Negotiating Startup Employee Compensation
Every Founder in today’s market knows the importance of recruiting top talent. It’s a non-stop process in a ferociously competitive market. Closing candidates is a function that can be broken down into a thoughtful and deliberate recruiting process. To scale your startup, you must structure a smart recruitment strategy, craft and refine a compelling story, then structure a thoughtful interview process in order attract your candidate. Once you are ready to extend an offer, use the following tips to successfully negotiate and close your ideal hire.
Tip #1 – Do your Homework
Before you can make a smart and competitive offer, you need to understand what they have earned.
Obtain the prior 2 years compensation history to look for final take-home numbers and year-over-year progression. This includes: historical base salary, bonus achievements, option grants, RSU awards, benefits, as well as, all payout and key vesting dates. You don’t want any surprises.
Conduct thoroughly complete background and education reference checks. While this is time consuming, it is critical and can help avoid costly bad hires. Research has shown that a rigorous reference process is the single most critical thing you can do avoid foreseeable hiring mistakes.
Keep in mind candidates are often reluctant to give you this information because they are worried about losing leverage in the negotiation. By sharing your thinking about salary bands, equity ranges, perks, health/benefits and relocation assistance, you can get candidates to feel comfortable disclosing personal information and that they are not negotiating against themselves.
Tip #2 – Socialize the Offer
Make a pre-close call to outline the proposed details of your proposed offer. This exploratory call is to gauge your candidate’s reaction and increase your ability to shorten the closing process. You should clearly set expectations around when a formal job offer will be made.
A Pre-Close call should cover these topics:
- Recap their compensation history with them.
- Go through all details of the proposed offer.
- Ask lots of questions, don’t make assumptions and clarify everything:
- Are they comfortable with the terms or do they have any concerns?
- Are the terms aligned with what they were hoping for? If not, what’s missing?
- How will the decision be made? (Will a spouse or partner influence their decision? Do they have kids who will be impacted?)
- How much time will they need to leave their current job? What reaction do they expect when they tender their resignation? Try to determine if their company will make a counter-offer to retain them and how likely they are to accept your offer.
- Collaborate to define short and long term milestones. Setting mutually agreeable milestones helps candidates feel that their comp plan is fair.
Taking these steps will help you to better understand what will influence their decision and significantly improves your chances of closing your ideal candidate.
Tip #3 – Situation Analysis
As you prepare to extend a formal offer, make sure you know the leverage points from both sides. Key consideration points include:
Strengths vs. Weaknesses: Honestly assess your weaknesses (can you compete on cash, bonus upside, equity, commute) and plan how to shift conversation to your focus on your strengths (team experience, background, unique product, new market).
Hiring Experience vs. an Up and Comer: Your closing pitch should be different for “promotional hires” versus “functional experts.”
Company Comparison: Your pitch should be different if you’re pulling from a large company (high salaries but lower equity upside), recruiting from a failed or troubled startup, or poaching someone out of another hot startup.
Life Impact: Know your candidate’s personal situation to fully understand the impact of accepting your offer (Will their commute change? Will their cost of living increase/decrease? Are they single or married? Do they need to relocate?).
How to Extend the Job Offer
Candidates want to feel as though they are your #1 choice. Always make them feel that way. Set clear expectations, keep your promises and use these tips to close the deal:
Sell the Mission and Vision: Reiterate how your company is changing the world. Generate excitement (reinforce company culture, amazing people, shared interests and common goals). This will help remind them why they want to join your company.
Sell Impact, Education and Happiness: Help candidates visualize their future. Focus on the key selling points – the impact they will make at your startup, what will they learn and what challenges they will tackle. Reiterate how this opportunity maps to their goals and interests and furthers their career path.
Discuss the details: Take time to discuss all aspects of the offer, which should align very strongly with their stated interests. Ask if they have questions or concerns. Let them know that you want to move quickly to a decision. Ask again for their expected start date.
Time kills all deals so don’t drag out the process. Make candidates feel special. Constantly communicate, go the extra mile, show them how important they are to you.
Great recruiting is an aggressive strategy with a lean-back style. It’s up to you to drive the outcome.