Evaluating a job offer

• Evaluating a job offer
  • Get it in writing!
  • The components
    • Salary
    • Equity compensation
    • Cash bonus
    • Signing cash
    • Insurance
    • Tax advantaged account offerings
    • ESPP (Employee stock purchasing program)
    • Time off
  • Career growth
  • The unexpected factor
  • Conclusion

First of all, congratulations on the offer! If you're like me (in software), it was likely brutal getting there. Leetcode much?

Job offers can be rather complex in terms of how they offer compensation. Recruiters have one job: get you to accept, and accept the lowest offer possible. This leads to an over emphasis on things that may not add a lot of value, or hand wave away details. At the end of the day, your total compensation has many factors, and companies compete on those same factors. This article will provide my perspective on how to look at an offer.

Get it in writing!

Before we dig into the nitty gritty, first and foremost: you must gather all the information that comprises an offer in order to compare apples to apples. Do not take a recruiter at their word. They may be great people, honest, accurate, well meaning, but at the end of the day, a verbal offer is not an offer.

In addition to forcing them to actually write the offer & make it official, it helps you evaluate offers side by side instead of live & on the phone. This, for me, was highly important as I'm a details person. I got them to provide their benefits packets (not the brochure, the big ol' packet), offer breakdown (equity, salary, bonus, signing cash), et cetera. For an anxious decision-maker, this is key!

The components

Evaluating technical offers is really challenging. For most tech companies, they are equity heavy, have stellar health care (but details that matter), can have cliffs and clawback clauses...all sorts of shenanigans. They are also highly competitive at the moment, so can be shocking to see at first blush! Fight the temptation to look at the big numbers and the fancy charts. Focus on the fundamentals below!

These components summed amount to your total compensation. This is the easy part to compare across job offers...and even so, it's still really complex!

Salary

This one is pretty straight forward, thankfully. It is, however, a key component as it drives your most reliable source of income. In the tech world, equity compensation becomes a larger & larger part of your compensation package as you progress in your career. As long as your company is staying afloat, this is practically guaranteed income and does not experience fluctuations like your equity will. If I'm being really high and mighty this is the compensation you should budget with.

Some roles are hourly, the calculation equivalent of a salary for full time amounts to the hourly rate * 2080 hours (52 weeks, 40 hours). If you are working less than 40 hours a week or 52 weeks a year, adjust as necessary! Unpaid time off would be factored in here, as well.

Equity compensation

Most of this is covered in the equity compensation page, but when comparing there's a few important details that may differ from offer to offer. The key among them is going to be private vs public equity. This distinction is the difference between being able to realize your equity compensation on (largely) your own choice. With private equity you are beholden to the company to either go public (IPO) or to raise capital in a fashion that offers a buyback of employee equity.

Another important detail is the vesting schedule. Some companies have back-weighted vesting schedules (such as Amazon) where you get a pittance of your initial equity in the first year (5%) and 40% in your final two years. Some offers have a one year cliff, which means not receiving equity until the vesting date following your one year anniversary. This gap is generally covered by a cash signing bonus, but is something to consider if you rely on equity compensation to make ends meet.

Remember for many, many companies, your initial equity grant may determine the bulk of your equity income. It is important that, when negotiating, you keep this in mind. It's easier for a company to increase your signing equity than say, your salary. There's some inherent risk associated with equity compensation, but your employer also knows that (hence why they're happy to promise a few more shares rather than an equivalent dollar amount ins salary).

Cash bonus

A cash bonus is similar to equity in terms of how I would recommend budgeting around in your financial picture. It's better to assume it doesn't exist than to rely upon it to make ends meet! These bonuses are generally spoken about by recruiters in absolute terms. "Your total compensation will include a cash bonus*"
*Subject to the company's good graces

Much like equity, this amount could be $0 for a year (in the case of underwater options) or the bulk of your annual earnings (i.e. sales). It's a potentially large dollar amount, but a bird in the hand and all that.

Signing cash

As mentioned in the equity compensation section, signing cash is generally used to persuade people into joining by offsetting equity compensation that may be coming due at the time of the offer. Similar to equity compensation, there can be vesting components to signing cash. It is not unusual to have multiple cliffs of varying dollar amounts in an offer. For instance, some could be vested quarterly, others could be 2 year vests.

An additional detail with regards to signing cash bonuses is the possibility of a clawback clause. A clawback clause means that the company has the right to get their signing cash back from you under certain conditions. An example of a clawback clause reads as follows:

As you can see, the way the sign on works is that it's considered an advance of payment, where the payment is really "earned" on your 1 year anniversary. These clawbacks are essentially a penalty for quitting prior to the length of the signing cash bonus.

