Salary negotiations are an integral part of any tech hiring process. Salary negotiations usually form the final stage of the interview process and have the potential to make a game-changing difference to a candidate’s career, financial status, and personal life.
After having successfully navigated multiple rounds of challenging technical and behavioral interviews, the last thing any candidate would want to do is fall short of securing the right compensation package.
However, this crucial stage is exactly when most software engineers fail to cinch the best offer. A number of factors influence the final compensation package offered to candidates. However, the failure to negotiate is a key reason why software engineers do not get the compensation they deserve or desire.
To help software engineers deal with this issue, Ryan Valles and Soham Mehta, co-founders of Interview Kickstart, hosted a panel discussion on Clubhouse, the fastest growing social media app.
The panel exchanged observations, opinions and views on common mistakes made during salary negotiations, how to avoid them, and the right salary negotiation strategies to adopt.
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 engineers in the tech industry.
The panel also fielded questions from the audience, comprising engineers from various tech companies and FAANG aspirants. Questions included actual experiences of audience members with respect to salary negotiations.
In this article, based on the above discussion, we will cover:
5 Common mistakes in salary negotiations and how to avoid them
- Accepting the first offer received
- Failing to anchor or set expectations at the right time
- Anchor early
- How to anchor or set the right expectation
- Anchoring late in the process
- Not interviewing at non-FAANG companies
- Negotiating for a job, not a career
- Negotiating without the right skills
Challenges in salary negotiations
- How to hold out on an offer without rejecting it
- Negotiating without competing offers
- Rejecting an offer
- Sharing the right information with recruiters
- Interviewing with multiple companies
- Sharing data on current salary
- Revealing competing offers
Negotiating base pay and equity
Negotiating based on location
Negotiating based on levels
5 Common mistakes in salary negotiations and how to avoid them
When software engineers enroll at our programs at Interview Kickstart, they do so to approach their job searches in a planned and structured manner. Their ultimate goal is to succeed at tough tech interviews to land lucrative offers from FAANG or other top tech companies.
In order to help them achieve their goal, we 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 them on how to avoid making these mistakes by developing the right negotiation strategies and skills.
Accepting the first offer received
Accepting the first offer received is one of the most common mistakes candidates make during their job search. Candidates make two errors in judgement when they accept the first offer they receive viz.
- Assuming this is the best the company can do
- Assuming they can’t get competing offers from other companies
Interviewing with a new company, especially top tech companies, can be very challenging. Daunted by the whole process, many engineers are easily tempted to accept the first offer they receive.
However, most companies expect candidates to negotiate during compensation discussions. This is why the first offer extended is not necessarily the best that a company can do.
Is there a band to consider? Is the first offer simply a way for recruiters to begin salary discussions to gauge a candidate’s expectations? Candidates should analyse the offers they receive with a view to try and better it, if possible.
Job searches don’t occur often during one’s 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 scenario, it’s easy for software engineers to lose track of their value in the tech marketplace.
However, by interviewing at different companies, candidates can not only garner how the tech landscape has evolved but, also, how they are perceived by the tech industry. It will indicate how tech companies value their knowledge, skill sets, and experience.
When candidates receive an offer, they should consider if they have explored the market well enough to make an informed decision on whether to accept it or not.
The first offer is only a single data point on how the market actually perceives a candidate. Since there is no point of comparison to ascertain if the offer is favourable, this doesn’t help candidates make a fully informed decision on whether to accept or reject an offer.
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.
Logically, 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, find they receive multiple competing offers from different companies.
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 speak of, 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, Jason believed with a little more preparation, he could be successful at other companies as well.
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’s bargaining power increased drastically. 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, receiving this amount early in his career would make quite a significant impact on Jason’s wealth creation prospects
If Jason had accepted the first offer he got i.e. the offer from Twitch, he would have forfeited the $80k increase that he subsequently received from Faceebok, a result of exploring more opportunities.
Receiving competing offers increases a candidate’s bargaining power at salary negotiations.
More offers provide more data points based on which candidates can assess market compensation standards for a particular role or level. Candidates can then analyse their own value vis-a-vis these standards and negotiate accordingly.
Failing to anchor or set expectations at the right time
Setting expectations shows recruiters that a candidate knows his worth. Most often candidates don’t get the salary they hope for because they simply don’t ask or make recruiters aware of their value in the market.
Not setting expectations at the earliest opportunity during the interview process is another very common and crucial error most engineers commit with regard to salary negotiations. Waiting until an offer is extended gives companies the opportunity, the time, and leverage to defend the offer extended.
Not setting expectations before the offer stage leads recruiters to believe that a candidate assigns a higher preference to the role than the pay.
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.
If a candidate is not skilled or knowledgeable enough to obtain significant competing offers, it signals to the recruiter that the candidate is not valued in the market. A candidate’s lack of leverage increases a recruiter's bargaining power.
However, by anchoring early in the interview process, candidats signal to recruiters that they possess the desired skills or knowledge (which expectations are based on). Both parties then begin interview proceedings with the tacit understanding that these expectations are feasible.
