Eliminate Negotiation in Startup Compensation???

“Ellen Pao, the interim CEO of Reddit, has seen women struggle with salary negotiations. So she’s eliminating money talk from the company’s hiring process.

In her first interview since losing the landmark Silicon Valley trial, Pao told The Wall Street Journal that she has eliminated salary negotiations from the hiring process at Reddit, where she currently serves as interim CEO.”

— Mashable http://mashable.com/2015/04/06/ellen-pao-reddit-salary/

“Men negotiate harder than women do and sometimes women get penalized when they do negotiate. So as part of our recruiting process, we don’t negotiate with candidates. We come up with an offer that we think is fair. If you want more equity, we’ll let you swap a little bit of your cash salary for equity, but we aren’t going to reward people who are better negotiators with more compensation.”

— Ellen Pao, as quoted in the Wall Street Journal

“I appreciate ... that it actually puts a substantial burden on Reddit to pay what they think someone is worth, not what they think they can get away with. This is not an easy way out for them - far from it. ”

— Gayle Laakmann McDowell @gayle via @quora http://qr.ae/LNR0U

In the News: Startup Employees in the Dark on Equity

“Mary Russell, an attorney who founded Stock Option Counsel to help employees evaluate their equity compensation, says the first step is for employees to make sure any equity is theirs to keep. Some companies have repurchase rights in their equity agreements that give them a right to buy back shares and options from any employee who leaves; and some give founders or investors broad latitude to change the terms.

“If the company can take back employee shares it dramatically limits the value of those shares,” says Ms. Russell. “It’s the sort of thing an employee needs to know about when they go into a job.” She says it’s as simple as asking whether the company can take back vested shares.”

— Katie Benner, The Information

See Katie Benner's full article, Startup Employees in the Dark on Equity. The Information is a subscription publication for professionals who need the inside scoop on technology news and trends. 

Repurchase Rights are "Horrible" for Employees

“As an aside, some companies now write in a repurchase right on vested shares at the current common price when an employee leaves. It’s fine if the company wants to offer to repurchase the shares, but it’s horrible for the company to be able to demand this.”

— Sam Altman, YC

What can you do about it? Ask before you join:

“Can the company take back my vested shares?”

— Mary Russell, Stock Option Counsel

For more from Sam Altman, see his post, Employee Equity. For more on questions to ask to make sure you have true startup equity, see our post, Startup Equity Standards - A Guide for Employees.

Attorney Mary Russell counsels individual employees and founders to negotiate, maximize and monetize their stock options and other startup stock. You are invited to contact Stock Option Counsel for help in negotiating and evaluating your job offers and post-acquisition employment agreements, making stock option exercise and tax decisions and identifying your rights and opportunities to sell startup stock. 

The Gold Standard of Startup Equity - A Guide for Employees

Startup Equity Standards - A Guide for Employees from StockOptionCnsl

Learn the three standards that define Startup Equity and three questions to ask to know if you have the real thing. 

1. Ownership - “Can the company take back my vested shares?”

2. Risk/Reward - “What information can you provide to help me evaluate the offer?”

3. Tax Benefits - “Is this equity designed for capital gains tax rates and tax deferral?”

Attorney Mary Russell counsels individual employees and founders to negotiate, maximize and monetize their stock options and other startup stock. You are invited to contact Stock Option Counsel for help in negotiating and evaluating your job offers and post-acquisition employment agreements, making stock option exercise and tax decisions and identifying your rights and opportunities to sell startup stock. 

March 14 Event: Bill of Rights Discussion

Thanks to the 300 people who joined Chris Zaharias, @SearchQuant, and Mary Russell, Attorney Counsel to Individuals @StockOptionCnsl, for this event in Palo Alto on March 14, 2014! 

We had a great discussion of how to define and improve startup equity. For Mary Russell's current suggestions on the topic, please see Startup Equity Standards: A Guide for Employees.

Here's what we discussed at the event:

Right to Know. Company information on capitalization and valuation, being necessary to the employee’s negotiation of a fair compensation package, shall be provided to the employee with his or her equity offer and after each dilution and valuation event.

