Salary negotiations are an integral part of any tech hiring process and can have a game-changing impact on a candidate’s career, financial status, and personal life.
Salary negotiations usually take place during the final stages of the interview. After having successfully navigated multiple rounds of challenging technical and behavioral interviews, the last thing you want is to fall short of securing the right compensation package.
However, this is exactly where most software engineers fail to cinch the best offer.
While a number of factors influence the final salary package offered to candidates, the lack of salary negotiation skills is a key reason why many software developers don’t end up getting the compensation they deserve or desire.
To help you navigate this crucial stage of the interview process, Ryan Valles and Soham Mehta, co-founders of Interview Kickstart, hosted a panel discussion around this subject on Clubhouse. The panel exchanged observations, opinions, and views on common mistakes made during salary negotiations, how to avoid them, and adopt the right salary negotiation strategies.
Notably, the session featured Nick Camilleri, Head of Career Skills at Interview Kickstart.
Weighing in with real-life examples and success stories of a number of engineers whom he has personally coached at Interview Kickstart, Nick offered invaluable advice on the realities and art of negotiating salaries for software professionals in the tech industry.
The panel also fielded questions from the audience, comprising engineers from various tech companies and FAANG aspirants. Most questions revolved around actual salary negotiation experiences of the audience.
This discussion turned out to be one of the most valuable collection of the best salary negotiation tips that actually work in the real world.
This article is a recap of the discussion. Here’s what we’ll cover:
- 5 Most common salary negotiation tips and how to avoid them
- Accepting the first offer received
- Not setting salary expectations at the right time
- Not interviewing at non-FAANG companies
- Negotiating for a job, not a career
- Negotiating without the right skills
- Challenges faced during salary negotiations
- Questions around salary negotiations
Let’s get started!
5 Most Common Salary Negotiation Mistakes and How to Avoid Them
Software engineers and developers enroll at Interview Kickstart to guide them with strategy, planning and execution for their technical interview preparation. Their ultimate goal is to succeed at challenging tech interviews and land lucrative offers from FAANG or other top tech companies.
To help them achieve their goal, one of the major components of our training is to draw their attention to the common mistakes software engineers make when it comes to salary negotiations. As part of our career skills training programs, we coach our students on how to avoid making these mistakes by developing the right negotiation strategies and skills.
Here are some of the most common salary negotiation mistakes that a large number of software professionals make in their careers.
1. Accepting the First Offer
First off, interviewing with top tech companies can be very challenging. Daunted by the whole process, many engineers are easily tempted to accept the first offer they receive.
This is the most common mistake candidates make during job search.
When a candidate accepts the first offer they get, they make two errors in judgment:
- Assuming this is the best the company can do
- Assuming they can’t get competing offers from other companies
How to Approach Your First Offer
Most companies expect candidates to negotiate during compensation discussions. This is why the first offer is not necessarily the best that a company can do.
You should always analyze the offers you receive and try to get a better one, if possible.
Job searches will not occur very often during your career and the tech landscape is ever-changing. This is especially true in the field of software engineering where changes in technology are fast-paced and new frameworks and tools emerge constantly. Given this dynamic nature of the industry, it’s easy for anybody to lose track of their value in the tech marketplace.
However, by interviewing at different companies, you can garner how the industry has evolved and how you are perceived by it. It will show you how tech companies value your knowledge, skill sets, and experience.
When you receive an offer, you should have explored the market well enough to take an informed decision on whether or not to accept it.
The first offer is only a single data point on how the market actually perceives you.
Exploring opportunities at different companies is imperative to discovering your true worth and landing a salary that is commensurate with your skills, knowledge, and experience.
Candidates who are able to clear interviews and receive offers at one company, can in all probability do the same at other companies as well. More often than not, candidates who hold out on accepting the first offer they receive, end up receiving multiple competing offers from different companies.
Real-life Example: How a Candidate Landed a Better Paying Job by Holding Out
Jason, a fairly underpaid employee at a startup, decided to explore job opportunities to earn a higher pay. Despite only two years of work experience and no computer science degree to back him up, Jason landed an offer from Twitch, an Amazon subsidiary, with a 30% pay hike.
