I’ve agreed goals with my employer which if I meet by the end of Q4, I’ll be promoted into a new position. They’ve set a compensation suggestion for this role, but basically suggested that it was open to negotiation. They said they got the number by quickly googling Glassdoor and were a bit surprised it was so low elsewhere. Here’s some more background (trying to keep vague for privacy) before getting into detail:
- B2B SaaS utility & renewable energy startup, nearly 4 years old. - £3-£5m ARR range, almost profitable. Top 5% fastest growing UK. - Between 20-50 employees. Multiple cofounders. Dev team <10. - Many friends and family investors, one large seed, founders still hold >75% of equity. - Poor competition in sector, but those who are ok have some seed funding too. Lots of future revenue streams, high potential for growth. Target is £10m ARR in 2 years. Founders will look for exits sooner rather than later. Company highly acquirable by some FTSE100. - London
Context: - Joined 4yo as a junior full stack. £40k comp, 0.2% equity. Offered role as good friends with founders. 1st employee. No other benefits of note. 21 annual leave days per year. - Now senior at £75k same equity. Deep domain/ sector knowledge from prior experiences, but also from writing most of the code. Established most processes and infrastructure. Even for a new senior experienced dev, catching up with the infra and sector knowledge would take 1-2 years minimum.
Offer: - Head of backend/ data to free up cofounder to be more strategic. Manage team of 3. Responsible for pipelines uptime, data quality, future R&D & design research elements when it comes to new datasets to get. We are a data led company so this is critical. - £85k no extra equity.
Other: - I have £25k of income from other sources per year, so will be pushing over the £100k mark which here in the UK is a trap which means you pay 62% tax rate on every £ over 100k until £125k where it drops back to 47% for every £ over. - I am contributing heavily to pension, but maxed out employer contributions. >30yo (edit: fixed typo), have mortgage in LCOL area (Manchester), no kids but one on the way and married.
Two questions: - What salary feels right to ask for? The stack is in my favour and may never well be so strong for me again. I don’t want to burn bridges as they are friends, but also don’t want to be taken advantage of. There will 100% be a counter offer to consider for. I have an amazing set up with this company, but can afford (financially) to walk away if needed but again don’t want to burn bridges. I also have other ideas to work on in similar sectors if needed. - Equity is handled via EMI. Should I be pushing for more? 0.2% feels low, but have seen advice here suggesting not to take equity. Should I ask for a lower salary to avoid tax brackets but more equity in return? There is no vesting schedule, so only realised on sale & if you leave its at the companies discretion about if you keep your share.
This is quite a US heavy forum, so would extra appreciate other UK perspectives, but any advice is welcome.
If you want equity -- which means that you feel really good about this company's chances -- you want actual non-revocable ownership now. Be entered on the list of shareholders.
"if you leave it's at the company's discretion" means that it doesn't exist unless you are still employed there on the day of a sale. That's not equity, that's not a lottery ticket -- that's the promise that maybe someday there could be lottery tickets. Ask for the actual lottery ticket now, or discount it right down to zero no matter how much they offer you.
Yup. Wish I (and a lot of my ex colleagues) knew that and didn't accept below market salaries with those ESOPs.
We got ESOPs from a USA startup which has an India office (and subsidiary which employed us) and was laid off from the company. A colleague (was laid off) tried to sell it outside and was blocked by startup lawyer. Very soon those ESOPs will expire/lapse (not sure that's the term) if not exercised. Most of us (actually none of us) can reasonably exercise that. Even at that low "strike price" that was offered to us the cost to company alone will be more than 2 years' salary of most of us (for some even more) and then the income tax (and then maybe capital gains tax) will hit us which might actually be more than that strike price amount. It's in USD and we earn/earned in INR - almost ~85x difference as of now (notionally speaking).
The startup doesn't offer to buy it themselves either. They never did. I stayed there for two years and others stayed for 4-5-6 years and they don't allow us to sell it in secondary market either. So yeah, it's lost. Even if we want to, we can't exercise - we simply can't afford it.
So yes, you are so right!
I understand this was junior, and friends maybe helping someone learn on the job to switch careers, and probably a good and fair deal.
But since this is HN, I want to note that 0.2% equity for a first hire experienced full-stack person would be a terrible deal for the employee.
