editione2.1.1Updated September 12, 2022
When a company offers any form of equity as part of its compensation package, there is a whole new set of factors for a prospective employee to consider. This chapter will help you prepare for negotiating a job offer that includes equity, covering negotiation tips and expectations, and specific reminders on what you can ask and what is negotiable when it comes to equity.
Before accepting any job offer, you’ll want to negotiate firmly and fairly. You’re planning to devote a lot of your time and sanity to any full-time role; help yourself make sure that this is paidwhat you want.
confusion It’s perfectly natural to be anxious about negotiations, whether you’re going through this process for the first time or the tenth. There is a lot at stake, and it can be uncomfortable and stressful to ask for things you need or want. Many people think negotiating could get the job offer revoked, so they’ll accept their offer with little or no discussion. But remember that negotiations are the first experience you’ll have of working with your new team. If you’re nervous, it can help to remind yourself why it’s important to have these conversations:
Negotiations ask you to focus on what you actually want. What is important to you—personal growth, career growth, impact, recognition, cash, ownership, teamwork? Not being clear with yourself on what your priorities really are is a recipe for dissatisfaction later.
If you aren’t satisfied with the terms of your offer, accepting it without discussion can be tough not just for you but for your new company and colleagues as well. No one wants to take on a hire who’s going to walk away in just a few months when something better comes along. For everyone’s sake, take your time now to consider what you want—and then ask for it.
The negotiation process itself can teach you a lot about a company and your future manager. Talking about a tough subject like an offer is a great way to see how you’ll work with someone down the road.
A Guide like this can’t give you personalized advice on what a reasonable offer is, as that depends greatly on your skills, the marketplace of candidates, what other offers you have, what the company can pay, what other candidates the company has found, and the company’s needs. But we can cover the basics of what to expect with offers, and advise candidates on how to approach negotiations.
important Companies can and should work hard to ensure that all candidates are given equal treatment in the hiring process, but inequalities persist.* Workplace disparities in pay and opportunity span race and gender,* with research focusing on inequality in the U.S. workplace,* executive leadership and its well-documented lack of diversity,** and the technology industry.* Gender bias in negotiation itself is also an issue; many women have been made to feel that they shouldn’t ask for what they deserve.*
More effort is needed to end biases and close the wage gap. All candidates should take the time to understand their worth and the specific value they can add to a company, so that they are fully prepared to negotiate for a better offer.
Many companies will give some leeway during negotiations, letting you indicate whether you prefer higher salary or higher equity.
Candidates with competing offers almost always have more leverage and get better offers.*
Salaries at startups are often a bit below what you’d get at an established company, since early on, cash is at a premium. For very early stage startups, risk is higher, offers can be more highly variable, and variation among companies will be greater, particularly when it comes to equity.
The dominant factors determining equity are what funding stage a company is at, and the role you’ll play at the company. If no funding has been raised, large equity may be needed to get early team members to work for very little or for free. Once significant funding of an A round is in place, most people will take typical or moderately discounted salaries. Startups with seed funding lie somewhere in between.
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.
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.*
Title. Negotiating title and exact details of your role early on may not matter as much in a small and growing company, because your role and the roles of others may change a lot, and quickly. It’s more important that you respect the founders and leaders of the company. It’s more important that you feel you are respected.
important It’s important to ask questions when you get an offer that includes any kind of equity. In addition to helping you learn the facts about the equity offer, the process of discussing these details can help you get a sense of the company’s transparency and responsiveness. Here are a few questions you should consider asking, especially if you’re evaluating an offer from a startup or another private company:
What percentage of the company do the shares represent?
What set of shares was used to compute that percentage? Is it outstanding shares or fully diluted?
What convertible securities are outstanding (convertible notes, SAFEs, or warrants), and how much dilution can I expect from their conversion?
What did the last round value the company at? (That is, what is the preferred share price times the total outstanding shares?)
What is the most recent 409A valuation? When was it done, and will it be done again soon?
What exit valuation will need to be achieved before common stock has positive value (that is, what are the liquidation overhangs)?