Given his profile, receiving an offer from a career-launching company like Twitch seemed like a great career move and one he should have accepted immediately.
However, Jason was not excited about the new role. He decided to hold out and explore other options. Given his success at Twitch, he thought he could crack interviews at other companies as well with a little more preparation.
Three months later, Jason landed offers from Salesforce, Microsoft, and Facebook, all of which were bigger companies and brands than Twitch.
With multiple offers open at the same time, Jason found himself in an advantageous position. By leveraging these offers tactfully during negotiations, Jason got the companies to try and outbid each other, all to his advantage.
He eventually joined Facebook which offered him a salary that was about $80k higher than or twice his previous pay. Considering the effects of compounding, a compensation this high so early in his career would make quite a significant impact on Jason’s wealth creation prospects.
Had Jason accepted the first offer he got from Twitch, he would have forfeited the $80k hike that he subsequently received from Facebook, a result of exploring more opportunities.
Receiving competing offers gives you an upper hand during salary negotiations and leads to better career and wealth prospects.
Plus, more offers give you more data points based on which you can assess market compensation standards for a particular role or level. You can then analyze your own value against these standards and negotiate accordingly.
2. Not Setting Salary Expectations at the Right Time
Setting expectations shows recruiters that a candidate knows his worth. Most often candidates fail to get the salary they hope for because they simply don’t ask or make recruiters aware of their value in the market.
Not setting salary expectations at the earliest opportunity during the interview process is another very common and crucial error most developers commit. Waiting until an offer is extended gives companies the opportunity, the time, and leverage to defend the offer extended.
How to Anchor Salary Expectations and When
Although salary discussions only take place in the final stages of an interview process, grounds for negotiations should be established much earlier by setting expectations.
By anchoring early in the interview process, you signal to recruiters that you possess the desired skills and knowledge. Both parties then begin interview proceedings with the tacit understanding that these expectations are feasible.
You can also do this by quoting offers from other companies if you have them. This will show the interviewers how much you’re valued in the market. On clearing the interview process, recruiters will have to extend a competitive offer or raise their current offer based on this information if they don’t want to lose you to another company.
This way you can negotiate for a much higher salary as opposed to starting low and trying to convince recruiters to meet expectations.
What if you don’t have multiple offers? Keep reading, we’ll address that in a bit.
How to Get Your Expectations Right
Figuring out what level to anchor at, especially early in the process, can be difficult. Performing research and gathering a few data points yield a general understanding of salaries offered. Candidates tend to quote expectations based on this research which may or may not be a feasible expectation.
So, how do you effectively substantiate your salary expectations with the right supporting data?
At Interview Kickstart, we train software developers and engineers on how to handle this aspect of anchoring.
A proper understanding of market standards will help you determine the salary bands you should negotiate for. To arrive at this, you should consider at least 30 different data points to establish a salary range. Excluding the outliers, you should decide on a relevant figure at the higher end of the range. This way, even if the offer falls short of expectations, it will still be an attractive offer in the higher end of the range.
A Real-life Example: Anchoring Done Right
Joy, a senior data scientist, was in conversation with Microsoft for a niche role within the company.
Joy realized that the role she was interviewing for was unique in nature, requiring specialized skills. It was evident finding the right candidate for the role would be a challenge for the company.
Based on her research, Joy learned that salary range for this role was $580k - $640k.
Possessing a PhD and solid experience directing relevant products, Joy knew she would be highly desirable as a potential employee at any top company.
She decided to anchor high at Microsoft. Not wanting to lose Joy as a potential employee, Microsoft extended an offer which not only met her expectations but exceeded them.
Simultaneously, Joy received another offer from a competitor, a startup. Being a smaller company, their offer fell short of Microsoft’s offer by $200k.
Although the role was unique and Microsoft was a lucrative brand, Joy’s real interests lay in working with smaller companies and startups. Given that a smaller company couldn’t be expected to match an offer by a top tech company like Microsoft, Joy decided to negotiate for non-monetary benefits instead.
The startup eventually beat Microsoft’s offer by offering Joy pre-IPO stock and benefits like remote work options. She eventually accepted the startup’s offer. By clearly assessing her position in the market and anchoring high, Joy was able to negotiate an attractive deal at a company of her choice.