(I'm calling this out on HN, because I often see founders who think they deserve 70%+ equity, while simultaneously thinking that even a key first hire, who to a large extent could make or break the company, and brings skills founders don't have, deserves only 1%-2%, and only in options they'll probably never be able to liquidate. Just yesterday, I walked away from a recruiter pitching a seed-stage first-hire opportunity. The apparently not-very-technical founder needed a laundry list of technical skills, all over full-stack and iOS and ops, at very experienced hands-on level (they asked for no big company small cogs), as the first hire, to un-fudge the MVP they previously tried to contract-out... for below-market salary, and 0.5% equity. I told the recruiter it's ridiculous for the founder to think they deserve two orders of magnitude more equity than this mythical unicorn first hire. Then I had to clarify that I wasn't negotiating, but that (combined with other concerning signs I was previously open to discussing) this looked like definitely a stereotypical bad startup, of a kind that I wouldn't be allowed to fix. Experienced people should just say no to founders who think the company is their creation and their property, and that first/early hires are only commodity gig workers. I hope post-ZIRP VC will destroy most of the people who got away with this kind of thinking, such as with the Potemkin Village investment scam startups. And that we'll eventually heal all the follow-on negative cultural effects this had on the field.)
Thanks for calling it out - we all need more educating on this
With that out of the way, the core thing to consider here is valuation. 0.2% might be small, or it might be life changing money in the case of a sale, in my case at a similar amount of equity it resulted in a deposit to buy a house rather than buying one outright. What does 0.2% translate to at different sale prices, and does it feel like reasonable compensation for the effort you’ve put in? In terms of salary you’re pretty much at the top end of the scale for small startups with entering the C-suite already. You could maybe get another 10k or so, but if you do that forget about extra equity as well.
Secondly, it’s worth considering if you want the extra stress of being a manager. It’s a different skill set, and a different kind of work. Some people love it, others don’t. Personally I spent five years or so gradually working my up the management tiers, by the end the money was great (in the order of £150k a year including bonuses), but I hated every minute of every day. Eventually I decided I’d had enough and took a huge pay cut to go back to writing code all day for a startup, and I’m a whole load happier for having done so.
I transitioned from senior engineer to engineering manager a couple of years ago. Maybe it's just this company, but I feel I enjoyed being an engineer more. Definately less meetings and less stress. Plus when you go to the next job hunt, there are more engineer jobs available.
On the other hand, if you feel that your engineering skills are a bit lacking (no offense intended), but your have strong soft skills, then it would make sense to go this route. The best head of engineering I worked for was a mediocre developer, but his soft skills were amazing.
I’ve tracked a few of those profiles. Startups they joined fail or struggle. I guess that’s how you make money.
The goal is to have an active comparison, “if they just said no to everything here is what I would do and what that is worth to me.” And, you want to know the other party's best alternative, too, because you want to be able to say “I know we can do better than outcomes A and B.”
Negotiations “want” to be zero-sum and you have to constantly prop them up. There's actually strange parallels to this in theology and political science, complex multidimensional things getting collapsed to Left vs Right or God vs Satan and so forth. So we want to focus on one number, the salary, and party X wants it higher but Y wants it lower, now you have a zero sum game.
But the point of negotiation is the multidimensional space. “I want to work with you, we're on the same team here, we both want me to continue at this workplace and flourish...” is possible precisely because the space is not us-vs-them.
It's a little bit of a pipe dream but the ideal negotiation kind of sounds like, “oh, you're not able to pay me more than my manager? OK, what about getting me to be a team lead so that I am on the right trajectory? You don't have a spot for that? Well I have been thinking about starting a family, how about we explore a policy that would make it easy for me to take a chunk of that time off. No? What about these wonderful experiments with the four day work week, do you want to try those? Hum. Well, if we are really stuck on all of those, here's articles about how private companies with ESOPs beat the pants off of other companies, how can we get me some equity? Takes too long? I mean I can wait, just not forever. Want to meet in 30 days and we'll keep in touch on Slack about some of these ideas and float them to senior management?”
(Here notice that the “best alternative” is explicit, “we meet again about my career development in a month.”)
This gets them thinking about you as a market participant and not about how small a raise they can give you. Even if you don't have active offers, understanding your value in the market is really important.
So if you think you can definitely get better offers (even if you don't have one now), that will influence your negotiating position to go for a higher offer.
What do you mean you only get 21 days leave per year? The statutory entitlement you must be offered is 28 days, see https://www.gov.uk/holiday-entitlement-rights
Maybe you’re not including the bank holidays, which an employer can include in the 28 days but this must be clear in your contract.
> will be pushing over the £100k mark which here in the UK is a trap which means you pay 62% tax rate on every £ over 100k until £125k where it drops back to 47% for every £ over. - I am contributing heavily to pension, but maxed out employer contributions.
