Negotiating a job offer that includes ESOPs? If you are joining in early with founders just starting up, you may be in for something special.
Especially if the role on offer is instrumental enough to change the course of the business. Imagine being the first Product Manager at Notion!
There is no one right answer to how much you can ask for, especially considering all the variables involved and the fact that there are no publicly available benchmarks. However, all’s not lost.
Don’t discount the importance of timing
If you’re one of the early employees, you might be able to push for more equity, even if you’re not in a very senior role.
Early employees often take a pay cut to join early-stage companies and higher ESOP packages compensate for the lower base salary offering and the leap of faith.
For instance, if you’re one of the first engineers to join a tech startup, you might even get a higher ESOP package than a VP who is hired later on.
Compare and contrast
Reach out to peers working in similar roles in the same industry to get an idea of how much someone in your role typically gets. You can also take a look at career pages of competitors as well as job postings on websites like wellfound.com for more data to base your research on.
It is important to base your decision on more than just the benchmarks you may find through your research, for every startup is different. You should also factor in the cash component of your salary during the negotiation process because chances are, you may be asked to take a cut in exchange for more equity.
Is your role instrumental to the progress of the startup?
If you’re joining an entry-level position, you’ll be offered a standard package with not too much room for negotiation when it comes to ESOPs.
But if you have experience, and if you’ve acquired a specific skill set, you can push higher.
The amount of wiggle room you get with ESOP negotiations will depend on what you bring to the table. For instance, if you’re joining as the head of product who’s got a proven track record in building products from scratch and scaling them, the offer you can negotiate can be far from standard!
There are early-stage startups that give even 1% of equity to an early employee if they are that important for the potential success of the company.
Understand the value of what you bring to the table
Difficult to quantify? Paul Graham may have an answer.
If you’re asking for n amount of equity, then the company should be able to grow by 1/(1-n). For instance, if you ask for 5%, you should be able to grow the company to 1/(1-5%), which is 1.052. This means, your skills should increase the company’s average output by 5.2%.
For instance, if you’re joining as a sales manager, you should be able to generate enough sales so that the company’s business grows by the requisite amount.
Although 5% may be a bit much, considering there’s also the cash component of the salary to think about. What this also means is that a higher in-hand salary may potentially affect your ability to negotiate for more equity.
It is all about being able to defend your own talents. Don’t sell yourself short and don’t settle for less than what you are worth.
Trade in cash for ESOPs
Well, let’s face it: you're probably not going to become a millionaire with your salary.
If you are bullish about the company’s future prospects and can afford a reduction in cash component, a higher ask in equity could multi-fold your potential outcomes if the company does go on to do well.
It shows the company that you're serious about being in it for the long haul and you truly believe in their vision and mission.
As founders, we absolutely love it when our team members show that kind of belief.
So go ahead, take a chance, and see if you can make some magic happen!