It is not always possible to set expectations early. You can anchor whenever the opportunity arises during the process.
For example, if you don’t have competing offers, you can try to secure an interview call with another company to use as leverage for future discussions. This will act as a signal to recruiters that the candidate is seeking for the best offer available. Companies are likely to extend an attractive offer if they think they may lose a desired candidate.
3. Not Interviewing at Non-FAANG Companies
Many candidates do not pursue interviews or interests from non-FAANG companies believing non-FAANG companies can never extend a competitive offer.
This isn’t always true. There are many, in fact at least 150, non-FAANG companies that can and do compete successfully with FAANG companies for talent e.g. NVIDIA, Niantic, Pinterest, Twitter, Uber, Lyft, Dropbox, Box, Strike, and more. There are also many pre-IPO companies that compete with FAANG for talent.
By not interviewing with Non-FAANG companies, you stand to miss out on receiving competitive offers that can be used as leverage in negotiating with FAANG companies.
Interviewing with non-FAANG companies can form an advantageous part of one’s salary negotiation strategy.
Real-life Examples: How Offers from Non-FAANG Company Can Help You Land the Best Offer at FAANG
X, a former student of Interview Kickstart held 17 offers from various companies, including offers from 4 FAANG companies. The highest offers from the FAANG companies were around $380k (base pay + bonus + stock).
Given the rigorous selection criteria top tech companies have, candidates who receive offers from FAANG are considered top talent. Many non-FAANG companies hope to onboard these candidates to help grow their own companies.
Considering X was highly valued in the market, a pre-IPO company decided to compete for X by extending an offer amounting to $420k (cash + bonus), which is higher than the offer from FAANG companies.
All the FAANG offers were range-bound which didn’t give X much leverage to negotiate for a higher salary. However, the competing offer from a non-FAANG company raised the bar considerably. X could now use this as leverage to negotiate a significantly higher salary at the FAANG companies.
Although X had no intentions of joining a non-FAANG company, receiving a competing offer from them helped him better his prospects with the FAANG companies.
Z, another former student of Interview Kickstart, achieved a similar outcome by holding out on his first FAANG offer.
Z who worked at a startup for over 9 years decided to switch companies for better prospects. Unfortunately, he failed to land an offer despite interviewing with many different companies.
Z decided to adopt Interview Kickstart’s structured approach to tech interviews. The program proved beneficial and Z landed an offer from a FAANG company of choice — Facebook.
Facebook’s offer, valued at $325k, was a $150k increase on his previous salary.
Although this seemed too good to pass up, Nick Camilleri, Head of Career Skills at Interview Kickstart, advised Z to hold out since this was only his first offer. He coached Z on how to line up more interviews with different organizations.
As a result of exploring more opportunities with other companies, Z landed an offer from Roku valued at $425k i.e. $375k + a sign-on bonus of $50k.
This raised the bar considerably compelling Facebook to outbid Roku to acquire Z.
By not accepting the first offer and exploring other opportunities, Z landed a competing offer from a non-FAANG company which he then used as leverage to negotiate a higher offer from Facebook.
4. Negotiating for a Job, Not a Career
Generally, salary negotiations are focused on achieving a short-term financial goal. Candidates seek to secure an immediate increase in their current salary.
However, when negotiating offers, you should not lose sight of the long-term benefits.
Sometimes, it’s okay to sacrifice to short-term monetary gains for a long-term growth in skills, position, company, and of course, compensation.
Yes, landing a well-paying job as early as possible in one’s career is imperative to building wealth quickly. However, finding one’s way into a top tech or well-paying company can be difficult.
You should acquire the kind of skills and experience that grabs the attention of recruiters. This can be done by working on meaningful projects to gain technical or managerial expertise.
When switching jobs at low or mid-level positions, one can only negotiate for marginal increase in salary. However, when switching companies at high-level positions you can negotiate a considerable increase in compensation given that you will then possess the right skills and experience to act as leverage.