Right to Value. The right of the employee to earn the full value of his or her grant shall not be limited by unreasonable vesting terms.

Right to Hold Earned Equity. The right of the employee to hold vested equity up to an acquisition or public offering shall not be violated, and no forfeiture, repurchase or other provisions shall allow the company to seize vested equity of current or former employees.

Right to Tax Benefits. The employee shall enjoy the right to all tax benefits available from state and federal governments, and shall not be subjected to tax penalties due to company negligence, at grant, at vesting or settlement and at company acquisition or sale of stock.

Right to Ask. The right to evaluate equity shall not be violated by company limits on access to information or legal counsel.

Chris Zaharias, SearchQuant LLC

Chris is a startup veteran and advocate for startup employee equity rights. chris@searchquant.net (415) 832-0089.

Q: How much acceleration of vesting upon a change in control do Series-A startups typically offer?

Mary Russell counsels individual employees and founders to negotiate, maximize and monetize their stock options and other startup stock. She is an attorney and the founder of Stock Option Counsel.

A: Startup would not likely offer accelerated vesting upon change of control without you asking for it. But acceleration is usually a negotiable term for anyone in mid to senior roles. 

If you frame this negotiation as a discussion of your role and what you are being brought on to accomplish, it will get to the truth of the matter - What vesting makes sense for your position in the enterprise's future? All compensation - and especially vesting schedules - should make sense for what you are there to do. But startups might not take the time to look at it in that way. 

For example, a senior engineer was brought into a Series A startup to make a big push toward efficient operations. He was so successful at his job that the startup was "finished" with him after 6 months when the operations could be managed by junior engineers. He was on a four year vesting schedule with a one year cliff. Did it make sense that he would receive zero equity for doing an amazing job at exactly the job he was hired to do? No.

If the comapny wont agree to acceleration, ask for more shares to make up for the fact that you don't expect to earn the full number of shares in your grant.

Good luck. And watch out for the precise terms of your acceleration language to be sure they make sense as well.

Mary Russell counsels individual employees and founders to negotiate, maximize and monetize their stock options and other startup stock. She is an attorney and the founder of Stock Option Counsel.

Startup Negotiations: How Preferred Stock Makes Employee Stock Less Valuable

Mary Russell counsels individual employees and founders to negotiate, maximize and monetize their stock options and other startup stock. She is an attorney and the founder of Stock Option Counsel.

If you have a job offer from a startup with an option to purchase shares representing 1% of the company, you may want to consider the Preferred Stock "Liquidation Preference" to see if your 1% would really be 1% if the company is acquired. If the Liquidation Preference is high, you might want to negotiate for more shares to make up for the loss in value you can expect when the company is acquired.

Common Stock v. Preferred Stock

As a startup employee, you'll be getting Common Stock (as options, RSUs or restricted stock). When venture capitalists invest in startups, they receive Preferred Stock. Preferred Stock comes with the right to preferential treatment in merger payouts, voting rights, and dividends. If the company / founders have caved and given venture capitalists a lot of preferred rights - like a 3X Liquidation Preference or Participating Preferred Stock , those rights will dramatically reduce your payouts in an acquisition.

Liquidation Preference & How It Makes Employee Stock Less Valuable

One Preferred Stock right is a "Liquidation Preference." Without a Liquidation Preference, each stockholder – preferred or common – would receive a percentage of the acquisition price equal to the stockholder's percentage ownership in the company. If the company were acquired for $15 million, and an employee owned 1% of the company, the employee would be paid out $150,000.

With a Liquidation Preference, preferred stockholders are guaranteed to be paid a set dollar amount of the acquisition price, even if that guaranteed payout is greater than their percentage ownership in the company.

Here’s an example of the difference. An investor buys 5 million shares of Preferred Stock for $1 per share for a total of $5 million. After the financing, there are 20 million shares of common stock and 5 million shares of Preferred Stock outstanding. The company is then acquired for $15 million.                                                                                                                           

Without a Liquidation Preference, each stockholder (common or preferred) would receive $0.60 per share. That’s $15 million / 25 million shares. A hypothetical employee who held 1% of the company or 250000 shares) would receive $150,000 (that’s 1% of $15 million).

