Author Topic: Offered equity + a raise to stay. Thoughts?  (Read 2340 times)

zolotiyeruki

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Offered equity + a raise to stay. Thoughts?
« on: September 08, 2018, 07:43:25 PM »
tl;dr: Got a job offer, current boss countered with a pay raise and equity stake. What do I need to watch out for?

Long version:
I work for a startup (<10 full-time employees), and play a major role in product development.  While I really enjoy the work I do, there are a couple aspects of the job that have come to bother me:
1) I didn't get any raises for three years, and when a raise came, it was for 5%, so basically <2% per year
2) I have the misfortune of living in Illinois, where tax rates are high and rising, and schools are underfunded and getting worse.

So earlier this year, I started half-heartedly looking for work in a place closer to DW's family and with lower taxes.  I landed a few interviews, and about a week ago, I got a job offer.

My current boss, when I started interviewing, requested that if/when I got a job offer, I allow him an opportunity to counter.  I told him about the offer I received, and the next day he presented me with this counter offer:

1) 5% higher salary than whatever the other company is offering (8% higher than my current salary, and 14% higher than I was making 6 months ago), and
2) some equity in the company, vested over two years

He plans to sell the company in 2-3 years, and this has never been a secret.  I'm currently 37, with a plan to FIRE at 51.  With my equity stake, and with the growth rate we're seeing and expecting, that sale would make me comfortably FI at age 40.  Naturally, his has a certain appeal to it.

But before I run off and sign the agreement, I'd like to solicit some feedback.  I know it's possible for the equity to be worth $0 in a few years if things turn south, but I'm not being asked to take equity in lieu of salary.  There are no strings attached, other than losing some or all of that equity if I leave in the next two years. 

Has anyone here had a similar experience?  Are there caveats or pitfalls I should look out for? 

singpolyma

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Re: Offered equity + a raise to stay. Thoughts?
« Reply #1 on: September 08, 2018, 07:59:56 PM »
Private equity? Wouldn't count it at all in your evaluation. Would you stay for just the offered salary bump?

zolotiyeruki

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Re: Offered equity + a raise to stay. Thoughts?
« Reply #2 on: September 08, 2018, 08:03:18 PM »
Private equity? Wouldn't count it at all in your evaluation. Would you stay for just the offered salary bump?
Yes, it's a private company.  Why wouldn't you count it at all? I don't mean to be argumentative--rather, I want to understand your reasoning.  I would probably stay for the salary bump, yes.
« Last Edit: September 08, 2018, 08:31:39 PM by zolotiyeruki »

COEE

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Re: Offered equity + a raise to stay. Thoughts?
« Reply #3 on: September 08, 2018, 08:34:25 PM »
I'd go for the new company.  You started looking for a reason.  Apparently you didn't enjoy your current company enough or weren't being paid enough or you really want to move closer to your MIL.  They also showed you that they didn't value you enough by not giving you a raise until you were halfway out the door.

5% more than your new offer isn't really all that much.  Your boss is trying to minimize damage and keep key players without keeping them happy to begin with - I wouldn't want to work for him.  Chances are that the equity will never be worth anything.  Most startups fail.  Most startups fail.  Most startups fail.  Most startups fail.  Remember that.  Repeat that to yourself often.  Ask yourself if your company is in the small percentage that will make it?  Answer that honestly.  Even if profitable today, probably not in the future.  Many startups look promising and are able to get VC, but fizzle out in the long run. 

Joel

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Re: Offered equity + a raise to stay. Thoughts?
« Reply #4 on: September 08, 2018, 08:36:04 PM »
I would counter with a more significant bump. Thatís pretty weak that the the boss isnít proactive about paying your worth upfront.

fuzzy math

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Re: Offered equity + a raise to stay. Thoughts?
« Reply #5 on: September 08, 2018, 09:03:28 PM »
Its a 1 in a (hundred? thousand?) million shot I suppose but still a shot that could make you rich. At worst you would be making more by staying than by leaving. How do the benefits compare?

I understand wanting to leave IL, but if this doesn't make you rich by 40, can you still move to cheaper and greener pastures? The idea of possibly cutting my FIRE path shorter by 10+ years would be pretty enticing, although I know its not guaranteed.