Your small employer should let YOU contribute more pre-PAYE without any matching. That’s because the employer saves money too as they don’t pay Employer NI tax on the PAYE salary you avoid. If not, you can contribute personally post-PAYE and claw back income tax.
And you probably already know since you contribute “heavily”, but tax bands like 100k are POST pension contribution: if you take in £110k you can put £10k in pension and stay under the limit. You can contribute up to £60k pa and reduce the amount of higher rate (40%) tax you pay, too.
I’d never take equity personally.
20-50 employees making £3-5M ARR does not sound very lucrative to me, either. A nice family business, but not any signal of a business hitting paydirt.
Next, work out where you want to be in terms of comp in a few years, rather than thinking of how to optimise the cash right now. For example, I'd stop worrying about your tax-free allowance gradually disappearing, and instead try to work out how to get it to all be gone. In 5 years, the person who makes £120k is £40k better off than the person who makes £100k, after tax. That... sounds worth it. And it's usually easier for the person who's getting paid £120k to get paid £130k than it is for the person who's getting paid £100k. This is to say, having high tax brackets is a benefit, not a curse.
And then, it's probably worth noting - this isn't directly their money, especially if they're looking to sell. It's probably worth having the conversation of like, 'what would I need to do in order to justify £100k/year?'. Or, alternatively, negotiating on the vesting of your stock, since that's effectively free. If they think the company is going to be sold in the next few years, that's a relatively small giveaway for you. If the company's grown a lot in four years, it's unlikely a significant increase in stock is on the table.
Don't overestimate how long it'd take a good new person to catch up. I've rarely seen a role where a new person can't be effective within 6 months.
Essentially, if I pay you £15k for some services, you pay income tax on that £15k. If I buy you a car for £15k, taxman still wants £15k. Same with equity.
How it can work is that you can be granted shares and pay the taxes at time of granting (which for a founder is zero), but might not be nice for an employee.
You can also give an employee options, and this can get complicated (single or double vest).
But in general, for any equity instrument in a stock plan, you get charged income tax at one stage, then capital gains at a later stage, and you can trade off when you want to trigger each. In this case, employer has gone for a model where income tax is deferred as late as possible.
I worked in Munich, Germany for a while, and at least there, the average salaries (or even calculated recommended salary based on yoe, degree, tech stack, etc) on payscale, glassdoor etc were always significantly lower than what I've seen in real life... My friends' salary were higher, my salary was higher, the other offers were higher, the salary all my friends recommend me ask were higher etc...
And none of my friends were in a rare niche, none of them were FAANG, none of them had unique skills or background, and still...
I can only speculate as to why this is (not enough data, biased data, fake numbers, business model of the website is biased towards showing low numbers, my friends and I are better than average, who knows) but it's something worth keeping in mind.
generically, people are more likely to post on these compensation-sharing websites when they have gripes about compensation.
there's also the fact that many people take FAANG offers without negotiation (equity was often heavily negotiable) and you're looking at the average of a leftward-biased sample of a wide distribution.
There's also the growth factor consideration that probably isn't implemented by those websites. As in, salary data from several years ago might be not be adjusted for inflation and have the same weighting as recent salary data.
Half the time, the websites can't even gather salary info from job posts and rely on estimates despite having hard data.
What this can do is that less savvy users might not notice the estimated data tag and use the lower range in negotiations, which could ultimately lower starting salaries for workers moving forward.
I've written job boards before about this, but of course they aren't going to change anything as it isn't in the their best interests.
Treat equities like a lottery ticket, don't even consider it in your calculations. Most times it amounts to nothing, which will be especially true in this economy, if you ask me.
Great that you are maxing pension. Over 50k you should really put as much as you can in pension and more - as you are taxed 40% (which is insane as well, if you ask me).
My strategy for being over 100k was doing everything through a limited company.
Consider working through a limited company so you can: - Keep income in the company and defer income taxes (potentially to a future time when you are in a country with 0% tax on dividends or when you stop working and have low income for a year) - Charge expenses - Consider VAT Flat rate to pocket a few more quids (this is if you don't have expenses) - Do investments (stocks, real estate + charging rent) as a business before paying income tax - Hire your wife if she's not working - Withdraw a small amount of tax free dividends (it used to be 5k once, now it's down to 500) and I think it may be beneficial to withdraw some more dividends at a low rate over salary to reduce your nhs contributions - Other income can also flow into the company
Unfortunately you have the IR35 crap to check, so make sure all parties are ok with those terms over FTE. I personally never had problems getting roles below VP of Eng as a contractor but it depends on what managers think. The way of the remote contractor with multiple clients can also be quite lucrative (way more than a FTE)