four buckets of things you can ask for. I have the ranked here in what is the typical prioritization but you should undertake your own assessment of what you want and rank them yourself before you negotiate:
- Base Compensation (for sales this includes OTE and the OTE/Base split)
- Sign-on bonus / relocation assistance
- Other terms
Some folks will prioritize some other terms (like parental leave) over everything else. Sometimes, if you are short on cash after a long search, a healthy sign-on may take priority over the better long term benefits of a larger base salary. Again, really think about your needs in these buckets and have an idea of what is most important to you in this role.
When you get an offer, typically the recruiter (or sometimes the hiring manager) will present a package to you. This will most likely be base to start with equity sometimes coming in on a subsequent conversation. The important thing at this step is to communicate clearly your excitement and interest for the opportunity, but say that you need to have a night to think about the terms and talk to your community (spouse, partner, family, mentors, etc). This buys you some time to think strategically about what you want to ask for next.
If equity wasn't discussed, follow up the next day asking about equity and the other terms of offer, including benefits. You want to continue to communicate earnest interest and that you want all of the details before getting the docusign in your email box.
Once you have all of the details, you will want to prepare your first ask. This is the big one. This is the one most important thing you want to get out of the negotiation and if you get what you ask for, you should be prepared to sign. You can still negotiate, but you want your one ask to be big enough that if the company comes through with exactly what you ask for that you are prepared to end negotiation and sign.
Stating that you will sign if you get what you asked for is a huge carrot for the employer. If you feel you can make that commitment it frees you up to be a bit more aggressive with your ask. I want to stress though that you need to be prepared to follow through if they come through with your ask.
Typically, this will be a request for a higher base salary. How much do you ask for? This is where your community or perhaps agency recruiters that you have met along the way can help. Ask people in similar roles what they think of the base offer. If they think it's a good offer, then you probably want to limit your ask to around 10% of the initial offer. If you have competing offers or are in a position to continue looking, you can go higher, but 10% can be a general rule of thumb. It's unlikely such a request will be met as unreasonable, even if the company can't deliver, which will keep you in good standing with the other party. If you do want to go higher, you may need to provide some justification, such as a competing offer you have received or are expecting.
Here it is also important to know who you are negotiating with. A hiring manager at a smaller company may be less flexible or may be anchored on their past hiring processes and may not be aware of what market compensation is. Moreover, this is your future boss, so you will want to make sure that you are setting that relationship up well. In negotiation, it's almost always better to work with the recruiter in there is one. They can be a nice buffer and you should feel more confident negotiating a little bit harder with the recruiter than you would if you were negotiating directly with the hiring manager.
Alright, you have your first ask. Get on the phone, still communicate your interest, and then ask for your high base compensation. See how they react. You may need to negotiate a little on the phone, but mostly the recruiter will take your ask and need to get back to you. End the conversation by talking equity: You got the equity offer, but you need more details to evaluate it. These are the details you would ideally get from the company:
- What was the last valuation?
- How many shares are outstanding?
- Whats the current 409a valuation of the common shares or option "strike price"?
In lieu of 1 and 2, you can just ask for a percent that the equity grant represents. It's better to have the details and do your own calculation, but a percent will do. The 409a valuation is the cost of the options to execute. So Last Valuation / Shares Outstanding gives you the blended preferred / common equity valuation, or essentially the value of the equity if the company were to be sold at the prior valuation before the next funding raise. Preferred Stock Value - Strike Price = The actual value of the equity, today, for you per share. To get a better idea of valuing your equity, check out Triplebyte's Equity Calculator. It is very helpful in comparing equity offers.
Sometimes, a larger company either pre-IPO or when they are public will grant you RSUs. RSUs are closer to actual cash compensation, and you can forego the math and just get a value of the RSUs and that should be considered similar to cash compensation rather than typical startup equity options (ISOs) which are effectively more speculative (higher upside, perhaps, but far more risk).
Finally, you want to understand a couple of terms of the equity if they are ISOs. Vesting schedules are pretty standard, but you will want to confirm what the cliff is (which is when you will actually take possession of your first grant of options) and the term in which they vest. Normal terms are 1 year cliff over a 4 year vest. If that isn't the case, make sure you understand how many options you will actually vest when and over what time period. The recruiter should be able to explain these terms to you better than this blog post.