Sad sob story about my BIL: he was offered a job at a data start up when it was  < 10 people. He was going to come on somewhere # 4-7. The job offer included some sort of equity in the company roughly 2-4%. He and his wife balked at that amount and he took a job with a large (non IT) company looking for his data specialty. He was laid off a year later. He called the start up back and they were still interested in him. They'd grown to ~ 25-30 people and were possibly offering him 0-1% equity. He was so upset about the lowered amount of equity that he didn't take the job the second time either. Took another job at a non IT company, and now he outsources this same start up to do a lot of his data work. I believe he was still talking to them about working remotely a couple years ago, but at that point they'd stopped offering equity and it was an even bigger gut punch. They were bought out by a public mega corp a while back and the equity alone would have made him a millionaire.

How long has this start up been open? < 10 people isn't very much. For a company to become worthwhile in terms of equity they've got to have huge continual growth and get noticed by the big dogs with the big $$.

tawyer

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Re: Offered equity + a raise to stay. Thoughts?
« Reply #6 on: September 08, 2018, 09:06:49 PM »
In general, you should never take a counter offer from current employer: you have indicated your dissatisfaction, and taking their counter offer just gives them time to find your replacement and kick you to the curb when it suits them. Why did you tell your boss you were interviewing?

I agree with singpolyma: private equity has no guarantee of ever having any value, so I ignore this.

I also agree with Joel: your boss is nickel and diming you by not even giving an annual raise in line with inflation, effectively paying you less until recently. This boss is playing a zero-sum game and is not worth working for.

All that being said, you stated that this is your first job offer. I don't know about where you live, but where I live the job market is hot right now, so how about taking the raise and equity for now, and holding out for a better offer?

mrmoonymartian

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Re: Offered equity + a raise to stay. Thoughts?
« Reply #7 on: September 08, 2018, 09:30:31 PM »
Cashflow is difficult to manage in a startup. Your low wage growth and the offer of equity to keep you can be seen in this light. I would not judge the boss too harshly for trying to manage this tricky situation as best they can to stay solvent while retaining the talent that is needed to make the business succeed.

I would take the opportunity if it was me. Help the local business grow, and you will be indirectly enabling lower taxes and better-funded public schools in the long run. Don't run from the problem. Be part of the solution.

Indio

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Re: Offered equity + a raise to stay. Thoughts?
« Reply #8 on: September 08, 2018, 10:50:17 PM »
With a 4% unemployment rate, I think you can do much better on both offers.

If you want to stay at current job, ask for half of the equity/options that are being offered to vest in year 1 and other half in year 2. The owner knows that it will be hard to replace your position and will likely take at least a year in this tight job market so this will delay his plans to sell until revenue can catch up to the multiple he is looking for. I would also ask for a higher raise.  Tell him that being close to family was going to save you money so he will have to make up for it.

At this point, you have nothing to lose with countering his counter. Just be careful that the equity that is being offered fully vests when company is sold and doesn't have some delay till after you work for new owner for 12 months or some other shenanigan.

zolotiyeruki

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Re: Offered equity + a raise to stay. Thoughts?
« Reply #9 on: September 08, 2018, 11:03:22 PM »
Thank you all for you responses thus far. I feel like I should clarify a few points:
1) This venture started R&D about 4 years ago, the product hit the market about 2.5 years ago. It hit profitability in its second year of sales (2017). I can't predict the future, but I think it's not unreasonable to think that it will succeed.
2) I am already pretty well-paid, so while the lack of a salary increase was irksome, the actual salary amount was not.
3) I have a very good relationship with my boss. Literally the only things that have bothered me about this job are the location and lack of COLA. Everything else, I love. That's why my job search has been so lackadaisical.  I'm sure I could find a software developer job in the city (and I've had numerous recruiters call me for positions there), but that would entail three hours of commuting each day.
4) the other job offer is for a salary slightly higher than my current salary, but with fewer benefits (current job pays for 100% insurance premiums, new job is about 50%), but then again potentially greater career growth.
5) if I accept this counter, I can still walk away at any time, I'd just give up some or all of the equity stake if I left before the 2-year mark

@Indio - the proposal does split the vesting across the two years, just like you said. Thanks for pointing out things I would have to look out for.

