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Something I'm unsure when discussing "total compensation" is how to include things like Stock Options to try to make an objective metric, because: - They vest

Something I'm unsure when discussing "total compensation" is how to include things like Stock Options to try to make an objective metric, because: - They vest in 4 years in most companies, so do you do Salary + 1/4 of stock options? - They are options and not even stock, so you are not getting much _at the moment_ you receive them. Is $1 of stock options === $1 of hard cash? - Do you even discount the stock options accounting for risk? I know I do in my head when evaluating an offer (0 < multiplier < 0.2 depending how generous I'm feeling based on certain metrics). - Refreshers make things messier, now you have salary + 1/4th * N_0 * val_0 + 1/4th * N_1 * val_1 + ... - What about bonuses or incentives for referrals or similar? - Transportation, food, etc. budgets?

jldugger 6y ago
From what I can see, people who want to compare TC use the formula: TC = base_salary + bonus + current_year_rsus_granted The argument in favor of using this metric is 'this is how management values you right now'. It has the bonus of making vesting schedules moot, and avoids concerns about stock valuation -- shares in GOOG granted 4 years ago are more valuable than shares granted today, leading to an almost unintentional increase in compensation. If you just want to budget your life, well, IMO just use base salary for that when looking at FAANG scale comp. The rest goes to retirement / brokerage investment / Tesla. If you need to proceed anyways, I recommend: - if paid in Restricted Stock Units in a publicly traded company, discount the value by 20 percent - if paid in non-public shares or options, mark to whatever you could get for them if you sold today (typically 0 dollars) - consider all shares vesting this year, regardless of when they were granted -- summing your refreshers is not that hard - plan on 2/3'rds of last year's bonus. - don't rely on referral bonuses unless your job is "recruiter" - don't bother calculating fringe benefits unless you know the money would be spent similarly if you spent a few months on unemployment.
mattnewton 6y ago
At least for me I convert everything in the offer letter to cash as directly as possible. So the RSU’s I can sell after the year are included in my 1 year comp and the ones I can’t aren’t, those are easy. Bonuses, straight to cash as well at the expected value (and it’s in your contract, emails or verbal agreements I would value at $0 unless they made its way into the employment contract). Transportation or other perks I value at my BATNA- which, if I can walk to a competitor, the fact that they are offering a shuttle is worth $0 to me, but if I have to drive to the competitor it’s worth the car upkeep costs. Options are harder because you have to predict an expected value and may not be able to actually exercise them early for cash: in that case I usually default to valuing them near 0 for yearly comp.
singron 6y ago
Employee options must be granted with a strike price at the current fair market value, which means they aren't worth anything the day they are granted. For private companies, that fair market value is decided by the board, who may be incentivized to show steady growth when there is none. There will also be preferred stock held by investors, so you still won't make money on a liquidation above the strike price. And if you quit, you lose your options or have to immediately buy a risky stake in a startup. Options really aren't worth much unless the company becomes many times more valuable after the grant, and that's so unlikely to work out for the average employee that it may as well be $0.
- sokoloff 6y ago
  Without you even telling me your company, cap table, strike price, or even your intention to stay, I'll buy all of your options on the date of grant for $20, provided that once we strike that deal, that we do it consistently through the rest of your career. They're clearly not worth anywhere close to $0, but if you believe they are, hey "free $20".
fatnoah 6y ago
Since I'm an SWE, I actually wrote a simple program to help calculate total compensation that factors salary, bonus, sign on, initial RSU grant, RSU refreshers, and expected company stock bonus. It generates year-by-year compensation as well as an average for the first four years. It by no means accounts for everything, but at some level the $100/month I get for transportation and other benefits is a fraction of a percent of my overall compensation, so I don't bother thinking of those. Regarding options, I value those at $0 unless I'm joining the next hottest thing or IPO-imminent company. In those cases, I'd apply some discount based on probability of the exit, etc. Those are so hard to calculate, though. It feels more like winning a lottery than anything. I started my life in startups and am three for three in "success" in that two were acquired and one is still chugging and making profit after 15 years. In all cases, net value of my options was $0, even when I owned ~1% of all non-founder options. The money I made in the exit was due to being the head of Engineering, so I got a cash bonus from the investor as part of the executive contract, and I got retention RSUs from the acquiring company.

