Congratulations! You landed the job after a grueling interview process. Typically, a new job is a cause for celebration. But, it can also be stressful considering salary, benefits, and more. You might be left wondering: is it okay to negotiate the terms of the job offer, or is it better to accept the offer as is — even if it’s not up to your expectations?
Negotiating sets the tone
A company’s first offer is rarely its last. While many think the first offer is acceptable, it’s better to negotiate benefits and compensation up front rather than risking resentment and unhappiness later.
Negotiations during the job offer process can set the tone for both candidate and employer going forward and help set clear expectations for both parties. Candidates can learn how to work effectively with management, while management can understand how driven the candidate may be. Establishing this foundation early will make the overall employee-company relationship healthier.
Related: How to Negotiate a Job Offer
Navigating startup vs. corporate negotiations
Startups typically have different work environments than established businesses — and their operations can be just as unique.
Startups often don’t have established norms in place; they may be early in the team-building process and haven’t hired outside employees until now. Therefore, they may not have determined salary ranges or benefits or have established other employee programs.
Further, some startups may not have HR departments to handle hiring.
Given that these mechanisms may not be in place, startups may be more flexible than established businesses regarding salary negotiations. For example, Google’s HR department may look at you sideways if you request a revision of its equity plan — but a startup may be open to it.
Interviewees would be wise to keep these differences in mind and be unafraid of asking about them. Understanding the operational differences of a potential employer can help a candidate better manage expectations throughout the negotiation process.
Related: 11 Crucial Interview Questions to Ensure a Culture Fit
The startup factor: How stage shapes negotiation success
During the early startup stages, new hires commonly start with a low salary. Instead of accepting a request for a higher salary, the company might counter-offer salary raise requests with increased stock options. However, it’s important to note that some companies may ask early employees to work for equity, which is often illegal.
With an early-stage startup, at minimum, job candidates should try to pre-negotiate salary bumps for when the company raises more money.
As the startup matures, equity and salary typically increase; employees will get less equity and a more normative salary. As a result, the company has less flexibility to establish individual negotiations for equity terms during this growth.
Crucial job offer negotiation considerations
If the initial salary offer does not meet one’s expectations, leadership may consider several counteroffer options, one of which is the opportunity to leverage equity. Usually, startups will offer lower salaries in exchange for equity, which can give the candidate the upper hand in negotiating equity terms.
For job offers, including shares or options, favor negotiating vesting terms. Instead of a year, consider negotiating a six-month cliff. A candidate can also counteroffer with acceleration upon change of control. The most common offer for these terms is double trigger acceleration — the shares or options can be vested ahead of schedule if there are two distinct triggering events. If a job is offered with stock subject to vesting, an 83(b) election must be filed with the IRS.
If a candidate is only negotiating options, two asks should be considered. The first, early exercise, allows candidates to exercise options before they vest. The benefit? It starts with long-term capital gains and qualified small business stock (QSBS) holding periods.
The second is an extended exercise of the options, which usually requires candidates to exercise options within three months of employment termination. However, a candidate can negotiate for a longer period. Candidates benefit from having more time to decide, post-resignation, whether exercising their options is worth it, and they are not tied to continued employment with the employer until an exit.
Related: Essential Questions to Ask at the End of an Interview
Unlocking power: Essential questions for candidates to ask
Candidates should ask several key questions during the negotiation process. Not only will the answers help them to understand their options, but they will also help to foster an understanding of how they’ll be beneficial in the future:
- What is the company’s fully-diluted capitalization? This provides insight into how many shares have been issued and what percentage of them are being offered.
- What are the company’s exit or liquidity plans? These details may offer a better idea of when candidates may see the financial benefits of their share ownership.
- What is the current 409A price? Understanding the 409A price – the fair market appraisal of the startup’s common stock – will help candidates better understand the strike price for options.
- How often does the board meet to approve options? It’s crucial for a startup to keep its board involved and for candidates to understand what that involvement includes so as to avoid unnecessary delay and adverse tax consequences from an inadvertent delay of the option grant.
Negotiation pitfalls: Spot the warning signs
While many positive outcomes result from negotiating a job offer, candidates should keep their guard up. Remaining composed will enable them to evaluate what the company is saying and maybe even catch things they are alluding to without being blatant.
Further, ensure that the company remains transparent. It should raise a red flag if the company is reluctant to share the capitalization or 409A price.
The bottom line
While negotiating job offers with a startup can seem stressful, it’s essential to have open conversations to better understand their operations, expectations and abilities. Every startup is unique. Take the time to understand those differences and how they may be leveraged. Candidates would be wise to be upfront with their expectations from the start and to build a foundation for a mutually beneficial relationship moving forward.
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