The other important terms for employee equity options is the post-termination option expiry date. This is when you leave the company, how long do you have to execute the options? Standard terms are 3 months after your employment terminates, but some companies have become more progressive with this term and will offer 5, 7 or 10 years to execute your options. Startup equity options are very risky, so having more time after your employment ends to execute is valuable.
I would consider this a high level primer on equity. There are a lot of resources out there, and if you find yourself with unique equity terms you should investigate them to determine if the startup equity likely has any real value to you.
Equity is something worth negotiating and if they are RSUs, then consider it cash, but if they are ISOs or employee stock options, in many cases you should negotiate but more or less consider the value of these options as $0.
Alright, so you have some handle on the value of the equity. By this time, you should have heard how your first ask went. If the company comes back with less than what you asked for, its time for round 2 of the negotiation.
From here, you probably want to negotiate up on equity. Negotiating on equity is usually a good sign to the company. It can signal that you want your incentives aligned with the success of the company.
Equity a lot of times has more infirm boundaries. You can some times get away with asking for 2x the initial grant, and while that may not come back to you, it will ensure you maximize your equity grant. Take a look at the value of the grant the offered you, take the (Preferred - Strike ) * number of shares and divide that by the years of vesting (usually four). That is the annual additional compensation the equity is giving you assuming no further funding (dilution) or increase in valuation. This is play money for you and probably for the company. The smaller the company the more aggressive the equity ask should be (accounting for the additional risk of a smaller company).
Communicate again your excitement for the opportunity and that you really want to deliver on your goals and reap the long term gains of the company. Ask for a boost to your equity.
Alright, another day goes by, and you get word on your equity. You know have your base and your equity. if they came up meaningfully in either or both, you should take the opportunity. If not, time to make your final ask: Sign-on bonus.
Typically, you will want to make up for the difference between what you asked for and what the final base compensation offer is in a sign on. So if you asked for 100k and they came back with 95k, you should ask for a 5k sign on to help smooth your transition into the company. Sign-ons are a great tool for hiring managers and recruiters to land talent while making sure the team as a whole as commensurate base compensation. What the current people in the company are making for your similar role is typically the biggest blocker to a larger offer for you. Sign-ons are a way to get you to join while making sure everyone on the team is making a similar base compensation.
At this point, you either get what you ask for or not. You have the offer and you should either accept or decline based on your situation and the opportunity itself.
How about the other terms? Mostly, the other terms that are more fixed and harder to negotiate. If they are important, you should bring up the other terms early and figure out the flexibility on them in the early stages of negotiation. Mostly, you should use the other terms, or lack of other terms or benefits, to ask for greater base compensation. Other terms you should by familiar with before you sign with the company are:
- Health care: How much does the company cover for your health care benefits? For a single person, this may be less important but if you have a family it can be material.
- 401k matching: Some companies, mostly larger companies, offer matching. This is a cash benefit and you should treat it as so when evaluating your overall compensation.
- Time-off policy: Most startups have open ended policies. In those cases, you should ask what most employees take for PTO or vacation on a annual basis
- Parental Leave: If you are going to have a family soon, this can be important. If a company doesn't have a set policy, you should negotiate a parental leave consideration before signing. 12-16 weeks is pretty standard these days, and in lieu of a standing policy I would ask for something in that range.
- Other perks: These can be nice, but are typically unimportant in the scheme of things.
Negotiation is tough, but worth it. A bigger base or equity compensation from the onset can make a real difference in your happiness in the job. Most raises are in the 3-5% range, so if you can go in with a 10% increase on your base, you are making essentially what you would have made after two years at the company. With that in mind, you need to take stock of where you are at in your job search and the opportunity itself. It's important to be clear and when you make a commitment (like "If I get this base, I will sign") to be true to your word. And always at every step, communicate your excitement. You want to create as much distance as possible from your future employment and the negotiation itself. A soured, hard fought negotiation, even if successful, can be a pyric victory and will not set you up for success.
This is a deep topic and my hope is that this will at least help you ask the right questions. Good luck!