So you already know what to avoid when negotiating your salary and what you can do to get more paid time off, but did you know there’s one more thing you’re probably not asking? It goes over most applicants’ heads most of the time because of how underrated it is. However, equity is definitely something you should start asking about in future negotiations.
Of course, doing your homework first and understanding the specifics of your equity offers is essential. In addition, equity offers can vary, so knowing how to negotiate equity will help you get the best compensation package for your needs.
To make it easier for you, I’ve compiled below a few things you must know about stocks and equity negotiation.
What is Equity?
In simple words, equity is an ownership share in a company in the shape of stock options. You will have a share in the potential upside of profits to the extent that they will be distributed. But, of course, you also share the potential downside if the value of that interest or the entire company declines.
Privately held businesses like startups and publicly traded companies such as Google and Walmart can provide stock options for their employees. For private companies, equity often refers to a percentage of the company’s ownership when it finally goes public.
One way to understand brand equity is when a private firm goes public. This implies that the company is growing rapidly and is starting to sell shares to the general public. The company is therefore going from being privately owned to a publicly owned entity.
For public companies, equity often refers to the right of workers to acquire shares at a discounted price. In this case, executive-level employees are typically more invested in the business than those at lower levels.
Why Should You Care About Negotiating Equity?
The more stock you own in a firm, the more money you will make when they succeed. Owning a business’s stock can boost your income and net worth.
Fair warning, though, as you may have pieced together with what has been explained above: owning stocks come with a big financial risk. Therefore, it’s critical to understand equity negotiation and how to obtain the best stock package.
When Should Equity Be Negotiated?
The best time for equity negotiation is after receiving a job offer but before accepting the offer. This is so that the equity can be negotiated as a component of your overall compensation package. For example, your pay, job title, paid time off (PTO), and other perks could be included in your package.
What’s The Best Way To Negotiate Equity?
Don’t know how to talk about equity and stock? Worry not! Here are some tips to help you get the best possible compensation package:
1. Know More About The Company
One of the best ways to know if a company has a good chance of future success is to understand its current situation. Ask your prospective employer if you can see their business strategy. This document should clearly outline their company objectives, their plans for achieving them, and a timeline for doing so.
Another good thing to check is their founders and managers. If they’ve launched and maintained successful startups in the past, that’s usually a good sign. However, if it’s their first foray into the startup world, check if they have advisors helping them with their business goals.
2. Review The Financial Possibilities of The Company
When considering working with a startup, it’s crucial to consider its potential financial viability. So look up details about a company’s finances online, including:
- Amount of investors
- The types of investors it has, including banks and venture capitalists
- Amount of financing
3. Check Out Companies Similar To Your Prospective Employer
Examining compensation packages for comparable job titles at other organizations will also be part of your research. You can narrow your search by focusing on packages offered at similar companies. For example, if your job offer is from a startup, it would be better to compare your package to that of other startups rather than large organizations.
4. Examine The Job Offer Thoroughly
Consider requesting a written employment offer. Doing this will let you evaluate the specific terms and conditions of the offered stock at your own pace, making the offer easier to negotiate legally.
You can take this a step further by seeking advice from an accountant, a lawyer, or both, especially if you need assistance understanding any of the provisions.
An accountant can assist you in figuring out the company’s financial potential, the potential tax liabilities associated with your shares, and the prospective possible risks and rewards of your stock offer. As for the lawyer, they can help you find out if your stock options have any limitations or restrictions.
5. Talk About Your Needs & The Needs of The Business
Successful equity negotiation considers both the demands of the prospective employee and the business.
For example, risk-averse candidates could be more interested in negotiating a higher pay than a higher stock stake. On the other hand, startups might not have as much cash flow as more prominent publicly listed firms and thus could be more ready to bargain for shares than pay.
Whether you want to negotiate for the given salary or stock, ensure your compensation package considers your requirements and the business’.
Knowledge is Power When It Comes To Equity
Equity is great but the risk is a natural part of it. So, before accepting anything, make sure you’re getting what you are worth, and assess the company’s growth potential in the same way you would any other possible investment.
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