How to Negotiate a Job Offer
Recently, one of my mentees – “upstarts” as we call them – asked for advice in negotiating a job offer. He had two competing offers – one from a large well-known tech company, and the other from a startup. The offer from the bigger company was better financially by a long stretch, but he was more excited about joining the startup. In the end, he negotiated a significantly better offer from the startup and got the best of both worlds.
A friend suggested that I share the advice I gave him, considering the many job-seekers who might benefit from it. I hired more than a thousand people directly or indirectly when I was at Google, so I’ve seen many flavors of negotiation – some more successful than others. And I also know well how both startups and larger companies think about the hiring and negotiating process.
While I’d never advocate making career choices solely or even predominantly for financial reasons (I suspect my mentee would have joined the startup regardless), it’s definitely smart to ask for what you deserve on the way in. The downstream impact of your starting compensation is not something to be taken lightly: it can affect your bonuses, raises, and subsequent job offers. It can even affect how you and your future co-founders will split shares, because the comp you’re giving up to join your own startup is relevant to that discussion. So at the risk of my advice being used against me, I offer the following:
If you’re not currently working, and you don’t have competing offers, you’re pretty much out of luck. So task #1 is to make sure you have competition for your talents. Otherwise, you might be able to ask for something small around the margins (e.g. help with relocation expenses), but you’re not in position for serious negotiation. I would not recommend bluffing about pretend offers, as it can come back to haunt you, and even put your real offer at risk.
Know what you want
It’s useful to think about which offer you’d accept if money were no object. If you know the answer to this question, things get much simpler. Your goal now is to make your preferred offer (let’s call it offer A) as good as possible. I’ll spare you the lecture (this time!) on choosing learning and passion over dollars. Let’s just assume you want Offer A, but it’s not nearly as good financially as Offer B.
Run the numbers
Your next step is to convert your Offer B into a single annual compensation number. For example, let’s assume you were offered $70,000 base salary, $5,000 signing bonus, $5,000 in relocation expenses, 10% annual bonus, and 600 shares vesting over four years. Valuing the shares can be tricky, depending on whether the company is public or private, but since there’s plenty of advice available on valuing equity, let’s just assume it’s worth $10,000 per year for four years. Your total first-year compensation at Company B is $97,000 (assume your bonus is paid “at plan”). Let’s assume that Offer A – the one you really want – is $60,000 base, no bonuses (common for startups), but equity worth $15,000 per year. The simple truth is that Offer B is worth $22,000 or 29% more than Offer A in total annual compensation.
Make your case
When you go back to Company A, it’s best to keep it simple and state that you have an offer from Company B that’s better by almost 30%. This approach is preferable to volunteering the details of your offer item by item. Many companies don’t have annual bonus plans, or may have policies or cultural biases against sign-on or relocation bonuses. And they will always be thinking about internal equity. In any case, those aren’t battles you want to take on: by sharing the discrepancy in the aggregate, you give the other company the ability to respond in the way that works best for them. If they ask for details (which some will) you should send them your spreadsheet with your calculations comparing the offers. Otherwise they will think you’re bluffing.
Side note: if you’re good at math, you should realize that a 5% increase in base salary is far preferable to a 5% signing bonus. If the other company chooses to increase your base salary in lieu of a one-time bonus, grab it and smile.
Say it right
The human factor matters a lot in this. The hiring manager, particularly in a startup, often has quite a bit of discretion regarding offers, so you want them pulling for you. The best approach is to make it clear that you desperately want to work for Company A, but you have financial responsibilities to consider – to your spouse, your mom, your church, your dog, your yet-to-be born kids. Whomever. Telling them that you love love love their company, but your inner Warren Buffett won’t let you accept the offer as it stands, is the best way to ask them to close the gap. And in case they ask what it will take, be sure to have a number in mind – and ask for it in either base salary or equity, depending on your own preference. Never negotiate an offer by highlighting aspects of the company or role that you dislike.
Leave some on the table
Negotiating job offers can be an uncomfortable experience, and many have never done it before. As with any negotiation, it’s important not to derail what will hopefully be a fruitful long-term relationship to eke out the last dollar of your offer. In the end, if you asked for what you deserve, and were treated fairly, it’s time to get to work on proving you were the right choice.