MYTH: Silicon Valley is where 22-year-old nerds in Gap hoodies make major bank overnight, then go out and buy yachts and posh mansions in Palo Alto.
REALITY: Uhhhh, not so much.
If you believe everything you read in the news or see on TV, you might think that working at a hot startup in Silicon Valley is your instant ticket to riches. Regardless of what Hollywood has managed to cook up in movies like The Social Network and TV shows like Silicon Valley (natch), however, the real world of startup employment is quite a bit different. As in: Long hours for sometimes (nay, often) crummy short-term pay (or even no pay at all!) as a trade-off for the chance to make big bucks down the line in the form of company equity if your startup employer turns out to be the next Facebook or Google.
But while the chance for startup riches definitely exists, the hard reality is that most startups don't become the next Facebook. Many startups don't even get acquired in an modest equity-cashout deals. In fact, a lot of startups outright fail, leaving talented people with little to show for their long hours and lost sleep besides a worthless equity agreement. Bottom line, if you're not independently wealthy, it's usually not a good idea to work under an equity-only pay agreement—unless you are willing to live in your parents' basement while eating government cheese. Sure, it might have worked out for the Woz, but much like winning the lottery, an Apple-style founders' payoff is a mega-long shot for most people.
Sounds depressing, huh? Don't fret, because there's a silver lining for talented tech workers. If you're smart enough to work in Silicon Valley—or any tech company, for that matter—then you're smart enough to be strategic about your compensation. If you're better informed about what top talent should be demanding from companies when negotiating your total compensation package, you're also more likely to pick a startup outfit that has the staying power to keep you working (and paid) well over the long term, especially in terms of potential equity cashout. And if by chance your employer crashes and burns, negotiating a solid base pay package upfront can offer you some short-term stability while you look for your next opportunity.
In other words, it's time to get smart about Silicon Valley compensation. Base salary is only one part of the equation. Equity is another, potentially lucrative part of your total pay package, and some tech workers choose a lower base salary in exchange for more equity (or vice versa). Bonus pay can be icing on the cake—or nonexistent if the company doesn't hit growth targets, or (worse) if your bonuses are tied to things you have no direct control over (like slacker employees that you don't supervise, or a second round of investor financing falling through). Meanwhile, often-overlooked benefits like health insurance, vacation pay, or even perks like onsite meals or a free gym membership have their own intrinsic value that can make up for lower base-pay packages. A combination of all of these compensation options—not just base salary—are equally important parts to consider when evaluating any potential job offer, whether you're working in the heart of Silicon Valley, at a Fortune 500 company, or at a mom-and-pop shop in the rural Midwest.
Know Your Local Market
Compensation standards vary widely by industry, region, and even neighborhoods within the same urban area. Local costs of living also vary widely, and what might be a great salary in Indianapolis is barely a subsistence wage in San Francisco. For example, an entry-level computer engineer in San Francisco often earns $125,000 plus bonuses and benefits. While that might sound like a lot of money, it doesn't go very far in the super-expensive Bay Area, where it might not even be enough to cover the rent on a basic two-bedroom apartment, let alone any special luxuries. Meanwhile, that same salary and benefits package in Indianapolis would be sky-high pay for an entry-level engineer, where the typical entry-level salary of $60,000 would still buy a very comfortable lifestyle. Compensation for some jobs sometimes doesn't even differ by region—-meaning that the same salary that would have you living in a crummy shipping container in the Bay Area could buy you a four-bedroom house and a brand-new car in Cleveland. Sites like Salary.com, Glassdoor, and Indeed offer salary data by position type, experience level, and region. Talking to colleagues who work in a given market or location about what to expect in terms of total compensation is also helpful.
Also, you'll need to ask yourself whether a startup/equity compensation package is really worth the extra risk. Startups often pay less than established companies (and may not always meet payroll at all!), but offer company equity, huge bonus potential, or special perks to make up for it. That equity/bonus potential could be worth millions—-or nothing. The potential for riches from equity and big bonuses therefore is supposed to outweigh the lower upfront pay, but remember, the keyword here is potential.
Meanwhile, established companies typically offer long-term stability and steady paychecks, but aren't giving away half the stock in the company to a single employee (i.e., you).
The question to ask when evaluating any job offer is, What's more important to you? And what are you willing to risk? If you're young, hungry, and don't have a spouse or kids to worry about, the startup/equity deal could be well worth the risk. ("There's gold in them-thar hills, Go West Young Man," et cetera.) But if you're married with two kids and a mortgage, you're probably better off with a conservative, steady gig at a stable company.
What if a medium-sized startup or more established company is offering you a modest equity/bonus package, but is still lowballing you on salary? Negotiate. When a company is on solid enough footing to recruit talent without big equity giveaways, that's a signal they should be paying closer to market rates from the get-go. Also, pay close attention to any proposed bonus structures, and make sure bonuses are tied to factors you have direct control over. Companies often give you pie-in-the-sky promises during the interview process to get you on board, but reality often doesn't match up further on down the line. If you can, ask the hiring manager to give you some hard numbers on what past bonuses have been for people working similar positions, and get everything in writing. Otherwise, you might end up with far lower total compensation than you expected if bonuses don't pan out
Other often-overlooked components of total compensation include benefits like health insurance (including how much you'll pay out-of-pocket for premiums and deductibles), as well as 401(k) company match and profit-sharing plans. For example, the company might say they offer health insurance, but if you're expected to pay 100% of the monthly premium plus a high annual deductible, that's thousands (or even tens of thousands) of dollars off the top of your salary. Meanwhile, a company that has lower base pay while offering free healthcare and a generous 401(k) match or a traditional pension may actually be a better deal in the long run.
When it comes to negotiating your next salary and benefits package, knowledge is power. Remember, in a tight labor market for top tech talent, everything is negotiable. There's no reason to accept a bad job offer when you can often get a better deal by communicating your expectations—or looking elsewhere.
Leandro Margulis Leandro Margulis
Advisor | Investor • Pick-Eat
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