This article was written over a decade ago, and business has changed. You can read a much-updated version of this article here.
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 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.
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:
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.
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?
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?
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.
“… 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.
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.”
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.
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.