If the preferred stockholders had a 1X Liquidation Preference and Non-Participating Preferred Stock, they would receive 1X their investment ($5 million) before any Common Stock is paid in an acquisition. They would receive the first $5 million of the acquisition price, and the remaining $10 million would be divided among the 20 million shares of common stock outstanding ($10 million / 20 million shares of common stock). Each common stockholder would be paid $0.50 per share, and hypothetical employee who held 1% of the company would receive $125,000.

Ugly, Non-Standard Rights That Diminish Employee Stock Value

The standard Liquidation Preference is 1X. This makes sense, as the investors expect to receive their investment dollars back before employees and founders are rewarded for creating value. But some company founders give preferred stockholders multiple Liquidation Preferences or Participation Rights that cut more dramatically into employee stock payouts in an acquisition.

If preferred stockholders had a 3X Liquidation Preference, they would be paid 3X their original investment before common stock was paid out. In this example, preferred would be paid 3X their $5 million investment for a total of $15 million, and the common stockholders would receive $0. ($15 million acquisition price – $15 million Liquidation Preference = $0 paid to common stockholders)

Preferred stock may also have "Participation Rights," which would change our first example above to give preferred stockholders an even larger portion of the acquisition price.

Without Participation Rights, Preferred Stockholders must choose to either receive their Liquidation Preference or participate in the division of the full acquisition price among the all stockholders. In the first example above, the preferred stockholders held 20% of the company and had a $5 million Liquidation Preference. When the company was acquired for $15 million, the preferred stockholders had the choice to receive their $5 million liquidation preference or to participate in an equal distribution of the proceeds to all stockholders. The equal distribution would have given them $3 million (20% of $15 million acquisition price), so they chose to take their $5 million liquidation preference, and the remaining $10 million was divided among 20 million shares of common stock.

If the Preferred Stock also had Participation Rights, (which is called Participating Preferred Stock), they would receive their Liquidation Preference and participate in the distribution of the remaining proceeds.

In our example with a 1X Liquidation Preference but adding a Participation Right, the Participating Preferred Stock would receive their $5 million Liquidation Preference AND a portion of the remaining $10 million of the acquisition price equal to their % ownership in the company.

$5 million Liquidation Preference + ((5 million shares / 25 million shares outstanding) * $10 million) = $7 million

Common stockholders would receive (20 million shares common stock / 25 million shares outstanding) * $10 million = $8 million.

Our hypothetical employee who held 1% of the company would receive $100,000 (.01 * $10 million) or 0.67% of the acquisition price.

Employee Focus – Calculating Your Payout

If you are an employee of a startup, you can use Liquidation Preference as shorthand for the minimum price the company would have to be acquired for before any employees would be paid out. 

If the acquisition price is less than the Liquidation Preference, common stockholders will get $0 in the acquisition.

If you want to go further and understand what you would be paid out if the acquisition price is more than the Liquidation Preference, consider these three scenarios:

If the preferred stockholders have Participating Preferred Stock, Your Payout = (Acquisition Price – Liquidation Preference) * Your % of All Outstanding Stock

If the preferred stockholders have Non-Participating Preferred Stock, you will receive the lower of:

Your Payout = (Acquisition Price – Liquidation Preference) * Your % of Common Stock OR

Your Payout = Acquisition Price * Your % Ownership

Employee Focus – What to Ask the Company

These calculations are complicated, so if you are evaluating a job offer you might want to stay out of these details leave it up to the company to tell you how the Liquidation Preference would affect you in an acquisition. Use these questions to understand how the Liquidation Preference would reduce the value of your common stock in an acquisition. Simply ask the CFO these questions:

1. What is the total Liquidation Preference? Do the investors have Participation Rights?

2. If the company were purchased today at the most recent VC valuation, what would my shares be worth?

3. If the company were purchased today at 2X the most recent VC valuation, what would my shares be worth? 

3. If the company were purchased today at 10X the most recent VC valuation, what would my shares be worth?

This will give you a good feel for how heavy the VC Liquidation Preferences are and how they would weigh down the growth in value of the common stock.

