Tech Life How much might I love this gig?

The Business

You’ve had a small number of career defining moments. These are the select few moments in time when the trajectory of your career changed instantly and drastically. I have two buckets of these: ones I expected and ones that completely blindsided me. While the surprise and subsequent scrambling involved in being blindsided are chock full of delicious adrenaline, I highly recommend the moments you can predict.

One such predictable moment is the first glimpse of the offer letter for your new gig. This is the culmination of hours of resume tweakage, a series of phone screen gymnastics, and two grueling days of in-person interviews. This is the moment where you can answer the question, “How much do they think I’m worth?”

Fact is, you should already know. You’re the business.

the businesses

Pre-Game

The offer letter negotiation process starts earlier than you think. Think back to your first phone screen. The recruiter was asking you warm-up feeler questions like, “Why do you want to leave your current gig?” and “What’s your ideal job?”, when they slide in a casual, “So, what are you making now?”

You stop. You sense that this seemingly off-the-cuff question is important. Your inner dialog goes something like, “I’m making 64k, buUUut, I’m going to round up to 70k because, well, I’m worth it.”

Yes, you are, but it’s a lie and it’s not a very good lie. You also broke the number one rule in negotiation: be informed. You don’t make 70k; you don’t make 64k, either. You make closer to 90k. HOLY RAISE RANDS.

I’ll explain where this magical raise comes from as well as the other rules in a bit, but first let’s understand how to answer the question “What are you making now?” Your answer: “I’m full-time and I’m making 64k. I’m getting a review in October, and my last raise was 4% plus a 2k bonus. I’d be walking away from 500 unvested options with a strike price currently 12 bucks under market, and all of which are going to be totally vested in 12 months.”

Expect an uncomfortable pause on the other end of the phone. That’s the sound of the recruiter furiously scribbling “Candidate knows their compensation shit” on the top of your resume. What you’re saying with this lengthy informed answer is complex, yet simple. You’re saying, “There are many ways to be compensated. I’m aware of all of them and, when the time is right, I’m ready to negotiate.”

How I’m Doing?

Whether you’re expecting an offer letter imminently or simply wondering how I’m going to make the offer negotiation process entertaining, I have an exercise for you. Let’s figure out what you actually make.

Like frequent resume updates, this career maintenance exercise is designed as a professional checkpoint, which answers the simple question, “How am I doing?”

First, I’ll explain how I calculated your hypothetical yearly compensation above:

  • Base salary: 64k
  • Benefits: 25% of 64k = 16k
  • Bonus: 2k
  • Stock: 6k
  • Total: 88k

There are two fuzzy areas in this calculation. First, if you haven’t worked for yourself, you probably haven’t considered benefits as part of your compensation before. That 25% is an educated swag that most companies use to account for health and life insurance and 401k. You spend a lot of time ignoring this 25% because it involves things like retirement and health benefits and — duh — you’re immortal. There will, however, be a time, probably sooner than you’d like, that you’ll fully appreciate this portion of your compensation.

The other fuzzy area is stock. This example assumes you got 2000 options when you were hired and these options vest at 25% each year. I’m making an optimistic wild-ass leap and saying that you’re grossing 6k a year using the idea that you are making 12 dollars per option per year. Congrats.

Now, grab a piece of paper and figure out what you make. Don’t sweat perfection. You just need to be close.

The Swag

Fast forward. You’ve just finished the second round of interviews. Traditionally in high-tech, the recruiter is the last interview of the day and their job is to get inside your head and see what you think about the gig. They might throw in some compensation questions regarding your current gig as well. My advice is simple: the more they know you want the gig, the less they need to offer you.

And they haven’t offered you a thing yet.

There’s a time and place for negotiation, and it’s not at the end of six hours of interviews on a Friday when you don’t even know if you’re getting an offer letter.

So you wait. You send off a set of references, sit in bed replaying interviews in your head, and send thank you e-mails to the interview team. All professional karma-aligning activities, but what you really need to do is build your own offer letter. Let’s swag it:

Salary

The business model everyone loves is a business built on recurring revenue streams. This is why you can get a good cell phone for absolutely nothing. You’re going to pay for that phone many times over with your monthly subscription of $39.95. You’re still happy paying $40 a month because that feels like a deal, but carriers don’t see $40; they see the $1500 you’re going to spend over that three-year contract.

