What are some tips for negotiating a good compensation package with equity?
What tactics can I use to negotiate a better startup job offer?
Is it legal in my state or city for a company to ask about a candidate's current and past salary when making a job offer?
When negotiating a job offer, companies will always ask you what you want for compensation, and you should always be cautious about answering.
If you name the lowest number you’ll accept, you can be pretty sure the company’s not going to exceed it, at least not by much.
caution Asking about salary expectations is a normal part of the hiring process at most companies, but asking about salary history has been banned in a growing number of states, cities, and counties.* These laws attempt to combat pay disparity* among women and minorities by making it illegal for companies to ask about or consider candidates’ current or past compensation when making them offers. Make sure you understand the laws relevant to your situation.
A few points on negotiating compensation:
Some argue that a good tactic in negotiating is to start higher than you will be willing to accept, so that the other party can “win” by negotiating you down a little bit. Keep in mind, this is just a suggested tactic, not a hard and fast rule.
If you are inexperienced and unsure what a fair offer should look like, avoid saying exactly what you want for compensation very early in discussions. Though many hiring managers and recruiters ask about salary expectations early in the process to avoid risk at the offer stage, some ask in order to take advantage of candidates who don’t have a good sense of their own worth. Tell them you want to focus on the opportunity as a whole and your ability to contribute before discussing numbers. Ask them to give you a fair offer once they understand what you can bring to the company.
If you are experienced and know your value, it’s often in your interest to state what sort of compensation and role you are looking for to anchor expectations. You might even share your expectations early in the process, so you don’t waste each other’s time.
Discuss what your compensation might be like in the future. No one can promise you future equity, salary, or bonuses, but it should be possible to agree what those could look like if you demonstrate outstanding performance and the company has money.
If you’re moving from an established company to a startup, you may be asked to take a salary cut. This is reasonable, but it’s wise to discuss explicitly how much the cut is, and when your salary will be renegotiated. For example, you might take 25% below your previous salary, but there can be an agreement that this will be corrected if your performance is strong and the company gets funding.
important Always negotiate non-compensation aspects before agreeing to an offer. If you want a specific role, title, opportunity, visa sponsorship, parental leave, special treatment (like working from home), or have timing constraints about when you can join, negotiate these early, not late in the process.
important If you’re going to be a very early employee, consider asking for a restricted stock grant instead of stock options, and a cash bonus equal to the tax on those options. The company will have some extra paperwork (and legal costs), but it means you won’t have to pay to exercise. Then, if you file an 83(b) election, you’re simplifying your situation even further, eliminating the AMT issues of ISOs, and maximizing your chances of qualifying for long-term capital gains tax.
A few notes on the negotiation process itself:
important Although offer letters have expirations, it’s often possible to negotiate more time if you need it. How much flexibility depends on the situation. Some have criticized “exploding job offers” as a bad practice that makes no sense at all. If you are likely the best candidate for the position, or the role is a specialized and well-paid one where there are usually not enough good candidates to meet the demand, you’ll likely have plenty of leverage to ask for more time, which may be needed to complete the interview process with other companies. Software engineering roles in tech companies are like this currently.
Getting multiple offers is always in your interest. If you have competing offers, sharing the competing offers with the company you want to work for can be helpful, granted your offers are competitive.
However, dragging out negotiations excessively so you can “shop around” an offer to other companies is considered bad form by some; it’s thoughtful to be judicious and timely to the extent that it’s possible.
danger Get all agreements in writing, if they are not in your offer letter.
Do not accept an offer verbally or in writing unless you’re ready to stand by your word. In practice, people do occasionally accept an offer and then go back on it, or renege. This can put the company in a difficult position (they may have declined another key candidate based on your acceptance), and may hurt your reputation in unexpected ways later.
Some additional resources:
Harvard Business Review has a variety of general paidsuggestions on negotiation processes.
Robby Grossman, a VP at Wistia, gives a good overview of equity compensation and negotiation suggestions in startups.
Offer and Negotiation Dangers
To wind up our discussion of offers and negotiations, here are some key dangers and mistakes to watch out for:
danger Do not accept an offer of stock or shares without also asking for the exact number of total shares (or, equivalently, the exact percentage of the company those shares represent). It’s quite common for some companies to give offers of stock or options and tell you only the number of shares. Without the percentage, the number of shares is meaningless. Not telling you is a deeply unfair practice. A company that refuses to tell you even when you’re ready to sign an offer is likely giving you a very poor deal.
caution If you’re looking at an offer, work out whether you can and should early exercise, and what the cost to exercise and tax will be, before accepting the offer.
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