If you’re in the midst of a job or career change, it’s important to know which types of compensation and benefits are negotiable so that you can maximize your compensation package.
Many employers expect prospective new hires to negotiate, especially in industries where the demand for talent is outstripping the supply. In this blog post, I will address the questions I hear most often from my clients when they are negotiating their salary and equity compensation for a new job.
Who can negotiate?
I strongly believe that everyone should negotiate. It gives you a professional standing and shows your prospective (or current) employer that you take your professional life seriously. With that said, the type of role you are applying for will determine the acceptable level of negotiations. If you are applying for VP and C-level roles, your negotiating leverage becomes exponentially higher.
What is negotiable?
The short answer is that pretty much everything is negotiable. However, the role you are applying for will determine the extent to which you can negotiate, from base salary to the type and size of your equity grant, faster vesting, severance package, potential acceleration of the vesting schedule, and extended time for exercising options.
When is the best time to negotiate?
The best time to negotiate is at the time of hire. This will set the basis for your salary, annual bonus, as well as equity grants. This is also the time to discuss a potential severance package.
Start the negotiation process by looking at your own financial situation. Do you need liquidity? Do you have cash-flow needs or financial goals that need funding in the near term? Do you want to concentrate on more long-term planning? Answering these questions will give you clarity on how to approach your negotiations.
The life stage of the company you hope to work for will also influence the negotiation process. Large, well established companies rely on standardized metrics for salary and equity awards. If you are considering a role at a privately held company, you may be able to negotiate for much larger equity grants, mainly via stock options. As the company gets closer to an Initial Public Offering (IPO), they may also introduce and offer Restricted Stock Units (RSUs).
A Job Changer’s Checklist
- Meet with a Human Resources specialist to review all of your benefits. A job or career change can be a stressful and emotional time, and reviewing all of your benefits ensures you don’t overlook anything.
- Review employer-provided health, disability, and life insurance coverage to determine if you need to use COBRA and whether your life insurance coverage is portable. If you are married, this is a good time to examine whether it would be beneficial to switch to your spouse’s health insurance plan.
- Review your qualified retirement plans, such as your 401(k) plan, and discuss whether to leave funds where they are, roll them over to an IRA, or into your new employer’s 401(k) plan.
- Review deferred compensation plans and other executive benefits plans to find out if a lump-sum distribution is required.
- Review your equity compensation plan documents to determine the time allowed for exercising options. You may want to ask for an extended time period to exercise options, especially if you are leaving a privately held company. You’ll also want to confirm whether you have Incentive Stock Options (ISOs) or Nonqualified Stock Options (NQSOs), review taxation rules, and determine whether exercising will mean paying taxes or paying for options out of pocket. Finally, review your vested and unvested grants. Remember that unvested RSUs will be forfeited when you leave your current employer.
Armed with answers to all of these questions, you can then enter into negotiations for your new compensation package from a position of strength and knowledge.