On clearing the interview process, recruiters will then be more likely to extend an offer that meets or exceeds the candidates expectations. This way candidates can negotiate for a much higher amount as opposed to starting low and trying to convince recruiters to meet expectations.
By quoting competing offers, or the typical range of salaries at various companies for the prospective role, candidates can indicate the level of pay they expect. Recruiters will then have to extend a competitive offer or raise their current offer based on this information, if they don’t want to lose the candidate to another company.
How to anchor or set the right expectation
Figuring out what level to anchor at, especially early in the process, can be difficult. Typically candidates look at online resources such as level.fyi, Blind etc. to research salaries offered by different companies for different roles.
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.
Candidates cannot effectively substantiate their expectations without the right supporting data.
At Interview Kickstart, engineers are trained on how to handle this aspect of anchoring.
A proper understanding of market standards will help determine the salary amount candidates should negotiate for. To arrive at this, one should look at at least 30 data points to establish a salary range. Excluding the outliers, candidates 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 being at the higher end of the range.
Joy, a senior individual data scientist, was in conversation with Microsoft for a niche role within the company.
Joy realised that the role she was interviewing for was unique in nature, requiring specialised skills. It was evident finding the right candidate for the role would be a challenge for the company.
Based on research, Joy learned that salaries for this role ranged from $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 choice.
Anchoring late in the process
It is not always possible to set expectations early. Candidates can anchor whenever the opportunity arises during the process.
Companies are likely to extend an attractive offer if they think they may lose a desired candidate.
For example, if candidates do not have competing offers, they 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.
- 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, Pintrest, Twitter, Uber, Lyft, Dropbox, Box, Strike, etc. There are also many pre-IPO companies that compete with FAANG for talent.
By not interviewing with Non-FAANG companies, candidates 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.
X, a former student of Interview Kickstart held 17 offers from various companies, including offers from 4 FAANG companies. The highest of the 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 companies 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). This offer beat that of the 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 viz. 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.
Negotiating for a job, not a career
Ordinarily, salary negotiations are focused on achieving a short-term financial goal i.e. candidates seek to secure an immediate increase in their current salary.
However, offers can be negotiated to provide long-term benefits. This involves negotiating present offers to achieve planned, future goals. It also involves developing careers to build leverage for future salary negotiations.
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.
Software engineers 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, engineers can only negotiate for marginal increases in salary. However, when switching companies at high-level positions engineers can negotiate a considerable increase in compensation given that they 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 engineers to develop their skills. Smaller companies may not be able to match FAANG companies in terms of compensation. However, they can provide career advancement opportunities that could lead to a prominent role in a top tech company.
When negotiating offers at such career-launching companies, candidates should focus on quality of work over remuneration. Candidates can try to negotiate for non-monetary benefits that can act as stepping stones to a position that will yield higher monetary benefits in the future. For example, candidates can negotiate for a higher title or a role or project of choice that will enable career development.
In the short-term, compromising on salaries in favour of position, experience, knowledge, and skills, candidates can increase their bargaining power down the line.
Candidates should analyse roles regardless of money and see if it will enable growth in a big way.
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 and advancement. 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 more 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 be 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.
- 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.
To prepare for these interviews, candidates focus all their efforts on developing their technical skills and knowledge. Most candidates fail to consider developing skills needed for the final stage of the hiring process i.e. 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 amounts 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, software engineers have limited opportunities to develop negotiation skills at interviews.
It is imperative candidates employ the services of professional coaches who can help candidates learn the art of salary negotiations to land the best possible offers.
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 software engineers invest in developing the right negotiation skills when planning a job change.
Challenges in salary negotiations
How to hold out on an offer without rejecting it
As mentioned, accepting the first offer you get without exploring other options is a common mistake engineers make during job searches. It is 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 individual recruiting 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. Besides the lengthy interviewing processes, onboarding and training a new recruit can be time consuming. Candidates 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 common practice for candidates to leverage an offer from one company to get competing offers from other companies.
One way to allay these concerns and buy time from a company is to hold out on discussing compensation figures during the offer stage of the interview process. This way recruiters are not worried about candidates using their offer as a bargaining chip with other companies.
Recruiters tend to be appreciative if candidates offer clarity on how much time they would require to consider the offer. This way candidates can continue interviewing with other companies without the pressure of having to close on an existing offer.
Reflecting on the interview experience will indicate whether candidates can hold out on an offer or not.
If the interview was successful, recruiters will be willing to wait in order to not lose a potential employee. If the interview was not very successful, candidates should prepare to make a decision on the offer quickly.
The recruiters’ willingness to hold out for a candidate during the offer stage of the hiring process is indicative of how desirable the candidate is to the company. If a recruiter is willing to wait, it signals that the candidate is highly valued. This increases the candidate’s bargaining power in negotiating for a better offer.
When asking for time to consider an offer, candidates should always ask for more time than actually needed. This will let them accommodate further opportunities that may arise.