To get to a senior role, though, one has to make significant contributions as they progress up the career ladder. FAANG or large tech companies are not the only options for you to develop your skills. Smaller companies may not be able to match FAANG companies in terms of compensation, but they can provide you with career advancement opportunities that could lead to a prominent role in a top tech company.
When negotiating offers at such career-launching companies, you should focus on quality of work over remuneration. You should try to negotiate for non-monetary benefits which can work as a stepping stone to positions that will yield higher monetary benefits in the future.
For example, you can negotiate for a higher title or a role or project of choice that will enable career development. Short-term compromise on salaries in favor of position, experience, knowledge, and skills can increase your bargaining power down the line.
You should always analyze roles regardless of money and see if it will enable growth in a big way.
Real-Life Example: How to Negotiate for Career
A former student of Interview Kickstart landed an offer from leading tech company, Lyft. Although the offer was not monetarily lucrative, the role offered interesting opportunities for growth. Lured by the chance to work on quality projects, he accepted the offer.
During his four-year tenure at Lyft, he earned promotions that elevated him to a senior role. Besides an accompanying growth in pay, he also received multiple pre-IPO refresher stocks. The company eventually went public. His base pay grew to a range higher than market standards.
When he eventually decided to switch companies, he landed an offer from Facebook who had to outdo his existing compensation package valued at around $600k.
He eventually accepted the offer from Facebook with a compensation package valued at around $800k i.e. $780k + a sign-on bonus.
By opting for career growth with a fast-growing company over pay, he was able to hone the right skills and create value for himself in the market. In the long-run, this not only helped him get noticed by a FAANG company, it also enabled him to negotiate a lucrative salary, a figure he would not have been able to command without the right skills and experience.
5. Negotiating Without the Right Skills
Interviewing at tech companies can be challenging, especially at FAANG and other leading tech companies known for their tough technical interviews.
While many candidates are aware of the efforts to develop the right technical skills and knowledge, they fail to consider developing skills needed for the final stage of the hiring process — the offer or salary negotiation rounds.
Knowing how to negotiate effectively can drive an increase in compensation by as much as $80k - $100k.
Most candidates go into salary negotiations without the right skills to secure the best possible offer. This is one of the key reasons candidates lose out on chances to earn higher compensations earlier in their careers, limiting future earnings and wealth creation.
For fresh graduates, salary negotiations are a new experience. Also, considering that job changes don’t occur too often over the course of careers, you have limited opportunities to develop negotiation skills at interviews.
In such cases, taking help from professional coaches to help you learn the art of salary negotiations to land the best possible offers can be a turning-point in your career.
At Interview Kickstart, dedicated coaches help students develop the right strategies for salary negotiations. This includes learning how to line up interviews at multiple companies to get competing offers, how to manage and leverage offers received, and how to drive price discovery, anchor early, and negotiate for higher salaries based on market data.
After having witnessed students land lucrative offers from multiple FAANG, tier 1, and other leading tech companies and startups, career coaches at Interview Kickstart strongly recommend that software developers and engineers invest in developing the right negotiation skills when planning a job change.
Challenges You Can Face During Salary Negotiations
All said and done, salary negotiations are risky. What makes them so challenging? Let’s understand some of the important challenges you might face when negotiating salaries and offers.
Holding Out on an Offer Without Rejecting It
As mentioned, accepting the first offer you get without exploring other options is a common mistake software professionals make during job searches. It’s always advisable to get competing offers to ascertain one’s true market value and negotiate for the best possible compensation.
However, managing interviews with multiple companies can get tricky since every company follows their own hiring processes and timelines. It can be hard to hold off an offer made by one company in order to explore opportunities at other companies.
Most recruiters aim to close open positions as soon as possible. Plus, the lengthy interviewing processes, onboarding, and training a new recruit can be time consuming. You are expected to accept or reject offers quickly so recruiters can fill up open positions or decide whether to carry on with the hiring process.
Companies also pressure candidates to accept offers quickly to prevent them from ‘shopping around’ for a better deal. It’s a common practice for candidates to leverage an offer from one company to get competing offers from other companies.
Recruiters tend to be appreciative if candidates offer clarity on how much time they would require to consider the offer. This way you can continue interviewing with other companies without the pressure of having to close on an existing offer.
