How to Understand and Negotiate Your Startup Compensation
You prepared for and had fantastic interviews. You love the team, the mission, the culture and the design team loves you back. You’ve made sure the company is at a size that fits your needs, that there are opportunities for growth, and you know the work you’d be doing short/medium term. Two days later you get that wonderful phone call, “we’d like you to join our team” they say and they lay out the specifics of the offer: $100,000/year salary + healthcare/benefits + 8,000 shares vested over 4 years. A great offer… you think…
At Designer Fund we support many designers transitioning into new opportunities. Whether you’re joining your first startup or your fifth, designers are often in the dark when it comes to understanding and negotiating a fair offer as the comp landscape is constantly shifting. To give designers more insight we’ve interviewed some hiring managers and recruiters from companies like Flipboard, Pinterest, and Stripe to help you understand and negotiate your startup compensation.
1. Know your worth
The more data you have about what compensation designers at your level in your area are offered the better equipped you are to have an informed discussion with your potential employer. Some great tools we’ve seen to get this data are:
- Angelist Startup Salaries
- Spreadsheet of Salaries in the bay area – Oct 2014
- How Top Startups Pay Designers
However, as Malthe Sigurdsson, Stripe’s Director of Design explains, “you should also know what’s globally fair and locally fair. For example an early startup that’s cash strapped might offer comp that is low on salary but high on equity. Always ask a company to explain how they came to the numbers they presented. They should have some method that makes sense to you and aligns with your values.”
2. Understand your total comp
An offer usually consists of three parts – salary, benefits, and equity. All three of these usually have an actual dollar amount (both present and future) attached to them and it’s important to add them all up together to make an apples to apples comparison. For example, if a company offers free daily lunch that’s basically a few thousand dollars of additional compensation they offer over the course of a year that you should calculate into your total comp.
However, while calculating the dollar value of these three components make sure you don’t lose sight of everything else that will go into making you fulfilled and satisfied in your new job. For example “people way under index on the commute”, says Malthe, “understand the value of those minutes or hours you’ll spend on your daily commute.”
3. Calculating your Equity
The part that can really vary and may be most difficult to understand is the equity portion. You need to not only understand the current value of the equity but also consider what the equity could be worth one day. The reality, however, is that if you are joining an early stage company you should treat equity as a lottery ticket that may not materialize.
For example if you’re getting $40,000 worth of shares over 4 years in a young startup but believe the company can realistically be 20 times more valuable than it is now then the equity portion of your offer has potential, albeit a small one, to be quite lucrative.
Conversely if you’re joining a big company like Google or Facebook there’s probably little chance the company will be worth 20x what it is today. However, at those companies the equity has real worth so while the upside might not be as high there is a very high likelihood your equity will convert to real money in your bank account. Risk and potential upside should definitely be considered when calculating your equity.
Make sure to understand the vesting schedule as well. For example if you leave 3 years into your 4 year vesting schedule you will only get 3 years worth of the equity.
Disclaimer: There are also other factors that should be considered in equity – RSUs vs. Options, taxes, etc. We encourage you to consult an independent, certified tax and equity expert before accepting your offer.
Behind the numbers
There are many resources in the internet to help you calculate and understand your equity but to start you want to know the current value of each share you’ll be receiving. If the company won’t give that to you you can also ask for how many shares are outstanding and the current valuation of the company and simply divide the valuation of the company by the number of shares to get the current price per share. Then multiply that by the number of shares you’ll be receiving.
If a company worth $50,000,000 has 10M shares outstanding then –
$50,000,000/10,000,000 shares outstanding = $5/share
If you’re being offered 10,000 shares over 4 years that’s basically 2,500 shares per year at $5 per share or $12,500 of additional comp at present value.
How not to lose a million dollars: understanding and negotiating your startup equity – more details around equity – fair market value, strike price, and more.
An Engineer’s Guide to Silicon Valley Startups – great advice even designers can use
4. What’s important to you
Another thing to consider in your offer is what’s important to you right now. If you have a family and live in an expensive area you might need a higher salary and should communicate that when negotiating your employer. However if you want to feel invested in the company and stay for the long run you might want to lean on getting more equity rather than a higher salary. Understanding what’s important to you and communicating that can go a long way in getting you an offer that’s best for your situation.
5. Ask How You’ll be Compensated Going Forward
According to Greg Hoy, Creative Outreach at Pinterest, one of the things designers often neglect to ask is “what does success look like in this role over the next 9-12 months and how is that success rewarded?” This will allow you to have a conversation about bonuses, refresher equity grants, and potential raises if you excel in your role. “The last thing you want is to find this out 2-3 months into starting your job and be disappointed”.
Below are a few additional helpful tips from our experts:
Keep the big picture in mind
“The biggest mistake you can make is not making sure that the day to day work, team, management, problem(s) are exciting for you,” says Will Giese of Flipboard. “While salary and equity are important they are not the things that will keep you happy in your new role.”
“In most cases you can get more by negotiating,” says Malthe. “Few companies provide you with the top of the range as their first offer.”
Understand where you fit in
“I always tell designers to look at the company you’re considering on LinkedIn and understand the current team and their experience to get a sense of where you’d fit in,” says Greg. “A design lead at a small startup might only have a couple years of experience whereas that same level of experience at a larger startup would make you an entry level designer. Understanding how your experience level maps to the team and role you’ll be taking will help you make a proper comparison between companies.”