Insurance

This section is going to be really large and complicated, so it warrants its own article. I've drawn up a Trello card to track it. Essentially, the factors that go into health insurance are things such as the type of plan (PPO, EPO, HDHP, etc), premiums, out of pocket maximums, deductibles, access to HSAs, etc. All of these are able to abstractly be represented as a cost by taking into account your medical needs & how your plan would cover those.

When I compare offers, I take my total comp and subtract the cost of healthcare (using the same medical needs to calculate the cost across the best plan of each offer).

Tax advantaged account offerings

Tax advantaged accounts are only as good as your choice to use them. If a company offers a 401k and another doesn't, but you opt not to contribute, then they are of equal value. However, if one offers a 401k and you max out the employee contributions of $23,500, that may be worth up to $8,695 (if you're in the top tax bracket).

As you can see, you need to spend money to save money in this instance. If you were going to set aside money for retirement regardless, that tax savings is a nice compensation boost! This should also include any employer matches that may apply. Some are based on a percentage of your contributions, salary, or a fixed amount. They may also have vesting schedules that may apply, so make sure to take that into consideration!

This math gets a little more complicated when you start considering tax advantaged accounts such as HSAs or megabackdoor Roth 401k. Both of these calculations warrant their own features (Roth v Traditional calculator, to highlight the value of Roth over brokerage, health insurance plan evaluator, to see if an HSA is worth it and its corresponding article).

At a high level the HSA math is similar to the 401k math, where it's your top marginal tax bracket multiplied by the amount of deduction plus any employer contributions. The ability to do megabackdoor Roth 401k contributions amounts to the amount of taxes saved by not paying taxes on withdrawal of the funds after years of growth, compared to a taxable brokerage account where capital gains would apply (for if you can't contribute that to Roth 401k, it would have to go into a brokerage account to compare apples to apples). This math is dependent on many factors such as your current tax rate, your future tax rate, dividend payout, growth rate, etc. Way more than I can fit in this article!

ESPP (Employee stock purchasing program)

See the espp section.

tl;dr; The benefit of an ESPP can be pretty substantial. It is dependent on the terms of the plan, but can generally be seen as an ROI of (1/(1 - discount %)) per offer period. In the example of an 15% discount on $50,000 annual limit, the worst outcome is an increase in total compensation of $8,825.

Time off

Time off is another somewhat easy comparison. If they are equal, no need to consider it. Number of holidays, weeks off, "unlimited time off", etc. should be relatively easy to compare. In the event of there being a difference, you can consider the extra week as added compensation (salary / 2080 = your hourly rate, 8 * extra days * your hourly rate = the compensation benefit). If the amount of time off exceeds what you see as meaningful (let's say you only need 4, but got 5 weeks), you may want to discount the compensation value as you may not have taken unpaid time off and therefore the benefit isn't really the full $ amount of the time off benefit.

Career growth

Lastly, another important factor that is often overlooked is career growth. How likely are you to be challenged & build out your skills? If you are not learning, you're potentially doing your career harm. In some roles you'll get excellent opportunities to learn and expand your capabilities (both in hard skills & soft skills!). These are valuable for personal satisfaction as well as future compensation.

For some folks, that's not the end of the world. Senior roles are terminal ones for many! That's perfectly fine if you're happy with that. The younger/more junior you are, the more important the career growth aspect is. Promotions mean higher compensation likelihood, but also an easier task in finding the next job!

The unexpected factor

This is a financial focused blog, so you may not expect what's to come here. Prepare yourself.

It's not just about the money.

My dad has been a great resource for financial topics. Whenever I've discussed competing offers he always makes sure to ask if I'll enjoy the work. After all, it is 8+ hours of your day 5+ days of the week. In addition, I'm in a field that pays well and there's little likelihood we don't make ends meet as a result. What is my happiness worth? Now that is a tough question.

I can't tell you the answer to that. This should definitely be a consideration if you are able to make ends meet with either offer. What motivates you at work? What are you interested in? Did the team seem like a good fit? Make sure to balance these factors in your consideration! They may not impact total compensation, but they matter.

Conclusion

At the end of the day, your total compensation is likely one of your largest motivators for your career. This article hopefully provided you with all the information necessary to help you compare offer to offer, and allow you to focus on those harder-to-measure factors like happiness and satisfaction.