jldugger 6y ago

From what I can see, people who want to compare TC use the formula: TC = base_salary + bonus + current_year_rsus_granted The argument in favor of using this metric is 'this is how management values you right now'. It has the bonus of making vesting schedules moot, and avoids concerns about stock valuation -- shares in GOOG granted 4 years ago are more valuable than shares granted today, leading to an almost unintentional increase in compensation. If you just want to budget your life, well, IMO just use base salary for that when looking at FAANG scale comp. The rest goes to retirement / brokerage investment / Tesla. If you need to proceed anyways, I recommend: - if paid in Restricted Stock Units in a publicly traded company, discount the value by 20 percent - if paid in non-public shares or options, mark to whatever you could get for them if you sold today (typically 0 dollars) - consider all shares vesting this year, regardless of when they were granted -- summing your refreshers is not that hard - plan on 2/3'rds of last year's bonus. - don't rely on referral bonuses unless your job is "recruiter" - don't bother calculating fringe benefits unless you know the money would be spent similarly if you spent a few months on unemployment.

mattnewton 6y ago

At least for me I convert everything in the offer letter to cash as directly as possible. So the RSU’s I can sell after the year are included in my 1 year comp and the ones I can’t aren’t, those are easy. Bonuses, straight to cash as well at the expected value (and it’s in your contract, emails or verbal agreements I would value at $0 unless they made its way into the employment contract). Transportation or other perks I value at my BATNA- which, if I can walk to a competitor, the fact that they are offering a shuttle is worth $0 to me, but if I have to drive to the competitor it’s worth the car upkeep costs. Options are harder because you have to predict an expected value and may not be able to actually exercise them early for cash: in that case I usually default to valuing them near 0 for yearly comp.

singron 6y ago

Employee options must be granted with a strike price at the current fair market value, which means they aren't worth anything the day they are granted. For private companies, that fair market value is decided by the board, who may be incentivized to show steady growth when there is none. There will also be preferred stock held by investors, so you still won't make money on a liquidation above the strike price. And if you quit, you lose your options or have to immediately buy a risky stake in a startup. Options really aren't worth much unless the company becomes many times more valuable after the grant, and that's so unlikely to work out for the average employee that it may as well be $0.

sokoloff 6y ago
Without you even telling me your company, cap table, strike price, or even your intention to stay, I'll buy all of your options on the date of grant for $20, provided that once we strike that deal, that we do it consistently through the rest of your career. They're clearly not worth anywhere close to $0, but if you believe they are, hey "free $20".

fatnoah 6y ago

Since I'm an SWE, I actually wrote a simple program to help calculate total compensation that factors salary, bonus, sign on, initial RSU grant, RSU refreshers, and expected company stock bonus. It generates year-by-year compensation as well as an average for the first four years. It by no means accounts for everything, but at some level the $100/month I get for transportation and other benefits is a fraction of a percent of my overall compensation, so I don't bother thinking of those. Regarding options, I value those at $0 unless I'm joining the next hottest thing or IPO-imminent company. In those cases, I'd apply some discount based on probability of the exit, etc. Those are so hard to calculate, though. It feels more like winning a lottery than anything. I started my life in startups and am three for three in "success" in that two were acquired and one is still chugging and making profit after 15 years. In all cases, net value of my options was $0, even when I owned ~1% of all non-founder options. The money I made in the exit was due to being the head of Engineering, so I got a cash bonus from the investor as part of the executive contract, and I got retention RSUs from the acquiring company.