Do you allow early exercise of my options?
Am I required to exercise my options within 90 days after I leave or am terminated? Does the company extend the exercise window of the options of employees that depart?
Are all employees on the same vesting schedule?
Is there any acceleration of my vesting if the company is acquired?
Do you have a policy regarding follow-on stock grants?
Does the company have any repurchase right to vested shares?
This information will help you consider the benefits and drawbacks of possible exercise scenarios.
important If you’re considering working for a startup, there are further questions to ask in order to assess the state of the company’s business and its plans. Before or when you’re getting an offer is the right time to do this. Startups are understandably careful about sharing financial information, so you may not get full answers to all of these, but you should at least ask:
How much money has the company raised (including in how many rounds, and when)?
What did the last round value the company at?
What is the aggregate liquidation preference on top of the preferred stock? (This will tell you how much the company needs to sell for before the common stock—your equity—is worth something in an exit.)
Will the company likely raise more capital soon?
How long will the company’s current funding last? (This will likely be given at the current burn rate, or how quickly a company is spending its funding, so will likely not include calculations for things like future employee salaries.)
What is the hiring plan? (How many people over what time frame?)
What is the revenue now, if any? What are the revenue goals/projections?
Where do you see this company in 1 year and 5 years, in terms of revenue, number of employees, and market position?
There are several other resources with more questions like this to consider.
Compensation data is highly situational. What an employee receives in equity, cash, and benefits depends on the role they’re filling, the sector they work in, where they and the company are located, and the possible value that specific individual may bring to the company.
Any compensation data out there is hard to come by. Companies often pay for this data from vendors, but it’s usually not available to candidates.
For startups, a variety of data is easier to come by. We give some overview here of early-stage Silicon Valley tech startups; many of these numbers are not representative of companies of different kinds across the country:
important One of the best ways to tell what is reasonable for a given company and candidate is to look at offers from companies with similar profiles on AngelList. The AngelList salary data is extensive.
There are no hard and fast rules, but for post-series A startups in Silicon Valley, the table below, based on the one by Babak Nivi, gives ballpark equity levels that many think are reasonable. These would usually be for restricted stock or stock options with a standard 4-year vesting schedule. They apply if each of these roles were filled just after an A round and the new hires are also being paid a salary (so are not founders or employees hired before the A round). The upper ranges would be for highly desired candidates with strong track records.
Chief executive officer (CEO): 5–10%
Chief operating officer (COO): 2–5%
Vice president (VP): 1–2%
Independent board member: 1%
Lead engineer 0.5–1%
Senior engineer: 0.33–0.66%
Manager or junior engineer: 0.2–0.33%
For post-series B startups, equity numbers would be much lower. How much lower will depend significantly on the size of the team and the company’s valuation.
Seed-funded startups would offer higher equity—sometimes much higher if there is little funding, but base salaries will be lower.
Leo Polovets created a survey of AngelList job postings from 2014, an excellent summary of equity levels for the first few dozen hires at these early-stage startups. For engineers in Silicon Valley, the highest (not typical!) equity levels were:
Hire #1: up to 2%–3%
Hires #2 through #5: up to 1%–2%
Hires #6 and #7: up to 0.5%–1%
Hires #8 through #14: up to 0.4%–0.8%
Hires #15 through #19: up to 0.3%–0.7%
Hires #21 [sic] through #27: up to 0.25%–0.6%
Hires #28 through #34: up to 0.25%–0.5%
José Ancer gives another good overview for early stage hiring.
Founder compensation is another topic entirely that may still be of interest to employees. José Ancer provides a thoughtful overview.
Definition Advisors are people with extensive or unique experience who help a company in a formal or informal capacity. It is common for startups to bring on advisors with a recognized name, specific background or skills, or access to a network. Sometimes advisors act as mentors to founders.*
Startup advisor compensation is usually partly or entirely via equity. Typical equity levels vary depending on the value the advisor brings, the maturity of the company, and the level of their involvement, which can vary from occasional phone-calls or introductions all the way up to being a kind of part-time, hands-on member of the team.
