Negotiating Startup Job Offers
Negotiating compensation may not be most people's idea of a good time, but it doesn’t have to be a painful experience either. As a recruiter at recruitment agencies both big (Robert Half, Kforce) and small (VonChurch), I helped countless people negotiate with their prospective employers.
While we make ourselves available to help every user of Mighty Spring negotiate their incoming job offers, in this post I’ll outline the “hows” and “whats” of a good negotiation for everyone else, too.
A good interview process sets the stage for an enjoyable and and fulfilling working relationship, with only one pitfall-laiden obstacle in the way: the negotiation. Your goal is to navigate this discussion nimbly and start your employment off on the right foot.
Negotiating obnoxiously can send negative signals to your prospective employer, but a smart, graceful negotiation can further solidify the employer’s decision to hire you.
The negotiation is a reflection of how you conduct business in general, and therefore, how the employer can expect you to conduct business on their behalf. Do you consider all of the details at hand and seek a favorable, but fair, result? Or do you focus foolishly on optimizing relatively unimportant details?
Remember, though you’re on opposite sides of the negotiating table, you’re working together to define a compensation structure that works for both of you. A successful negotiation marks the start of a long-term relationship, so neither side wants the other to walk away feeling like they got a raw deal. Start building a good work relationship early by negotiating intelligently.
Understand the Lasting Impact
Negotiation performance compounds over many years, as salary increases (both inside an organization from a raise and outside via a job change), are often defined as a percentage increase over your most recent year’s wages.
For this reason, it’s generally better to seek a salary increase instead of a lump-sum performance or signing bonus whenever possible — salary increases raise the baseline for future compensation conversations, lump-sum bonuses don’t.
Know Yourself (and Your Situation)
The best way to strengthen your position in a negotiation (and ensure an outcome that you’re happy with) is to be as clear as possible with yourself about your needs and wants.
Know answers to questions like, “How badly do I want this job versus my alternatives?” and, “What is my walk-away minimum salary?” before you enter a negotiation. This will help you address the toughest parts of the conversation with confidence.
Answering with a clear, unwavering, “No,” when presented with an offer that is below your minimum is the most powerful way to point things back in the right direction when a negotiation is going south. However, don’t try to fake this — if your opposition finds out that “no” actually means, “probably not”, you lose a lot of leverage!
On the point of losing the impact of your word: any party you negotiate with is likely to remember your behavior forever. So, if you find yourself across the table from someone for a second time addressing the possibility of a raise, your performance during your previous negotiation may leave you wanting for a few more dollars!
Once you’ve come to terms with your personal circumstances, it’s time to understand the market.
Your goal is to have clarity about the high-end, low-end, and mid-range compensation packages that are being offered for your prospective position across multiple companies, preferably competitors. If you are dealing with a position and company in which equity is part of the package, you should also understand the equity ranges that the market supports.
Equity tends to be a tricky subject, as Restricted Stock Units, Common Stock, Stock Options etc, all differ. Regardless of type, it’s important to understand the real value of the equity offered. To do this, you must be able to answer questions like:
What percentage of the company today does this equity represent?
(Offered Shares/Total Issued Shares)
What fully-diluted percentage of the company does this equity represent?
(Offered Shares/Total Authorized Shares)
What is today’s value of the offered equity?
(Per-Share-Price X Offered Shares)
How long does it take for me to earn the equity?
(4 year vesting/1 year cliff is standard)
Does my equity come with voting rights?
(Stock can have different classes; some have voting rights)
This said, equity is really only worth worrying about if it makes up a significant portion of your compensation. If you’ve been offered market-rate salary plus some equity, then that equity stake probably isn’t worth quibbling over.
On the other hand, if you’ve been asked to accept less-than-market salary, or the company is yet-unproven (ie, you are taking on occupational risk that exceeds the market average — as is often the case in very early-stage companies), with the expectation that the equity offered makes up for it, it’s vital to understand the details of the equity package.
Focus your negotiation energies on what’s really important. When equity is important, make sure you clearly understand the economics and financial structure of the company before negotiating.
Recognize the Unique Circumstances
No two companies are exactly alike. Because of this, it’s important to balance market norms with the unique characteristics of your prospective employer and offer:
Are they very early-stage with an exceptional team full of experienced leaders? Perhaps less than market-rate salary is reasonable if the equity figure is appropriate.
Or are you requesting remote-work privileges every other week, while everyone else on the team is full-time on-site? Your pay may be slightly reduced in exchange for this flexibility.
Always consider what is unique about the particular situation – both yours and the company’s – before opening the negotiation.
Entire books have been written about negotiation tactics, but here are three of the most useful tips that you can put to good use immediately:
When possible, you want provide the basic framework that both sides will use for their calculations. For example, “Can we agree that salary should be a function of an individual’s capabilities, their impact on the businesses bottom line, and cost of living in their city?”
If you set the framework, you have the chance to include or exclude the elements that you foresee being vital points of leverage later on in the discussion. If the other side moves to set the framework first, make sure all of your decision-making criteria are also included in the framework before moving on to individual points.
Bring everything to the table
If you bring a lot of elements into the discussion, you have more chips to bargain with. You may be able to exchange three or four things of relative unimportance for one item on your opponent's side that you care about quite dearly.
If you are going to have to give up something at some point, it might as well be something you care little about.
Leverage an outside decision-maker
Sometimes it’s good not to be the final decision-maker. Imagine saying, “Well, this sounds like a great offer, but I don’t think my spouse will let me take a job with fewer than three weeks of vacation time.” This line helps you to create a “good cop, bad cop” dynamic, leaving your opposition to negotiate against someone who isn’t even there!
If you’re reading this because you have a salary negotiation in the near future, congratulations! These things usually turn out well if you follow the above lessons.
Remember, you are working with someone else to reach a fair agreement, not trying to “win.” Being transparent and honest in your communication will go a long way to achieving that goal.
Finally, if you’re interested in receiving more offers and more help in the job search process, sign up for Mighty Spring!
Lumen Sivitz is a former technical recruiter and CEO of Mighty Spring, the easiest way to find startup opportunities. He is a master of the smoothie, a slave to El Metate, and a cable select to good popsicles. You can follow him on Twitter @lumen.