Your base salary is your recurring revenue stream. It’s your financial life blood and we’re going to spend a lot of time figuring out how to get it as high as possible because a 1% increase doesn’t affect just this year, it affects every year after it. For the swag, you need to figure out what you want to be paid in the new gig, and my first question is, “For someone doing exactly the same job as you, how much are they being paid?”

For a question that everyone wants to know the answer to, the Internet is surprisingly useless here. In preparation for this article I spent a solid day researching various salary information sites and couldn’t find a single site that contained a job description that remotely described my current gig.

Go ahead and check out those salary info sites and confuse yourself a bit, but I’ve got two pieces of advice for your swag. First, talk to friends with similar jobs. Remember that salaries for similar jobs vary greatly depending on the industry, geographic location, and specific company. Second, take your current salary and add 10% — that’s your salary swag.

Title

Titles, like salaries, vary from company to company, but what you’re looking for in a new job is a sign that you are growing. Associate software engineer now? Ok, drop that associate title from your business cards. Stuck as a software engineer for three years? I’d be looking for that senior prefix when I jumped ship.

Think of your new title like this: what title needs to be added to your resume for this new job to demonstrate that you’re actively growing in your career?

Sign-on Bonus

It’s difficult to swag a sign-on bonus because this type of incentive is often used to augment weak parts of an offer, and you don’t have an offer letter yet. If a recruiter knows you’re keen on stock and that you’ll be disappointed with a low-ball stock offer, they might dazzle you with a large sign-on bonus. Sign-on bonuses are one-time cash windfalls that may never show up again. For now, all you need to know is that they’re often a band-aid, and the question will be: what are they hiding?

Stock

While representing the largest potential for unexpected financial gain, stock and stock options are also the hardest to swag. Rather than focusing on a hard number here, the question you should first ask is, “How much do I believe in this company?” If your answer is, “I like the company, but I don’t see a lot of growth” then focus your negotiation energy on base salary. If your answer is, “I love this start-up; it’s the next Google” then stock grants are clearly going to play a major role in your negotiation.

In terms of valuing the stock, whether we’re talking about a start-up or an established public company, you’re speculating. For a publicly traded company, take a look at the past 5 years. What’s the average stock price? For the start-up, well, my rule of thumb for stock is no different than a venture capitalist’s success rate. A VC’s expectation is that one out of every ten of their companies is going to hit it big and that will cover the investment for the other nine. My expectation is that one out of every ten jobs will result in a stock windfall. This should depress you.

Any value you place on stock or options is a wild-ass guess, but it’s still an important piece of data. The value you put on stock is a measure of your belief in the company.

The Offer

“… and the team is really excited to have you onboard and we have an offer letter for you.”

And then it lands.

Before we digest what the recruiter is saying, I want to reset your head. Yes, you’ve made it this far. Yes, you want the job. Yes, you love the company. But here’s the reality: You are the business. If you take this gig, I think you should pour your heart into it, but I want you to remember that you’re going to have another five to ten other jobs in your lifetime just like this one. This means that for each moment you spend being pumped about the new gig, you’ll have an equal and opposite moment at the end of the gig where you can’t wait to get the hell out.

Amongst these five to ten jobs that you’ll have there is one constant: you. You’re the one who has to pay rent, ride the subway, buy a condo, get married, have some kids, and build your dream house. Your welfare is not your employer’s first priority. It takes one layoff to figure that out.

You are the business and the one consistent metric business is measured by is growth. A new gig represents a rare opportunity where you can drastically change the trajectory of that growth.

The Counter-Offer

As a hiring manager who has been involved in many offer negotiations, the safest way to get me to ignore any counter-offer is to make it without data.

Recruiter: “The candidate wants a higher base.”

Me: “Really? Why?”

Recruiter: “He just does.”

Me: “Grrrrrrr.”