Because advisors may not add value for as many years as an employee, a common vesting schedule for an advisor is two years with a three-month cliff. Advisor grants also typically have a longer exercise window post termination of service, and will usually have single trigger acceleration on an acquisition, because no one expects advisors to stay on with a company once it’s acquired.
One commonly used framework for compensation for advisors is the FAST Agreement from the Founder Institute, an accelerator that’s been involved with over 4500 companies. Their approach is to recommend compensation based on the level of engagement (from monthly meetings to hands-on projects and help with networking) and the maturity of the company (from just an idea to growth stage, which would likely mean post-Series A):
|Idea Stage||Startup Stage||Growth Stage|
|Standard (Monthly Meetings)||0.25%||0.20%||0.15%|
|Strategic (Add Recruiting)||0.50%||0.40%||0.30%|
|Expert (Add Contacts and Projects)||1.00%||0.80%||0.60%|
Source: The Founder Institute’s FAST equity compensation framework
Another source is Carta’s guide to advisor shares, which similarly shows most grants in the 0.2–1.0% range.
Both the Founder Institute and Carta’s guide offer legal templates. Founders and advisors should consult a template and a lawyer before committing to an agreement, but these levels are reasonable reference points for both sides in negotiating fair advisor compensation.
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.
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.
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.
danger If you join a startup right as it raises a new round, and don’t have the chance to exercise right away, they may potentially issue you the options with the low strike price, but the 409A valuation of the stock will have gone up. This means you won’t be able to early exercise without a large tax bill. In fact, it might not be financially feasible for you to exercise at all.
danger Vesting starts on a vesting commencement date. Sometimes stock option paperwork won’t reach you for weeks or months after you join a company, since it needs to be written by the lawyers and approved by the board of directors. In your negotiations, do make sure the vesting commencement date will reflect the true start date of when you joined the company, not the time at which the stock option is granted.
caution The offer letter is not the actual grant of your equity. After you sign your offer letter, ensure the company delivers you your actual equity grant documents within a few weeks. It is not uncommon for early-stage startups to be sloppy with their equity granting. If they take too long to send your grant documents, the fair market value (and exercise price) of the equity could rise in the time you’re waiting, which is money lost for you.
caution If you’re going to early exercise, consider it like any investment. Don’t believe every projection about the value of the company you hear. Founders will tell you the best-case scenario. Remember, most startups fail. Do your research and ask others’ opinions about likely outcomes for the company.
danger It may not be common, but some companies retain a right to repurchase (buy back) vested shares. It’s simple enough to ask, “Does the company have any repurchase right to vested shares?” (Note repurchasing unvested shares that were purchased via early exercise is different, and helps you.) If you don’t want to ask, the fair market value repurchase right should be included in the documents you are being asked to sign or acknowledge that you have read and understood. (Skype’s controversy related to repurchasing has some startup employees looking out for companies with similar plans.) You might find a repurchase right for vested shares in the Stock Plan itself, the Stock Option Agreement, the Exercise Agreement, the bylaws, the certificate of incorporation, or any other stockholder agreement.
This section covers a few kinds of documents you’re likely to see as you negotiate a job offer and sign on to a company. It’s not exhaustive, as titles and details vary.
When you are considering your offer, make sure you have all of the documents you need from the company:
Your documentoffer letter, which will detail salary, benefits, and equity compensation.
An documentEmployee Innovations Agreement, Proprietary Information and Inventions Assignment Agreement, or similar, concerning intellectual property.
If you have equity compensation, at some point—possibly weeks or months after you’ve joined—you should get a Summary of Stock Grant, Notice of Stock Option Grant, or similar document, detailing your grant of stock or options, along with all details such as number of shares, type of options, grant date, vesting commencement date, and vesting schedule. It will come with several other documents, which may be exhibits to that agreement:
documentStock Option Agreement
documentStock Plan (sometimes called a Stock Option Plan, or Stock Award Plan, or Equity Incentive Plan)
documentCode Section 409A Waiver and Release (sometimes part of the Stock Option Agreement)