Indio

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Re: Offered equity + a raise to stay. Thoughts?
« Reply #10 on: September 09, 2018, 08:24:25 AM »
With everything you said, negotiate in the valuation of the equity before you accept the counteroffer.

Jon Bon

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Re: Offered equity + a raise to stay. Thoughts?
« Reply #11 on: September 09, 2018, 10:42:17 AM »
In general, you should never take a counter offer from current employer: you have indicated your dissatisfaction, and taking their counter offer just gives them time to find your replacement and kick you to the curb when it suits them. Why did you tell your boss you were interviewing?



Because his boss offered him a raise?

I mean this is all situational. Sometimes telling your current employer is a great idea, sometimes a terrible one. You don't get what your worth, you get what you negotiate. Sounds like you let your boss know you want to get what you are actually worth, and he is willing to give it too you.  I can't speak the the equity, but it sounds like the right call to heavily discount it or ignore it completely when it comes to your valuations.

However, this is the best job market in a long time, it would be a good time to find a new gig.

Let us know what you decide!


BigMoneyJim

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Re: Offered equity + a raise to stay. Thoughts?
« Reply #12 on: September 09, 2018, 10:46:38 AM »
I agree with the folks cautioning against staying. The employer didn't up their compensation until you threatened to leave, and now they know you can and will. Don't count on the equity stake. That's a really dubious offer in a small private startup.

Basically once I decide to make a change I follow through with it.

starbuck19

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Re: Offered equity + a raise to stay. Thoughts?
« Reply #13 on: September 09, 2018, 01:03:55 PM »
Do you have any equity vested already? Since it's such a small company and you've been working there for a while, I assume you should have some vested already. If you do then by leaving you're diversifying your risk as you'll keep the vested equity and potentially cash in (somewhat subject to dilution and whatnot) if your company does get acquired.
Alternatively if you don't hold any equity now, you could take your employer's offer and then leverage the unvested equity against a public company's job offer to get public stock.

The not giving you a raise until you had another job offer is pretty bad form on your employer's part IMO, it reads to me as they don't value you enough to keep you happy unless someone else wants you. Waiting until your employee is unhappy enough to be interviewing someplace else is pretty bad management.

Goldielocks

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Re: Offered equity + a raise to stay. Thoughts?
« Reply #14 on: September 09, 2018, 01:16:05 PM »
Money wise, it sounds roughly equivalent... Although DH and I have received 7 "equity / stock" positions in our careers and only one paid off (somewhat, maybe $20k).  He worked for several startups.

Rather, evaluate it on lifestyle, family, relationships
-- where do you want to work? Do you want something new?  Closer to family sounds like a "yes", lower COLA would make a big difference to your FIRE goals, too.


tawyer

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Re: Offered equity + a raise to stay. Thoughts?
« Reply #15 on: September 09, 2018, 02:22:16 PM »
In general, you should never take a counter offer from current employer: you have indicated your dissatisfaction, and taking their counter offer just gives them time to find your replacement and kick you to the curb when it suits them. Why did you tell your boss you were interviewing?
Because his boss offered him a raise?

No, that would violate cause and effect and thus doesn't make sense. The OP states that current boss made this proposal before any offer had come into play:
My current boss, when I started interviewing, requested that if/when I got a job offer, I allow him an opportunity to counter.

Gone_Hiking

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Re: Offered equity + a raise to stay. Thoughts?
« Reply #16 on: September 09, 2018, 04:30:40 PM »
Let me get this straight: they nickel and dime you for a few years and now, that you have chosen to fire them, they suddenly remember you are valuable?  Look, I get it: small startups never roll in dough and don't pay nearly as much as people think.  Your boss's offer is a panic response to your departure and with this, you need to be the adult in the room and walk away without burning bridges. 

Accepting a counter offer rarely ends well.  First, regardless whether you told your boss you were looking or not, your boss will now start looking for someone to replace you and let you go on his schedule, not yours.  Second, your new employer now knows that you were gaming somebody and you've burned bridges with them without even working there.

My advice is to take the new job.  If the startup really wants you back, they will want you back after a couple of years with the new employer and added experience.