Founder Focus – Negotiating Your Acquisition Payout

If you are a founder and are negotiating with an acquiror, consider renegotiating your investors’ Liquidation Preference payout. Everything is negotiable in an acquisition, including the division of the acquisition price among founders, investors and employees. Do not get pushed around by your investors here, as their rights in the documents do not have to determine their payout.

If your investors are pushing to receive the full Liquidation Preference and leaving you and/or your employees with a small cut of the payout, address this with your investment bankers. They may be able to help you play your acquiror against the investors so that you are not cut out of the wealth of the deal, as most acquirors want the founders and employees to receive enough of the acquisition price to inspire them to stay with the company after acquisition.

Mary Russell is an attorney and the founder of Stock Option Counsel. You are invited to contact Stock Option Counsel for help in negotiating and evaluating your job offers and post-acquisition employment agreements, making stock option exercise and tax decisions and identifying your rights and opportunities to sell startup stock. 

Thanks to investment banker Michael Barker for his comments on founder merger negotiations. Michael is a Managing Director at Shea & Company, LLC,  a technology-focused investment bank and leading strategic advisor to the software industry.

Joining an Early Stage Startup? Negotiate Your Equity and Salary with Stock Option Counsel Tips

Attorney Mary Russell, Stock Option Counsel, counsels individual employees and founders to negotiate, maximize and monetize their stock options and other startup stock. You are invited to contact Stock Option Counsel for help in negotiating and evaluating your job offers and post-acquisition employment agreements, making stock option exercise and tax decisions and identifying your rights and opportunities to sell startup stock. 

"Hey baby, what's your employee number?" A low employee number at a famous startup is a sign of great riches. But you can't start today and be Employee #1 at Square, Pinterest, or one of the other most valuable startups on Earth. Instead you'll have to join an early-stage startup and negotiate a great equity package. This post walks through the negotiation issues in joining a pre-Series A / seed-funded / very-early-stage startup. 

Q: Isn't it a sure thing? They have funding!

No. Raising small amounts from seed stage investors or friends and family is not the same sign of success and value as a multi-million dollar Series A funding by venture capitalists. According to Josh Lerner, Harvard Business School’s VC expert, 90 percent of new businesses don’t make it from the seed stage to a true VC funding and end up shutting down because of it. So an equity investment in a seed-stage startup is an even riskier game than the very risky game of an equity investment in a VC-funded startup.

Q: How many shares should I get?

Don't think in terms of number of shares or the valuation of shares when you join an early-stage startup. Think of yourself as a late-stage founder and negotiate for a specific percentage ownership in the company. You should base this percentage on your anticipated contribution to the company's growth in value.

Early-stage companies expect to dramatically increase in value between founding and Series A. For example, a common pre-money valuation at a VC financing is $8 million. And no company can become an $8 million company without a great team. So think about your contribution in this way:

Q: How should early-stage startups calculate my percentage ownership?

You'll be negotiating your equity as a percentage of the company's "Fully Diluted Capital." Fully Diluted Capital = the number of shares issued to founders ("Founder Stock") + the number of shares reserved for employees ("Employee Pool") + the number of shares issued or promised to other investors ("Convertible Notes"). There may also be warrants outstanding, which should also be included. Your Number of Shares / Fully Diluted Capital = Your Percentage Ownership.

Be aware that many early-stage startups will ignore Convertible Notes when they give you the Fully Diluted Capital number to calculate your ownership percentage. Convertible Notes are issued to angel or seed investors before a full VC financing. The seed stage investors give the company money a year or so before the VC financing is expected, and the company "converts" the Convertible Notes into preferred stock during the VC financing at a discount from the price per share paid by VCs.

Since the Convertible Notes are a promise to issue stock, you'll want to ask the company to include some estimate for conversion of Convertible Notes in the Fully Diluted Capital to help you more accurately estimate your Percentage Ownership. 

Q: Is 1% the standard equity offer?

1% may make sense for an employee joining after a Series A financing, but do not make the mistake of thinking that an early-stage employee is the same as a post-Series A employee.

First, your ownership percentage will be significantly diluted at the Series A financing. When the Series A VC buys approximately 20% of the company, you will own approximately 20% less of the company.