Reflecting on the interview experience and performance will indicate whether you can hold out on an offer or not. If the interview was highly successful, you can expect the recruiters to wait for you, however if it was not that great, where a candidate might have just met the base performance mark, one should prepare to make a decision on the offer quickly.
How much a company is willing to wait for you is indicative of how desirable you are to them and your corresponding bargaining power.
Always ask for more time than you actually need to consider an offer. This will let you accommodate other opportunities that may arise. You can also request for follow-up meetings to keep communications open with a company while holding out on its offer as also to acquire more information about the company culture, the role, and projects you’ll be working on, which will help you make the right decision.
Companies are usually eager to engage in follow-up meetings since it provides additional opportunities to convince candidates to accept their offer.
By learning more about the company and the prospective role and team, you can make an informed decision not just about the job in consideration but also leverage this information in negotiating offers with other companies.
Negotiating Without Competing Offers
It is not always possible to land multiple offers from different companies. This is especially true if one is not adequately prepared to clear tough technical interviews or one doesn’t have the right skills and experience to command a high value in the market.
Candidates may also be pressured to accept or reject an offer right away in which case they may not have sufficient time to interview at other companies and obtain competing offers.
Competing offers act as valuable leverage during salary negotiations. Without competing offers, candidates should find other forms of leverage that can help negotiate a higher pay.
One way to do that is set expectations as early as possible during the interview process. Candidates should try to arrive at a fair price for their skills, knowledge, experience and services.
While competing offers help in true price discovery, in the absence of true price data, you should use reliable information that helps in fair price discovery.
You should garner information on salary ranges for similar roles in competing companies or similar companies, domains or industries. Collect as many salary data points as possible for the role you are considering. Excluding extreme values, you can determine where you stand according to market standards and the salary band you should expect for the prospective role, and negotiate upwards accordingly.
Rejecting an Offer
Rejecting an offer can be difficult, especially if the offer was extended by a company that showed great interest in you. Candidates fear that rejecting an offer will sour relations or close doors with a company that could be a potential employer in the future.
However, rejecting offers is a normal and expected part of every company’s hiring process.
The best recruiters, even at the most competitive companies usually close only about 25-40% of the candidates they interview. Recruiters are aware that candidates who are able to clear their own interview process, have the ability to clear interviews at other companies as well.
They understand that candidates make career decisions based on varying reasons — professional and personal. Hence, candidates rejecting one offer in favor of another doesn’t deter them.
Recruiters often maintain a relationship with candidates who reject their offer with the hopes of onboarding them at a later stage. Having already been through the rigors of the hiring process, such candidates are considered ideal hires.
The key to turning down an offer from an interested company is to do so politely and tactfully and by providing specific reasons for rejecting their offer.
And when rejecting an offer, you should always leave the window open for further conversation by exhibiting interest in working with the company in the future.
It is not uncommon for recruiters to reach out to candidates 6 months or a year later and get them to reopen negotiations. A number Interview Kickstart alumni have been approached by and have joined companies they once rejected.
Sharing the Right Information With Recruiters
Salary negotiations can be especially challenging because most candidates don’t know what is okay to be shared with the recruiters and what’s not. Let’s understand this in the context of most common scenarios.
Interviewing with Multiple Companies
Candidates can be transparent with recruiters about the fact that they are exploring multiple opportunities.
In fact, this is strategically advantageous for candidates in terms of anchoring and salary negotiations. Recruiters are more likely to extend a favorable offer if they know candidates they want to hire are considering other companies.
However, it’s not necessary to disclose all information regarding the companies you are interviewing with since this can be overwhelming to the recruiters and does not add any value to the negotiation discussion.
When sharing information about exploring other companies, you should divulge the names of those companies which may pique the recruiters’ interest. For example, if you are interviewing with a competing company or a company that can make a better offer.
Sharing Data on Current Salary
Recruiters often ask candidates to disclose their existing compensation packages. This is one way for them to gauge a candidate’s existing value based on which they can formulate an offer.
If a candidate’s existing salary is higher than market standards, they are likely to get a better deal based on their current earnings.
However, current earnings may not always adequately reflect a candidate’s true worth.