Negotiation is a discussion of facts. Any counter-offer needs to be constructed with the impression that it’s based on data. “I want a 10% raise because, based on my research, that represents the average salary for this gig elsewhere in the industry.”

Sure, it’s still a swag, but your swag demonstrates effort/research/desire and in an interrupt-driven industry full of bright people racing around doing nothing in particular, I’m a fan of research. It demonstrates that you care about your career and that’s someone I want to work with.

The real problem is…

This Offer Blows

There’s some portion of the offer that is disappointing to you, and everyone involved, including your future employer, would prefer that you didn’t walk in the door disappointed. Let’s fix that.

As I don’t know what your problem is with your particular offer, I can’t advise what you need to say, but here are some common frustrations and a plan of attack.

Lower Base Salary: If you’re staying in your industry and you’re staying at an established company, I can’t see how a pay decrease is ever a positive sign. Yes, if you’re moving to a start-up, you’re going to trade salary for stock. You need to figure out if you’re cool with that.

You wanted a 10% increase and they came back with 5%? Why? Sure, your 10% was a pie in the sky swag, but how is the recruiter justifying this base salary? They’re probably saying something about comparable salaries across the company and how you’d be making more than 90% of the people in your grade. That’s a warm fuzzy, but I call bullshit: you’re in the wrong grade.

But It’s Ok, Here’s a Bonus: If the recruiter is pitching this bonus as a fix for your low base, I call bullshit again. A sign-on bonus, like a bonus plan, is a finicky thing that has a habit of vanishing when the sky falls. You can’t count on them. There’s nothing like an instant pile of money to distract you from the fact that, over the long term, you’re bringing less money home.

Even Better, Here’s a Pile of Stock: How do you value this stock? Sure, for the public company, you have a stock price, but you’re not going to see a penny of that stock for a year. And what about that start-up? Well, did you know they have a stock price, too? They have to in order to give it some sort of value. This is how a start-up values itself when it goes to a VC. They say, “We’ve issued x amount of shares and we believe they’re worth y per share. How much would you like?”

You can ask about this internal stock price. You can ask about how big their pool of outstanding fully diluted shares is and that will give you some data about how much of the pie you’re getting. But here’s the rub: I assume start-up options have zero financial value, but this doesn’t mean they have zero absolute value. Again, your measure of the stock is merely the measure of your faith.

And This is Our Final Offer: If some part of the offer blows and there’s absolutely no way to fix it, you have two options: walk away or find another way to ease the blow. If you can’t walk away, have you thought about:

  • Asking for additional vacation hours right out of the gate?
  • Getting a start date a month later than they’re asking? There’s nothing like 30 days of work-free bliss to adjust your perspective.
  • What their work-at-home policy is? Perhaps Fridays working at home will remove that “I’m not getting a raise” taste in your mouth.
  • Perhaps my favorite “This offer blows” move is to negotiate a six-month performance review. You know you rock, but they don’t… yet.

Meh

My single worst gig was one where I got everything I wanted out of the offer letter, but in my exuberance for being highly valued, I totally forgot that my first read on the gig was “meh”. 90 days later, I couldn’t care less that I got a 15% raise and a sign-on bonus. I couldn’t stand the mundanity of the daily work and I happily resigned a few months later, taking both a pay cut and returning my sign-on bonus for the opportunity to work at Netscape.

All of this discussion of compensation ignores a simple question you need to be able to answer: “How much might I love this gig?”

For any new job, you should be able to quickly explain to anyone why the new job is bigger than the last and why you might love it. Whether they believe you or not is irrelevant. You’ve got to believe it because you’re the business.

17 Responses

  1. Excellent benefits are more like 10%, depending on the size of company and the actual salary. For ~60k, 10-15% is a more likely figure.

  2. The end is really the truth. Compensation does matter. Just not as much as being able to do something you love. Find both and you’re a lucky person.

    I feel like it’s been forever since the last Rands piece, but this was worth it!

  3. Brilliant article, esp as I’m going to be getting an offer letter or similar in the next week – moving from senior dev / team lead to architect :) Yay! Thanks for the article.