Syonyk

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Re: Offered equity + a raise to stay. Thoughts?
« Reply #17 on: September 09, 2018, 05:54:18 PM »
So earlier this year, I started half-heartedly looking for work in a place closer to DW's family and with lower taxes.

Do you like your wife's family, or does she want to move closer and you don't particularly care?

I took a fairly massive pay cut (and lost quite a bit of stock grants) a few years ago to move closer to my wife's family - like, they gave us a few acres from their property, and we're about a 3 minute walk away.  I think it was totally worth it, but I also really, really like them, and we wanted to move to raise kids closer to family/out in the country.  I walked away from a Seattle wage to more of a part time remote work wage, but we were both miserable in Seattle and didn't like it at all.

Quote
He plans to sell the company in 2-3 years, and this has never been a secret.  I'm currently 37, with a plan to FIRE at 51.  With my equity stake, and with the growth rate we're seeing and expecting, that sale would make me comfortably FI at age 40.  Naturally, his has a certain appeal to it.

How likely do you think it is that the company will sell in 2-3 years for an amount that makes you FI?  How does that compare to your projections for moving to the new position?

IMO, 3 years for a "pretty darn good" shot a FI is worth it.  Even if it's only 50%, if you don't mind what you're doing, I'd stick around for that chance.

Quote
Has anyone here had a similar experience?  Are there caveats or pitfalls I should look out for?

I'd try to negotiate a somewhat higher salary bump, personally.  If they're trying to keep you, make it worth your while to stay.

They were bought out by a public mega corp a while back and the equity alone would have made him a millionaire.

Yeah, but for every situation in which that's the case, there are an awful lot of people who have worked for years for low salaries and lots of equity, only to find out that it's worthless paper at the end.  You win some, you lose some.

zolotiyeruki

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Re: Offered equity + a raise to stay. Thoughts?
« Reply #18 on: September 09, 2018, 06:53:17 PM »
Syonyk,  I get along great with my in-laws.  The job offer wouldn't be super close to them, but would make visits easier. Think 3 hours of driving instead of 20.

As for the odds of a sale happening as planned, I think the odds are reasonably good. And it's not necessarily a binary thing--the company could sell for half the hoped-for amount, and we'd be 5 years closed to FI than earlier planned.

Syonyk

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Re: Offered equity + a raise to stay. Thoughts?
« Reply #19 on: September 09, 2018, 07:03:46 PM »
Given that, I'd stick it out for another few years.  Unless you really don't like where you live.

... not that I'm any good to listen to on that front.  Definitely could have retired a lot earlier had I stayed, but quality of life is way better with the move.

mm1970

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Re: Offered equity + a raise to stay. Thoughts?
« Reply #20 on: September 10, 2018, 11:29:33 AM »
Money wise, it sounds roughly equivalent... Although DH and I have received 7 "equity / stock" positions in our careers and only one paid off (somewhat, maybe $20k).  He worked for several startups.

Rather, evaluate it on lifestyle, family, relationships
-- where do you want to work? Do you want something new?  Closer to family sounds like a "yes", lower COLA would make a big difference to your FIRE goals, too.


This is what I think.  You mention schools, etc.

How far will you be moving?  Do you have children?  At this point in my life I would hesitate to move and uproot my children.  I mean, I'd do it, but I'd avoid it if possible.

zolotiyeruki

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Re: Offered equity + a raise to stay. Thoughts?
« Reply #21 on: September 10, 2018, 03:50:05 PM »
Money wise, it sounds roughly equivalent... Although DH and I have received 7 "equity / stock" positions in our careers and only one paid off (somewhat, maybe $20k).  He worked for several startups.

Rather, evaluate it on lifestyle, family, relationships
-- where do you want to work? Do you want something new?  Closer to family sounds like a "yes", lower COLA would make a big difference to your FIRE goals, too.


This is what I think.  You mention schools, etc.

How far will you be moving?  Do you have children?  At this point in my life I would hesitate to move and uproot my children.  I mean, I'd do it, but I'd avoid it if possible.
Yes, we have kids. Mostly homeschooled, but they attend a couple classes at the public schools.  Our oldest two (13 & 12) would have the toughest transition, but I'm confident they'd be able to make the adjustment.  The rest of the kids would do fine.  It would be a move about 1400 miles west of where we are now.