Many software developers and engineers switch companies because they are underpaid or can command higher salaries for their skills and experience. Formulating potential offers on a current salary that’s way lower than one’s expectations makes it difficult for candidates to receive offers that reflect their true worth. Negotiating upwards for a higher amount is challenging when the initial offer made is too low to begin with.
Many states such as California, don’t allow employers to seek information on a candidate’s salary history. Furthermore, candidates are allowed to seek information on a potential employer’s pay scale for a particular role. This can prevent low ball offers to some extent. It will also help them decide how to anchor themselves as well as to negotiate for an appropriate pay.
On the other hand, quoting very high expected salaries can act as a deterrent. Companies may not consider candidates whose initial expectations are beyond what they can afford or their expectations are non-negotiable. Oftentimes, recruiters ask for a candidate’s salary history to gauge whether they can potentially afford a particular candidate.
Salary negotiations are largely misconstrued as conversations between two opposing parties, each trying to win over the other. Salary negotiation is a process through which the candidate and recruiter try to align interests and optimize offers that work for both.
Most recruiters expect candidates to submit a salary figure they can work with to make it worth a candidate’s while to join their company. This doesn’t necessarily have to be based on current earnings or salary histories. If interviewing at other companies, you can disclose salaries you are being considered for to signal your market value.
If discussions on existing salaries cannot be avoided, you can provide a salary range instead of specific figures to avoid revealing too much information.
Revealing Competing Offers
Competing offers act as data points indicating how the market values a candidate. During salary negotiations, candidates should ideally only disclose information about their job search process that increases their bargaining power. This includes interviews they were successful at and offers they have received from competing companies.
Discussing rejections or low ball offers from other companies decreases a candidate’s perceived market value and sends negative signals to recruiters. Even if successful at an interview, recruiters can justify a low offer if they learn a candidate can’t secure competitive offers elsewhere.
Competing offers should be used as leverage to get companies to outbid each other. Recruiters are more likely to outbid an offer if they feel they might lose desired talent to a competitor or if they are trying to fill a niche position.
Candidates can also use expired offers as leverage during negotiations. Though inactive, it is indicative of a candidate’s ability to command a certain salary. These offers help with true price discovery and enable better negotiations.
When using competing offers as a strategy to negotiate better salaries, candidates should always do so in good faith — only quote offers actually received.
One may not always receive an offer letter immediately after receiving an offer verbally. In such cases, you can always ask for an email or any other verifiable form of communication about the offer extended.
Inflating figures, making up offers, or quoting offers without proof should be avoided as this can backfire and deem a candidate untrustworthy. It can lead to candidates losing leverage during negotiations.
Sometimes candidates try to increase their bargaining power by letting recruiters know they’re interviewing with multiple companies. If pressed for further information by recruiters, candidates can avoid revealing specific information about competing offers by confirming they are in an exploratory stage of their job search and are receiving significant interest but have not received any specific offers that can be disclosed yet.
Questions on Salary Negotiations
The Clubhouse session also included panelists fielding questions from the audience. Responses to these questions threw light on various aspects of salary negotiations as experienced by the audience members.
We have segregated these questions based on a few broader topics.
Negotiating Base Pay and Equity
Q. In negotiating with a startup, I was extended an offer that was attractive in terms of base pay. However, accepting the offer meant I would lose value in terms of other compensation components such as bonus amounts, RSUs, and ESOPs.
Equity offered by large startups that choose not to go public is quite valuable. Usually, early stage startups can’t match offers made by leading or large tech companies.
Considering startups are smaller than established companies and not publicly traded, it’s difficult to evaluate the RSUs and ESOPs they offer and to determine the competitiveness of the compensation package offered by startups in comparison to large companies.
Negotiating salaries at early stage startups or small startups is different from negotiating salaries at large, established companies.
If one’s motivation to join a company is predominantly driven by compensation considerations then a large company is where salary negotiations will yield desired results.
The ideal reasons to join a startup are if you really connect with the team running the business or if you feel connected with the problem that the startup is solving. Hence, salary negotiations cannot be all about securing high, short-term payouts.
