20 Nov Lifestyle Calculator Series | Chapter 1: Compensation
This post is part 1 of a 5-part series in which we break down the 24 unique elements that can and should be considered in any job offer negotiation.
This post is part 1 of a 5-part series in which we break down the 24 unique elements that can and should be considered in any job offer negotiation. These 24 elements are taken directly from an interactive tool we built at 10x Ascend called the Lifestyle Calculator.
One of our core beliefs at 10x Ascend is that job offers should be customized to fit the needs and values of a given candidate. But in order for a candidate to negotiate for what he/she values most, they need to take a cold, hard look at all the items that can make up a job offer/work life.
The Lifestyle Calculator is designed to help you decide what’s most important. You’re allotted 100 points, and you must divvy up the points across all 24 items based on what you value most in a compensation package.
In this first chapter, we will be covering all lifestyle calculator items related to compensation: salary, equity, annual bonus, signing bonus, and insurance & retirement benefits. We hope you find this to be both educational and practical. Our goal is that you will be better equipped to negotiate your next job offer after reading. Or feel free to reach out to us so we can help you get the best deal available for you.
How Much You’re Paid on an Annual Basis
Ah, salary. The holy grail of job offer negotiation topics. Our general stance on salary is that it is often one of the most “overhyped” negotiation topics because it receives all the attention, leaving potentially just-as-valuable topics to the wayside. As you’ll see in this post, there are a handful of other compensation-related negotiation items that should receive just as much attention.
Now with that said, it receives so much attention for good reason. Of course it’s important. For most people, how much guaranteed money you make on an annual basis is probably the factor that influences your lifestyle more than any other.
If you’re familiar with 10x Ascend content, you probably know our number 1 tip when it comes to negotiating salary: When asked, never peg yourself to a singular number but rather a range. By providing a desired range, you mitigate the risk of low-balling yourself, while leaving the door open to an ongoing salary discussion throughout the entire negotiation.
If an employer comes at you with a salary that hits the low end of your range, you can try to negotiate better terms in other areas of the offer as a compensatory measure to make up for the low salary (i.e. more equity).
You can also explain that your salary range only dipped as low as it did because you expected other aspects of the offer to be more competitive. Had you known that other parts of the offer would not be so great, you would’ve provided a higher range.
On the other end of the spectrum, if an employer meets the midpoint or higher end of your provided range, great! In this case, just keep in mind you won’t have the same kind of leverage.
To take a step back and put things in context, we recommend taking a holistic view at all compensation-related negotiation topics before deciding how much value to put on salary. For many, salary seems like the all-important aspect of any job offer. But when considering other areas to potentially focus your negotiation efforts, you might realize it’s not as important as you always thought.
We’ve actually encouraged clients to take the lower salary between two job options because other aspects of the offer made up for the lower salary. Read on to learn about other offer items that might be equally or more important to you.
The Amount and Type of Company Ownership You Receive
This is a complicated topic and there are volumes written and available on it. But as far as potential value goes, equity can provide a bigger payout than any other compensation topic covered in this post. With sufficient equity, a good amount of luck, and some faith in the company you’re joining, you could be on your way to the kind of payday that allows you to retire early or take time off.
Admittedly, while true, that’s an oversimplification. We’ll only be scratching the surface here, as the topic of equity is full of nuances and details. But let’s look at some basics.
Equity is the amount of ownership you hold in a company. It is typically given to high-ranking and/or tenured employees. From a big-picture standpoint, equity can be broken into 2 main categories:
- Liquid equity
- Non-liquid equity
Liquid equity is simple. For some publicly traded companies, equity might be granted or distributed in the form of cold hard stock or stock options. If this is the case, a simple calculation based on the market price of the stock will tell you what your equity is worth.
If they are options, of course, you need to factor in how much it will cost for you to exercise (buy) them and deduct the cost from the sale price to know how much you would make from them.
Non-liquid equity gets a bit more complicated. Here we are talking about equity in a company that has not yet had a liquidity event. This typically applies to smaller and/or privately held companies. For this type of equity to become liquid, one of two things must happen:
- The company sells (exits)
- The company goes public and the shares are now sellable on a public market (i.e. NY Stock Exchange, NASDAQ, etc.)
For a company whose end goal is to sell, equity is often distributed in the form of Restricted Stock Units (RSUs). A certain amount of units are set and made available to be distributed to employees. Essentially, the number of units you have against the number of units available represents your percentage ownership in the company. Only once the company sells, you’ll receive however much percent is attached to your name.
For a company that plans to go public, equity is typically distributed in the form of Employee Stock Options (ESOs). If you negotiate ESOs into your contract, you’re earning yourself the right to purchase the company’s stock at a certain price, often called a “grant price” or “strike price.” If the company’s stock price increases from your grant price over time, you’re in luck. You’ll be able to buy the stock at a cheaper price and then sell it at a higher one.
In both of the above cases (exit or IPO) you can see how equity can act as a vessel to wealth. If you own even just 1% of a company that sells for north of $100M, you’re suddenly a millionaire. Or if you join a publicly traded company on the cusp of sizable growth, your options could give you the ability to buy the next hottest stock at a steep discount.
For most equity clauses, you’ll need to be familiar with the concept of “vesting.” If a company values you to the point where they’re willing to give you equity, their peak concern is your commitment to said company. To ensure employees with equity stick around, a vesting period is set (often 4 years). Each year, a percentage of equity becomes vested or actualized. It is worth noting that your equity often doesn’t begin vesting until after you have stayed for 1 year (a cliff). If you leave before the end of that first year, you get no equity.
For example, with a 4-year vesting period, 25% of the total equity agreement may be granted each year. So in order to see all of your equity, you’ll have to stick around for a bit. In a sentence, think of vesting as a tool used by employers to make sure stakeholders actually earn the ownership they’ve been given.