    Also, been really enjoying Managing Humans. Great reading, getting inside the head of the dev manager(s) I’ve worked with.

  4. Excellent piece, Rands. You hit the nail on the head with the compensation calculation – many people understate the true financial value of their current gig until it’s too late and they have under-negotiated themselves into something new.

    Many companies have started supplying employees with “total compensation statements” that detail the _entire_ value of salary + bonus + benefits. These are intended to raise employee awareness (read: satisfaction), but are also useful in negotiating the next gig.

  5. Coincidentally, The Girlfriend is writing about the cognitive side of accepting boni:

    If offered $10 today or $11 tomorrow, most participants prefer to accept the immediate reward; if asked however, whether to take $10 in a year or $11 in a year and a day, usually the second option is preferred. This ‘hyperbolic time-discounting’ is approached from a neuroscientific point of view in McClure et al.[15]. They show that when participants are confronted with an immediate reward, not only regions in the lateral prefrontal cortex and posterior parietal cortex are active in weighting different utilities, but also parts of the limbic structures. The former are associated with deliberative processes and cognitive control, while the latter represent affective reward systems. The intensity of the limbic processes appears to determine, which of the two decision options is preferred, as it strongly biases for the immediate reward. Thus, the authors remark: “these studies suggest that human behavior is often governed by a competition between lower level, automatic processes that may reflect evolutionary adaptations to particular environments, and the more recently evolved, uniquely human capacity for abstract, domain-general reasoning and future”[16]. That decision-making is not a unitary process shows in concrete applications of economic constructs that favor one view on human rationality, while seemingly ignoring another, namely the automatic and highly adapted part of decision-making.”

    [15] Samuel L. McLure, “Separate Neural Systems value Immediate and Delayed Monetary Rewards” in Science Vol. 306 (2004), pp. 503-507.

    [16]Ibid. p. 506.

    The lesson probably is not to trust the gut-feeling when it comes to negotiating your compensation.

  6. I wish I had seen this about three weeks ago as I was negotiating. It had a few things in there that I just didn’t think about.

    Excellent piece though!

  7. Excellent stuff. I’ve employed a compensation spreadsheet for the last several job moves, and based on the total compensation package comparison I was able to take a job with a lower starting salary than a promised (future) raise at the old company would have given me. Even with the potential salary increase the old company’s total compensation was less.

    BTW, my benefits are right at 20% in the Midwest.

  8. I just recently (about 4 months ago) jumped ship from a mindless break-and-fix Help Desk tech to a position more conducive to my college education. The salary jump was roughly +24k (and it was really my only offer in a 3 month span) so, naturally, I took it. I’m 24 years old so making almost 70k gave me a rock hard boner you could hang your tools on.

    I wasn’t out of work at the time, but was so desperate to leave my current job that I was willing to work for Hitler if the pay was decent, figuratively speaking of course.

    My benefits now don’t really compare to my old position WRT paid time off. However, I get paid relatively equally for other people in my position. I compared myself to friends that I graduated college with that have similar positions in my geographic location. But honestly, there really was no negotiation with my employer when I got my offer letter, because I was so desperate to change gigs…Did I make a huge mistake? Do you think I should have followed some of these steps?

    BTW, great article…I am passing this link to my girlfriend who is thinking about changing jobs

  9. Great article.

    This makes me infinitely more comfortable with my decision to tell company A to screw off: they low-balled on salary, forgetting that they were hiring a CS undergrad and not someone from the business college. They tried to use a middling signing bonus as a crutch for the salary number.

    And the icing on the cake? They flat-out refused to negotiate the starting salary.

    I may be an engineering undergraduate, feeling a bit fish out of water in financial consulting, but I’m not that dumb.

  10. So true. I lost out about 10% of my salary on the current job because I didn’t adequately estimate my benefits on the last.

  11. This was a great gig. Thank you for doing research and providing a clear explanation of all aspects of the compensation package, Rands. The insight about the sign-up bonus was especially helpful to me (I did not think about it this way). BTW, a few days ago I was purging my RSS subscriptions and wondered whether to keep Rands in Response. I’m glad I did.