Early stage startups, with limited funding, can’t afford to offer high salaries. In this case, offer negotiations should tilt more towards equity. To compensate for lower cash components, you may negotiate for non-monetary benefits or perks such as remote working options, position or title, quality work or projects of choice etc.
In the short-term, a large company is most likely to fulfill monetary goals. At a startup, one has to bet on the company’s business idea and hope it yields monetary gains in the long-run.
In negotiating compensation packages at startups, you should consider both — the immediate as well as long-term preferences. If you are concerned about short-term prospects, you should negotiate for a higher monetary component. However, if you believe in the business and expect it to be successful then you should negotiate for a higher equity component.
In some cases, candidates decide to work with startups because the only attractive offers they receive are from startups. In this case, getting companies to outbid each other is the only way to negotiate the best possible deal.
Another data point to use when negotiating with startups is the company’s funding status. This affects how much they can afford to pay to acquire talent from the market. If a startup is financially capable of and wants to hire top talent, you can negotiate for a salary that is competitive by market standards.
Q. In Feb 2021, I joined a pre-IPO company. As part of my compensation package I received RSUs worth $200k based on a stock price of $15. The price of the RSUs are decided at a board meeting held at the end of every quarter. I was informed that the maximum price I could expect on my RSUs was $25. However, since the company received fresh funding of about $2 billion the current price of the stock is $37. Since RSUs form 30% of my compensation, how can I negotiate a better deal now based on an increase in the stock price?
Shopping around for the best deal is a common practice among software engineers in the Valley. However, this appears to be a genuine and unfortunate case which should be addressed by talking to a manager or HR, who may be able to resolve the issue.
However, when one is a part of a growing company, details in compensation should not be a matter of contention. Unresolved issues such as this can be addressed during future negotiations.
Being a part of a fast-growing company is a privilege few enjoy, presenting opportunities to make a meaningful impact, professionally. This aspect should be given more importance than compensation benefits.
Since the company received funding and is on a growth trajectory, the current differential in pricing will not matter in the long-run. Ideally, at such companies, developers and engineers should focus on engaging in quality work and performing well. This will, in turn and in time, propel them to a position that will enable them to negotiate a higher and more equitable compensation.
Q. During my job search, I landed offers from Facebook and Microsoft. I couldn’t negotiate an increase in base pay though the company did add to my compensation package with a sign-on bonus and RSUs. Is there a way to negotiate a higher base pay vs. stock or equity?
The general perception around different components of salary is that the base pay is what pays the bills, the bonus pays for the good-to-have things like cars and vacations, and equity goes toward retirement.
Equity in a growing company is considered valuable because in such companies, equity or stock is likely to grow faster than liquid savings.
Most recruiters try to draft an offer based on a candidate’s expectations. If candidates desire a higher base pay component of their compensation, they should communicate the same to the recruiters so they know that the candidate values cash over equity.
Being vague about expectations does not make for good negotiations. Left to their own devices, recruiters will extend an offer based on what they assume is a good payout.
Recruiters are more likely to offer a higher base pay if candidates specify and substantiate their expectations for a higher cash component.
To do this, you should first assess your personal financial requirements or financial goals to arrive at a base pay figure that will satisfy these goals. You should then convey the same to recruiters. For example, if you require a higher base pay to make a down payment for a house and you communicate this with a specific figure, the recruiters will have a clear understanding of what is expected.
It signals to the recruiters that candidates are not averse to equity but are looking for a compensation package that helps them achieve their goals. This then affords them the flexibility to devise a compensation plan to adjust the equity and cash components in such a way that is satisfactory from their perspective while meeting the candidate’s expectations.
Another approach is to consider compensation as a total package and not to consider the individual components. If the offer is from a publicly traded company, then the stocks can be liquidated once vested which essentially translates to a cash component.
Q. I’m currently in negotiations with a pre-IPO startup for a VP role. The startup is currently valued at $2 billion. How do I negotiate a fair equity offer?
There are no rules to determine a fair equity offer for higher levels at a startup. Equity offers are largely based on understood norms. In fact, small startups don’t have salary bands for compensation.
Often, companies don’t have a defined method to determine how much equity should be offered for specific roles. The best way to negotiate a fair equity offer in this case is to use competing offers as leverage to arrive at a figure that is comparable or better.