Second, there is a huge risk that the company will never raise a VC financing.  According to CB Insights, about 39.4% of companies with legitimate seed funding go on to raise follow-on financing. And the number is far lower for seed deals in which legitimate VCs are not participating. 

Don't be fooled by promises that the company is "raising money" or "about to close a financing." Founders are notoriously delusional about these matters. If they haven't closed the deal and put millions of dollars in the bank, the risk is high that the company will run out of money and no longer be able to pay you a salary. Since your risk is higher than a post-Series A employee, your equity percentage should be higher as well.

Q: Is there anything tricky I should look out for in my stock documents?

Yes. Look for repurchase rights for vested shares or termination of stock options for violations of non-compete or bad-leaver clauses. Have your attorney read your documents them as soon as you have access to them. If you don't have access to the documents before you accept your offer, ask the company this question:

Does the company maintain any repurchase rights over my vested shares or any other rights that prevent me from owning what I have vested? 

If the company answers "yes" to this question, you may forfeit your equity when you leave the company or are fired. In other words, you have infinite vesting as you don't really own the shares even after they vest. This can be called "vested share repurchase rights," "clawbacks," "non-competition restrictions on equity," or even "evil" or "vampire capitalism."

Most employees who will be subject to this don't know about it until they are leaving the company (either willingly or after being fired) or waiting to get paid out in a merger that is never going to pay them out. That means they have been working to earn equity that does not have the value they think it does while they could have been working somewhere else for real equity.

Q: What is fair for vesting? For acceleration upon change of control?

The standard vesting is monthly vesting over four years with a one year cliff. This means that you earn 1/4 of the shares after one year and 1/48 of the shares every month thereafter. But vesting should make sense. If your role at the company is not expected to extend for four years, negotiate for an vesting schedule that matches that expectation.

When you negotiate for an equity package in anticipation of a valuable exit, you would hope that you would have the opportunity to earn the full value of the package. However, if you are terminated before the end of your vesting schedule, even after a valuable acquisition, you may not earn the full value of your shares. For example, if your entire grant is worth $1 million dollars at the time of an acquisition, and you have only vested half of your shares, you would only be entitled to half of that value. The remainder would be treated however the company agrees it will be treated in the acquisition negotiation. You may continue to earn that value over the next half of your vesting schedule, but not if you are terminated after the acquisition.

Some employees negotiate for “double trigger acceleration upon change of control.” This protects the right to earn the full block of shares, as the shares would immediately become vested if both of the following are met: (1st trigger) after an acquisition which occurs before the award is fully vested (2nd trigger) the employee is terminated (as defined in the stock option agreement).

Q: The company says they will decide the exercise price of my stock options. Can I negotiate that? 

The company will set the exercise price at the fair market value ("FMV") on the date the board grants the options to you. This price is not negotiable, but to protect your interests you want to be sure that they grant you the options ASAP.

Let the company know that this is important to you and follow up on it after you start. If they delay granting you the options until after a financing or other important event, the FMV and the exercise price will go up. This would reduce the value of your stock options by the increase in value of the company.

Early-stage startups very commonly delay making grants. They shrug this off as due to "bandwidth" or other nonsense. But it is really just carelessness about giving their employees what they have been promised.

The timing and, therefore, price of grants does not matter much if the company is a failure. But if the company has great success within its first years, it is a huge problem for individual employees. I have seen individuals stuck with exercise prices in the hundreds of thousands of dollars when they were promised exercise prices in the hundreds of dollars. 

Q: What salary can I negotiate as an early-stage employee?

When you join an early-stage startup, you may have to accept a below market salary. But a startup is not a non-profit. You should be up to market salary as soon as the company raises real money. And you should be rewarded for any loss of salary (and the risk that you will be earning $0 salary in a few months if the company does not raise money) in a significant equity award when you join the company.

When you join the company, you may want to come to agreement on your market rate and agree that you will receive a raise to that amount at the time of the financing. You can also ask when you join for the company to grant you a bonus at the time of the financing to make up for your work at below-market rates in the early stages. This is a gamble, of course, because only a small percent of seed-stage startups would ever make it to Series A and be able to pay that bonus.