One final thing to keep in mind is that even after vesting, stock options are often accompanied by an “option period.” An option period defines the number of days you have to purchase your options before they expire after leaving the job. If it’s unclear yet whether buying the options is a good investment, an option period presents a difficult predicament: Should you write the check and buy the sweat equity you’ve earned? Or is it too risky of an investment when you don’t know how the company will perform in years to come?
If your job offer includes a decent amount of equity and it is coming in the form of options, negotiating the length of the option period might be well worth your time. Following your departure from the company, having 3 years as opposed to 3 months is sure to be helpful when deciding if you want to make the investment. 10 years is the best we have seen.
Yearly Bonus Received Based on Personal and/or Company Success and/or a Preset Measure
Generally speaking, if you’d like to settle in at a company for more than a couple years, anything with long-term, recurring value is worth pursuing in a negotiation. An annual bonus is a great example.
Your annual bonus is typically a fixed amount of money or percentage of your base salary, but it can also be much more variable.
Sometimes the extension of an annual bonus depends on whether or not you meet a set of agreed upon goals throughout the year. But just as frequently, annual bonuses are discretionary, meaning they ultimately come down to the judgement of a manager or supervisor.
If and how exactly a company decides to distribute annual bonuses will vary on a case-by-case basis. Some companies may set personal goals. Some may set team or company goals. Some may adhere closely to the notion that all goals must be met in order to receive a bonus. Others might not approach things with such a rigid lens.
An annual bonus is a great tool for an employer to motivate employees to do their best work. Money talks, and little else incentivizes people to work harder. Keep in mind, however, that bonuses are taxed more heavily than salary income, so you might need to do a little math to understand the net value of the bonus. They’re also not always guaranteed, so they shouldn’t be relied upon as confidently as your salary.
We view annual bonuses in a positive light. As previously mentioned, recurring value is something to look for in any negotiation. If you’re confident in your ability to hit goals, or your bonus is guaranteed, this is certainly something to pursue.
One-Time Bonus for Joining a Company
A signing bonus is a one-time lump sum paid at the time of signing with a new company. It’s sometimes used by employers as a cherry-on-top feature that pushes a candidate over the edge and convinces them to join.
There exist a few situations in which we recommend negotiating for a signing bonus. First is if you only have short-term plans at the company. Second is if you’ve already secured everything you could possibly want in the offer. And third is if you’re in need for a lump sum of money (buying something big, paying off student loans, credit cards bills, etc).
Whereas an annual bonus provides recurring value, a signing bonus is the antithesis of long-term value. This is why it really only makes sense to aim for a signing bonus if you fall into one of the above categories.
We actually caution people to beware of the signing bonus, as it is sometimes used by employers as a distraction. It’s a “shiny object” that is likely quite tempting, but in reality might just be diverting your attention away from more important negotiation topics.
If a signing bonus is offered, consider that other parts of your offer might be suffering. Could your salary be higher? Could you ask for more equity? What about an annual, recurring bonus instead?
Our core recommendation here is to stay focused on your entire offer, and make sure that a one-time value-add is not taking away from longer-term items that will prove more valuable down the line.
Insurance And Retirement Benefits
Health Insurance and Other Financial Instruments
We believe employers should always do what they can to customize job offers to fit the needs of employees. One size does NOT fit all when it comes to compensation packages. In what world does a standardized contract offering the same exact benefits meet the needs of more than just a few employees?
Most decent health insurance providers offer a range of plans to fit your needs. But you should learn what you can about these benefits before signing. Truth is, as far as customized health insurance, you’re likely going to be limited.
Companies typically offer standardized health benefits that apply to all employees. At times they have different options within their plans which is important to know. What’s most important here is to understand the quality of those benefits. Some questions to ask yourself…
Is it a versatile, comprehensive plan with good coverage? Will your specific medical needs be met? How much do you need to contribute to the plan? Does it have mental health coverage? Do your current medical providers accept this insurance? Does it lower premiums for good exercise habits? If you have insurance through your spouse and want to opt out, do you get anything extra since you might be saving the company meaningful amounts of money?
As far as retirement benefits, the most common topic here is the 401k. A 401k allows employees to set aside and invest a portion of income that won’t be taxed until they retire.
Many larger companies offer 401k matching, meaning they also contribute a percentage of the amount you set aside annually. When looking for long-term value, this can be a major value add especially if you’re early in your career. The longer your 401k contributions have to follow long-term market growth, the better, so start saving early and keep at it.
On the topic of retirement planning, if you’re working towards a pension and considering a switch to a new job, there may be some negotiation opportunity here. But the truth is, it’s impossible to give general advice, as your best move entirely depends on your specific plan.
What we can say is that time spent progressing towards your pension is much like time spent working towards equity. If your pension has almost vested, there’s a lot of value pent up there, and that’s where the negotiation opportunity lies.
If your new employer really wants you, there should be some sort of compensatory measures to make up for the fact that you’re leaving behind an almost-vested pension. This can manifest in many ways – maybe you get a bigger salary or more equity. Or maybe the new company even gives you a fresh pension with a short vesting period.
Conclusion on Compensation in Job Offers
As we hope this post has made clear, the topic of “compensation” is a bit more complicated than many people realize. It’s not just how much money you’re paid each year. Salary is of course a big part of that, but in a well played negotiation, the compensation discussion extends far beyond this one topic.
For those still considering which compensation items are most important, we recommend checking out the Lifestyle Calculator to get a more holistic view of the other items you may also want to consider. And if you need some help walking through your situation, we’d be happy to chat. Feel free to reach out!
**Stay tuned for Chapter 2, where we will touch on the second section of lifestyle calculator items: Logistics.