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Updated September 12, 2022
Equity Compensation

Definition When making a job offer, companies will often give a candidate a verbal offer first, to speed things along and facilitate the negotiation, following it with a written offer if it seems like the candidate and the company are close to agreement on the terms of the offer. The written offer takes the form of an documentoffer letter, which is just the summary sent to the candidate, typically with an expiration date and other details and paperwork.

Although companies often want you to sign right away to save time and effort, if you’re doing it thoughtfully you’ll also be talking to the company (typically with a hiring manager, your future manager, or a recruiter, or some combination) multiple times before signing. This helps you negotiate details and gives you a chance to get to know the people you could be working with, the company, and the role, so that you can make the best decision for your personal situation.

When you are ready to accept the terms of the offer letter, you can go ahead and sign.

Things to look for in the offer letter include:

  • Title and level. What your role is officially called, who you report to, and what level of seniority your role is within the company.

  • Salary. What you’re paid in cash, in a year, before taxes.

  • Equity compensation. You know what this is now.

  • Bonus. Additional cash you’ll get on a regular basis, if the company has a plan for this.

  • Signing bonus. Cash you get just for signing. (Signing bonuses usually have some strings attached—for example, you could have to pay back the bonus if you leave the company within 12 or 24 months.)

While the details may not be included in your offer letter, to get full information on your total rewards you’ll also want to discuss:

  • Benefits like health insurance, retirement savings, and snacks.

  • All other aspects of the job that might matter to you, like time off, ability to work from home, flexible hours, training and education, and so on.

A few general notes on these components (credits to Cristina Cordova for some of these):

  • Early stage startups will focus on salary and equity and (if they are funded) benefits. An offer of bonuses or a signing bonus are more common in larger, prosperous companies.

  • Bonuses are usually standardized to the company and your level, so are not likely to be something you can negotiate.

  • The signing bonus is highly negotiable. This doesn’t mean any company will give large signing bonuses, but it’s feasible because signing bonus amounts vary candidate by candidate, and unlike salary and other bonuses, it’s a one-time cost to the company.

Offers From Startups

Because startups are so much smaller than many established companies, and because they may grow quickly, there are additional considerations worth taking into account when negotiating a job offer from a startup:

  • Cash versus equity. If your risk tolerance is reasonably high, you might ask for an offer with more equity and less cash. If a company begins to do well, it’ll likely “level up” lower salaries (bringing them closer to market average) even if you got more equity up front. On the other hand, if you ask for more cash and less equity, it’s unlikely you’ll be able to negotiate to get more equity later on, since equity is increasingly scarce over time (at least in a successful company!). Entrepreneur and venture capitalist Mark Suster stresses the need to level up by scaling pay and spending, focusing appropriately at each funding stage. In the very early days of a startup, it’s not uncommon for employees to have higher salaries than the company’s founders.*

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