Q: What form of equity should I receive? What are the tax consequences of the form?

[Please do not rely on these as tax advice to your particular situation, as they are based on many, many assumptions about an individual's tax situation and the company's compliance with the law. For example, if the company incorrectly designs the structure or the details of your grants, you can be faced with penalty taxes of up to 70%. Or if there are price fluctuations in the year of sale, your tax treatment may be different. Or if the company makes certain choices at acquisition, your tax treatment may be different. Or ... you get the idea that this is complicated.]

These are the most tax advantaged forms of equity compensation for an early-stage employee in order of best to worst.:

1. [Tie] Restricted Stock. You buy the shares for their fair market value at the date of grant and file an 83(b) election with the IRS within 30 days. Since you own the shares, your capital gains holding period begins immediately. You avoid being taxed when you receive the stock and avoid ordinary income tax rates at sale of stock. But you take the risk that the stock will become worthless or will be worth less than the price you paid to buy it.

1. [Tie] Non-Qualified Stock Options (Immediately Early Exercised). You early exercise the stock options immediately and file an 83(b) election with the IRS within 30 days. There is no spread between the fair market value of the stock and the exercise price of the options, so you avoid any taxes (even AMT) at exercise. You immediately own the shares (subject to vesting), so you avoid ordinary income tax rates at sale of stock and your capital gains holding period begins immediately. But you take the investment risk that the stock will become worthless or will be worth less than the price you paid to exercise it.

3. Incentive Stock Options ("ISOs"): You will not be taxed when the options are granted, and you will not have ordinary income when you exercise your options. However, you may have to pay Alternative Minimum Tax ("AMT") when you exercise your options on the spread between the fair market value ("FMV") on the date of exercise and the exercise price. You will also get capital gains treatment when you sell the stock so long as you sell your stock at least (1) one year after exercise AND (2) two years after the ISOs are granted.

4. Restricted Stock Units ("RSUs"). You are not taxed at grant. You do not have to pay an exercise price. But you pay ordinary income tax and FICA taxes on the value of the shares on the vesting date or at a later date (depending on the company's plan and when the RSUs are "settled"). You probably will not have a choice between RSUs and stock options (ISOs or NQSO) unless you are a very early employee or serious executive and you have the power to drive the company's capital structure. So if you are joining at an early stage and are willing to lay out some cash to buy common stock, ask for Restricted Stock instead.

5. Non-Qualified Stock Option (Not Early Exercised): You owe ordinary income tax and FICA taxes on the date of exercise on the spread between the exercise price and the FMV on the date of exercise. When you sell the stock, you have capital gain or loss on the spread between the FMV on the date of exercise and the sale price.

Q: Who will guide me if I have more questions?

Attorney Mary Russell is available to guide individual employees and founders in negotiating and monetizing startup stock. You are invited to contact Stock Option Counsel for help in negotiating and evaluating your job offers and post-acquisition employment agreements, making stock option exercise and tax decisions and identifying your rights and opportunities to sell startup stock. 

Bull’s Eye: Negotiating the Right Job Offer

Mary Russell counsels individual employees and founders to negotiate, maximize and monetize their stock options and other startup stock. She is an attorney and the founder of Stock Option Counsel.

Boris Epstein is the founder of BINC Search, a next-generation recruiting startup that helps Silicon Valley companies hire technical talent at the scale they need.

You’re negotiating your salary and equity. You know there is a right answer – a bull’s eye where the final offer should land. But where is it?

The company is deciding what to offer you. They know there is a right answer, and they’ll get there using these four factors:

1.     Past Comp – your salary and equity in current and past jobs

2.     Peer Comp – the salary and equity of others in your peer group within this company

3.     Desired Comp – what you want to get paid, regardless of other indicators

4.     Market Comp – your competitive offers in the market

The right offer for you is the bull’s eye at the center of these possible offers. You can maximize your final offer by thoughtfully using these factors in your negotiation.

Past Comp

The company may ask you to disclose your compensation in your previous positions – your Past Comp.