To keep communications open with a company while holding out on its offer, candidates can request for follow-up meetings.
Candidates can ask to meet with a hiring manager or members of their potential team to learn more about the company culture, the role, and projects they’ll be working on.
Companies are usually eager to engage in follow-up meetings since it provides additional opportunities to convince candidates to accept their offer.
Besides acting as a way to buy more time, candidates can also use these meetings to aid decision-making about the offer. By learning more about the company and the prospective role and team, candidates can ascertain whether they want to accept the offer or not. They can also use this information as leverage in negotiating offers with other companies as well.
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.
Without competing offers, it is important to anchor 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, candidates should utilise any information that helps in fair price discovery.
Candidates should garner information on salary ranges for similar roles in competing companies or similar companies, domains or industries. Candidates should collect as many salary data points as possible for the role they are considering. Excluding extreme values, they can then ascertain where they stand according to market standards and, accordingly, negotiate upwards.
Candidates should also try to determine the salary band for their prospective role in the recruiting company.
Without competing offers, candidates can reference market data to effectively negotiate salaries.
Rejecting an offer
Rejecting an offer can be difficult, especially if the offer was extended by a company that showed great interest in them.
Candidates fear 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.
Recruiters 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 recruiters.
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.
When rejecting an offer from one company to join another company, candidates should leave the door open for further conversation by exhibiting interest in working with the company at a future date.
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 of the alumni at Interview Kickstart have been approached by and have joined companies they once rejected.
Sharing the right information with recruiters
- 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 favourable offer if they know candidates they want to hire are considering other companies.
However, it is not necessary for candidates to disclose all information regarding the companies they are interviewing with since this can be overwhelming to the recruiters and does not add any value to the negotiation process.
When sharing information about exploring other companies, candidates should mention only those companies which may pique the recruiters’ interest e.g. if they 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 recruiters 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 engineers switch companies because they are underpaid or can command higher salaries for their skills and experience. Basing potential offers on a salary that is already lower than 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 low to begin with.
Many states e.g. California, do not allow employers to seek information on a candidate’s salary history. Further, candidates are allowed to seek information on a potential employer’s pay scale for a particular role. This can help candidates safeguard themselves from getting low ball offers. 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 achieve their own goals at the expense of the other. However, salary negotiations are actually a process through which both parties i.e. candidates and recruiters, try to align interests to optimise offers that work for both parties.
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 candidates can provide a justifiable figure that companies can consider, it will do in lieu of salary history. If interviewing at other companies, they can disclose salaries they are being considered for to signal their market value.
If discussions on existing salaries cannot be avoided, candidates 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 i.e. only quote offers actually received.
One may not always receive an offer letter immediately after receiving an offer. In such cases, candidates 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 show up a candidate as 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.
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.
- 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 ESPPs.
Equity offered by large startups that choose not to go public is quite valuable. However, early stage startups, usually 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 ascertain the value of the RSUs and ESOPs they offer. In turn, it is difficult to determine the competitiveness of the compensation package offered by startups vis-a-vis 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 that one really connects with the team running the business or that one feels connected with the problem that the startup exists to solve. 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, candidates can negotiate for more 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, candidates should consider their immediate and long-term preferences. If candidates are concerned about short-term prospects, they should negotiate for a higher monetary component. However, if they really believe in the business and expect it to be successful then they 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.
When negotiating with startups, candidates should consider 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, candidates 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 $2bn 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, 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 of the different components of compensation 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 equity or stock in a growing company 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 candidates should first assess their personal financial requirements or financial goals to arrive at a base pay figure that will satisfy these goals. They should then convey the same to recruiters. For e.g. if a candidate requires a higher base pay to make a downpayment for a house and he communicates this specific figure and personal goal, the recruiters will then 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 i.e. adjust the equity and cash components in such a way that is satisfactory from their perspective while meeting the candidates 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 bn. How do I negotiate a fair equity offer?
There are no rules to determine a fair equity offer for higher levels i.e. managerial levels and above, 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 a startups, the cash and equity components are usually balanced i.e. 50:50 or thereabouts. A fair equity offer, in this case, would be more or less equivalent to the cash offer 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, appropriate current value of equity.
However, negotiations should be carried out holistically and not unidimensionally. Besides the cash and equity components, candidates can negotiate other aspects to arrive at a fair compensation package e.g. 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 e.g. making COBRA payments, deferred compensation etc.
Negotiating salaries for higher levels requires specialised 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 specialising 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 viz. 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 labour 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.
Candidates should set their expectations based on salary bands for a particular position. They should obtain this information from similar companies in the same area as the company they 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 an offer based on the location they plan to work out of. This offer will be competitive according to the standards of that location. This 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 analyse resumes the right way and generate the right kind of offers. E.g. 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 candidates do their research on and base their expectations on data pertaining to their own level, a level below their current level, and a level above their current level. When candidates learn which level they are being considered for by the recruiting company, they can convey the appropriate set of expectations.