Total Compensation Is A Lie

There’s been a trend emerging in the job market that is actively hurting job seekers in ways that may not be immediately noticable.

Fanned-out roll of twenty dollar bills on a red background
Photo by Dan Dennis on Unsplash

More like a half-truth

As someone who has been actively job-seeking for the past few months (thanks layoffs!), and having been involved in hiring and recruting tech talent for long before that, there’s been a trend emerging in the job market that is actively hurting job seekers and benefitting companies in ways that may not be immediately available: negotiating offers in terms of “total compensation”.

For those who aren’t up and up with the terminology or maybe haven’t had the misfortune of being suddenly laid off and need to find a new job ASAP, the concept of total compensation (or “total comp” as I’ll be referring to it) is basically the total dollar value of the entire compensation package in an offer: base salary, bonus, and equity/stock all rolled into a single number. On the surface, this might seem innocuous, but companies are smart and are finding ways to abuse this to benefit themselves and avoid paying engineers what they’re worth. For illustration, let’s take a look at two hypothetical [but fairly typical] comp packages for the same position at two different companies:

Foo Industries

Base Salary: $150,000
Bonus: 20% annual based on company performance
Equity: 1,000 RSU @ $70/share (pre-IPO)
Total Compensation: $250,000

BarBazTech

Base Salary: $100,000
Bonus: 20% annual based on individual performance
Equity: 5,200 [email protected] $25/share (pre-IPO)
Total Compensation: $250,000

Both offers have the same amount of total comp but the actual take-home pay is wildly different. Looking closer we can see that BarBazTech has opted for a lower base salary in lieu of a greater equity/stock award. For a small startup, this might make sense — cash flow is hard to come by, and rewarding early hires for sticking with the company by giving them lots of equity makes sense, especially if you can afford that route early on.

But.

Companies across the board are doing this now, too. While the total comp numbers might stay the same or even be rising, the actual base pay numbers are falling. What they’ve figured out is candidates who are willing to negotiate based on total comp cost them less than candidates who negotiate on base pay. Especially for pre-IPO companies, their equity value is based on a company’s valuation, which can be wildly subjective and even completely made up. So, in a sense, giving out more equity is like printing money and it doesn’t really cost them a thing to do it. But you, as the candidate, are losing out on real money by accepting a lower base. But not only that, you’re shorting yourself and devaluing your contribution to the company. The traditional thinking is that your contributions will help raise the share price of the company, and being rewarded in equity is a way of investing in your own work. But that doesn’t really hold true anymore. A developer on a team of 200 other developers would have to take some pretty drastic steps to impact the share price alone, whereas the CEO or President of the company just has to get on TV and say the right [or wrong] things to directly affect the share price (or valuation of the company). Those in visible leadership have an outsized impact on the value of the “money” you’ve been given…how much do you trust your senior leadership?

My advice to you is this: always negotiate the highest base pay you can get. Bonus and equity are nice, and if you can get a good bonus percentage and a good haul of shares, do it, but always focus on base pay. That’s the money that is going to come home in your paycheck on a regular basis and is the least volatile. If you really want to hold stock in a company, most places have some sort of stock purchase plan or system where you can buy equity in the company — do that. But always prioritize your take-home pay over imaginary “maybe, someday, hopefully” money you don’t have.

You can’t pay your bills with equity.