If you disclose these numbers, be sure to include detail or “color” on the numbers to show the true value of your Past Comp. Do you believe your salary was lower than it should have been because of difficult financial circumstance at the company? Are you overdue for a review and raise? Does your company have valuable equity or a bonus structure that should be included to accurately describe your Past Comp? Are you expecting to continue vesting or receive additional stock option grants that you would forfeit by leaving your company?

A thoughtful discussion of your Past Comp may be more effective than following the lore that you should never disclose this information. You can use your answer to the question to guide the company to the right offer.

Peer Comp

The company also considers your Peer Comp – the range this company is already paying employees in similar positions. You start shaping this number during your interview as you discuss roles, levels and opportunities and present information to help the company understand where you fit to add the most value to the team.

For a company with a thoughtful system of leveling, there will be names or labels for each position and a range of salaries and equity packages they offer within each level. Your negotiation work is to distinguish yourself and show that you are a peer of those being paid at the highest end of the range for your level based on your unique skill set or experience.

The more unique your position, the less experience a startup will have in defining your Peer Comp. If you are a first-hire designer, physician or other leadership or expert role, you may have to help the company understand who your peers will be.  This is especially important in early-stage startups, where the hiring team might not understand that your new role should be considered a peer of, for example, vice presidents rather than junior engineers.

Desired Comp

The company also considers your Desired Comp – what you want to get paid. This is highly relevant to the right offer.

Desired Comp is especially important in equity packages, where your evaluation of the company’s equity may vary greatly from another candidate’s evaluation of that package. If you’ve been hoping for a home run exit during your career, you’ll be looking for an equity package that could get you there. If you’re strapped for cash and looking to maximize salary, you will have less desire for an equity-heavy final offer.   

There may be some tradeoffs, of course, but the right offer will be centered on your Desired Comp. So do your self-reflection homework and know what you want.

Market Comp

Companies take into account Market Comp and need to know what they will have to offer to stay competitive. While companies have a general idea of what is “market” for each position, your personal Market Comp is unique and driven by your efforts to identify alternative offers. The only way to use the right Market Comp in your negotiation is to go out to the market, derive that information and communicate it to the company.  

Once you have competitive offers, evaluate the equity packages and make thoughtful comparisons between them. For example, based on your appetite for risk and financial considerations, would you prefer options to purchase 1% of a Series A startup with a company valuation of $5 million or 5,000 RSUs of a public company with a current market price per share of $10? How many more stock options would the Series A startup have to offer you to equate to the public company offer? The company cannot make this estimation for you any more than they can decide which company is the best fit for your personality. When you own this process, you can confidently and effectively communicate to your company what is “market” for your equity offer.

Market Comp is also relevant after hire, as the startup job market can shift dramatically over time and new opportunities are always surfacing. As you continually find new information about opportunities, you can continually communicate with your company about what is “market” in defining the right salary and equity for your position. 

Bull’s Eye: The Right Offer

With thoughtful attention to these four factors, you can use your negotiation to guide the company to the bull’s eye – the right offer for you. If you see the company using the wrong data, you can bring the conversation back to the truth as you see it and work toward the right outcome. 

For more help on these preparations, you are welcome to read the full text of our interview here: The Right Offer – Long Form Q&A Between Stock Option Counsel and BINC Search

Mary Russell counsels individual employees and founders to negotiate, maximize and monetize their stock options and other startup stock. She is an attorney and the founder of Stock Option Counsel. You are invited to contact Stock Option Counsel for help in negotiating and evaluating your job offers, making stock option exercise and tax decisions and identifying your rights to sell startup stock. 

Boris Epstein is the founder of BINC Search, a next-generation recruiting startup that helps Silicon Valley companies hire technical talent at the scale they need.

VIDEO Startup Stock Options: Startup Valuation

Stock Option Counsel for individual employees and founders in all matters relating to startup stock options or other employee stock. This video describes startup valuation for employees in a thoughtful, accessible way. Call us when you want to evaluate, maximize or monetize your stock options or other startup stock. (650) 326-3412. www.stockoptioncounsel.com. info@stockoptioncounsel.com.

Stock Option Counsel Tip #1

Use @angellist to research "market" equity for your company size. https://angel.co/jobs   #equity #negotiation #startup