Another way to gauge a fair equity offer is to consider the cash component of the total compensation. At higher levels in startups, the cash and equity components are usually balanced — 50:50 or thereabouts. A fair equity offer, in this case, would be more or less equivalent to the cash offered for the role.
Alternatively, one can assess the fair value of equity by comparing the company’s present valuation to its valuation at inception. This will provide insights on how dilution occurred over time leading to an approximate current value of equity.
However, negotiations should be carried out holistically and not uni-dimensionally. Besides the cash and equity components, candidates can negotiate other aspects to arrive at a fair compensation package such as remote working, flexibility etc. For senior managerial roles, employers are usually open to including benefits not usually extended to low-level managers or individual contributors such as COBRA payments, deferred compensation etc.
Negotiating salaries for higher levels requires specialized skills. Conducting such nuanced negotiations can’t always be carried out by candidates themselves. In such cases it is advisable to employ the services of a professional negotiation coach that specializes in salary negotiations for software professionals.
Negotiating Based on Location
Q. I received an offer from a company that appeared to low-ball me. Besides denying me the option to work remotely, they also offered me a compensation package that I felt was lower than I deserved. I subsequently got a competing offer which I used as leverage to negotiate a higher salary as well as the option to work remotely. I live in North Carolina and could not garner enough information about salaries paid in my state. Instead, I found data for salaries paid for a similar role in another state — New York. When renegotiating my offer, the company stated they could not match salary standards in New York. Are salary negotiations affected by my location?
Salaries are determined more by the cost of labor than the cost of living for a particular location. In order to attract the right talent from a particular location, companies have to compete with salaries offered in that location.
You should set your expectations based on salary bands for a particular position from similar companies in the same area as the company you are interviewing with. If this information is hard to come by, consider salaries paid for similar roles in public companies.
Candidates are likely to receive a competitive offer based on the location they plan to work from, which may be lower than that of similar roles in other locations.
Negotiating Based on Levels
Q. I’m underpaid for the level I’m at in my current company. In order to switch companies, can I anchor myself at a higher level to ensure a higher compensation package? Will recruiters consider interviewing me for a higher level than my current level? Do levels affect offer negotiations?
Every company determines levels differently. A candidate’s current title or level does not determine the level they will be placed at in the recruiting company.
Every company will try to place candidates at levels suited to their skills and experience. Candidates are usually recruited at the same level or at a lower level. Up levelling usually only happens at smaller companies.
At FAANG and other top tech companies, levels are more clearly defined based on rubrics. Compared to smaller companies, top tech companies have the financial capabilities to analyze CVs the right way and generate the right kind of offers.
For example, Google has a compensation committee which suggests suitable compensation packages based on a candidate’s competing offers.
Unlike a few leading tech companies, recruiters at most companies don’t rely on market data pertaining to salaries for any given level. They are bound more by the company's internal salary bands and rubrics when generating offers.
This is why it's important you do your research and base their expectations on data pertaining to your current as well as levels below and above current level.
When you learn which level you are being considered for by the recruiting company, you can convey the appropriate set of expectations.
Explore the Power of Salary Negotiation!
We hope these salary negotiation tips and tactics would help you immensely. Now that you’ve understood the power dynamics of salary negotiations and how they are a crucial part of the interview process, take the time and effort to develop the right kind of salary negotiation skills.
Check out The Ultimate Guide to Salary Negotiation at FAANG for Software Engineers to hone your negotiation skills further!
Your preparation will help you crack technical interviews at FAANG and land fantastic offers from your dream companies, but it will also help you navigate situations in life where you have to negotiate your way out.
For those of you who want to become quite an expert in salary negotiation or would like the help of professional coaches to handle salary negotiations with your potential employers, you should check out Interview Kickstart’s interview preparation program which covers this topic in depth. Like we mentioned, it also provides you access to a professional coach who will guide you with your salary negotiation process with multiple companies you may be interviewing with.
Interested in exploring this opportunity? The first step is to register for this free webinar hosted by one of the Co-Founders of Interview Kickstart. It will answer many of your questions around interview prep and salary negotiations allowing you to take the right informed decision.