  12. Wibble 7 years ago

    Here in good old NZ, there is usually no additional benefit to employment other than salary and 3 (now 4) weeks paid leave.

    There is no health care benefit.

    There is no pension scheme benefit.

    There is no signing bonus.

    There is no bonus.

    There is no stock.

    There is ONLY salary.

    Now, I am lucky. I have stock options. One day they may be worth something but I’m 5 years into this job and they only sorted the stock options out last week after the company and board dicked about with a variety of schemes over the last three years.

    I’m happy to have the options. I’d be happier if we were cash positive.

    So, in NZ it ALL comes down to salary. It is that simple.

    Sometimes I wish for a return to a more complex calculation.

    The stock options aren’t enough to keep me here but … we aren’t that far off making positive cash flow. So, I’ll hang around a bit longer.

    FYI, giving employees stock options in NZ is _very_unusual. I am very, very fortunate.

    Still, another 20% on my base salary would be nice. Then I could afford to opt in to KiwiSaver, the state organised pension scheme.

  13. A comprehensive review of the points that anyone that is serious about managing their career should be aware of. A few points from my own experience:

    1) Recruiters – the guys that work for agencies, not in-house HR people – often have no understanding of “package” versus salary. If you start talking about the value of your current / desired package they seem to put you at the bottom of the pile of candidates.

    2) Several companies have offered me stock, some free of charge, some at preferential rates. I have only ever accepted the free stock; and not once has either sort been worth didley squat in the long run. I wouldn’t count this towards the package value – except when trying to blag a bigger package from a new employer.

    3) My personal rule is convert every benefit to cash ASAP. If they offer you a car, take the cash instead, If they offer insurance, take the cash and arrange your own. It always seems possible to negotiate a better deal tailored to your needs than the one-size-fits-all offer from the employer. The only exception is pension if, and only if, the employer is making a significant contribution on the condition that you make a contribution – it’s free money and tax efficient.

    4) The ‘meh’ thing. I’m doing that right now. I was freelance and decided to go back to being an employee to spend more time with my family instead of in airports and hotels. I took a hugely satisfying public sector job with a low salary and next to no package to get back into employment. After a year I jumped into a private sector job in a company with a great reputation. The package was flexible and worth twice that of the previous job. But after a few months I’ve realised that it’s meh. I’ll put up with it for a while, but I’ve already got my eyes open for the next move.

  14. i like how you calculated the total worth of the current pay. however, when you present the # to the potential employer, they’ll have benefits/stock options as well. so why would it matter? obviously they won’t pay you what you think you’re worth(after bloated figuring) AND on top of that give you all the benefits. if the reality is that simple, after a few job hopping, you’d be making 200k.

  15. sluggy 7 years ago

    @Wibble, you are dreaming if you think your stock options are worth anything (i’m in NZ too). You should also remember that in business cashflow is key – if you are with a co that has negative cashflow for 5 years then you really need to be jumping ship coz they are either gonna go under, re-org, or the owners are hiding the money somewhere.

    @Rands, great article, i was already jiggy to some of your points, but you lay it out so nicely and completely.

  16. A little over a month ago I turned down a raise/promotion that I really wanted. It came down to the wire and the job just didn’t feel like the right move – for no reason I can explain. During the process I used a number of the things you mentioned here. As usual, very nice to have a solid reference point. Well done.

  17. Kerry 6 years ago

    @Wibble, some places in NZ still offer overtime, which can make a huge difference to the package if you’re expected to work the hours. Where I am it is T1.5 for the first two hours then T2 thereafter, also T2 after lunch on Sat, all Sun and public holidays – and on-call allowances go on top of that with minimum 2 hours at T1.5 on a callout. Also many places augment the Super (ie employer contributions to Kiwisaver above the compulsory 1 percent) and/or offer discounts or group rates on private medical insurance. You should also look at how many paid sick days they allow each year and whether they have compulsory shut down periods (eg. where I work it is compulsory to take annual leave for the non-statutory days between Xmas and new year). It doesn’t all come down to salary in NZ – that’s just a generalisation from your employer(s).