Chapter 7. 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 resumé tweakage,[1] a series of phone screen gymnastics (see Chapter 4), and two grueling days of in-person interviews (Chapter 6). This is a rare moment where you can answer the question, “How much does the world think I’m worth?”
Fact is, you should already know. You’re the business.
You Are the Business
Before I break down the offer and offer negotiation process, I want to reset your head. I’ve no clue how badly you need your next job, and the degree of your need will affect your negotiating position, but here’s some reality. You are the business. If you get an offer and take the 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 next 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 one of the few moments in your career when you can directly and drastically change the trajectory of that growth.
Pre-Game
The offer negotiation process starts earlier than you think. Think back to that 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.
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, 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 resumé. 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 Am I Doing?
Whether you’re expecting an offer letter imminently or not, I have an exercise for you. Let’s figure out what you actually make.
Like frequent resumé updates, this career maintenance exercise is designed as a professional checkpoint that answers the simple question, “How am I doing?”
Let’s start by breaking down how I calculated your hypothetical yearly compensation earlier:
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, when you’ll fully appreciate this portion of your compensation.
The other fuzzy area is stock. This example assumes you got 2,000 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 use these rough calculations to figure out what you make. Don’t sweat perfection. You just need to be close.
The Swag
Fast forward. You’ve just finished the interviews. Traditionally in high-tech, the recruiter is the last interview of the day and their job is to get inside your head and take your temperature regarding the gig. The guiding rule here is: 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 emails to the interview team. All professional karma-aligning activities, but what you really need to do is build your own offer letter. Just like you built your compensation, I want you to build your offer.
Base Salary
The business model everyone loves is a business built on recurring revenue streams. This is why you can get a good mobile 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 $1,500 you’re going to spend over that three-year contract.
Your base salary is your recurring revenue stream. It’s your financial lifeblood, and we want 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. Salary survey sites litter the Web, but after several days of research, I couldn’t find a job description on these sites that came remotely close to 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 and figure out what they’re making. Salaries vary greatly depending on the industry, geographic location, and specific company, but after you’ve talked with a few folks, you’re going to have a rough feel for base salary,
Second, if you don’t have a clue, 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.
Like salaries, the internal value of a title varies by company. A director at one company could easily be a vice president at another. Unfortunately, this is the type of cultural data you might not discover until you’ve made it into the building.
This makes your desired title more of a personal decision. Think of it like this: what title do you believe needs to be added to your resumé 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, stock options, and restricted stock units 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 five 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 1 out of every 10 of their companies is going to hit it big and will cover the investment for the other nine. My expectation is that 1 out of every 10 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.
Negotiating Roles
You’re done. Two phone screens, two rounds of interviews, reference checks, and a lot of waiting have paid off. Before we take a look at your offer, let’s figure out who you’re going to negotiate with.
In any reasonably sized organization, a strange switcheroo occurs the moment you start talking money. If you’ve reached the offer phase, it means you’ve likely professionally connected with your potential future manager. He’s sending you follow-up emails and generally paving the way for a clean transition to you joining the team. The moment you start talking compensation, he’ll vanish.
This far into the process, you’re probably pretty close with the recruiter. You’ve probably had a couple of professional heart to heart conversations and might be under the impression they’re representing your best interests.
Wrong.
The recruiter’s role in negotiation is the bad guy and deliverer of bad news. Recruiters are measured not only by the number of hires they make, but how the compensation for those hires measures up to the rest of the company. Yes, recruiters want to make the hire, but they’re also driving toward internal corporate hiring standards that may or may not be aligned with your ideal offer letter.
Your future manager’s role is to make a great hire; the recruiter’s job is to make that hire and negotiate it so that it’s fiscally palatable to the rest of the organization.
You need to be prepared to dig in your heels and fight for what you want. This may be uncomfortable and might involve beating up the recruiter a bit, but here’s the deal: once the offer is signed, you’re likely never going to hear from this person again.
Offer Compromise
I’ve never received an initial offer that I’ve loved. There has always been an aspect that has disappointed me. The stock is off, the title is unexpected, or the base salary just isn’t that close. I’ve always needed to construct a counteroffer, and I’ve done it using facts.
As a hiring manager who has been involved in many offer negotiations, the safest way to get me to ignore any counteroffer 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 counteroffer 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 and research, and in an interruption-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.
As I don’t know what your problem is with your particular offer, I can’t advise what you need to say specifically, 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 bitter “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 gut read on the gig was “meh.” Ninety 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 compensation strategy ignores a simple question you need to be able to answer: “How much might I love this gig?” That’s the question you need to be able to answer.
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.
[1] See “A Glimpse and a Hook,” http://www.randsinrepose.com/archives/2007/02/25/a_glimpse_and_a_hook.html.