If you worry about leaving money on the table when negotiating job offers…or you’re feeling overwhelmed by all the different types of employer equity grants…or you aren’t sure which are the best options for YOU, then you’re not alone! 

Many job seekers struggle to navigate the complexities of equity compensation.

So I sat down with Richard Archer, President of Archer Investment Management to learn how to navigate this often-fraught piece of the negotiation process.

Richard shared relatable stories and practical strategies to secure the equity compensation you deserve.

The following is an excerpt from our conversation. I’ve edited for brevity.

💰 The basic types of equity

Emily: If we could start with a little primer about what types of equity might be included in an offer package…

Richard: Sure. Equity can be offered in a lot of different ways. You can have equity compensation, such as restricted stock, incentive stock options, or nonqualified stock options.

You can also get equity through employee stock purchase plans, which can be incredibly valuable. You also might have employer stock in your 401K. Maybe that’s how they do their match.

Or maybe you’re able to buy employer stock through your 401K. So there are different ways it can show up.

💰 The difference between private and public valuation

Emily: Let’s talk about the difference between private and public companies. I understand there are different options depending on the type of company, and there are benefits to each, correct?

Richard: In general, public companies tend to be larger than private companies.

So when you’re joining a private company, that stock might have a greater probability of a lottery win, if you will, of growing really quickly—as opposed to if you join Apple.

Apple’s stock does very well, but the chance of it tripling in size in the next 10 years is a lot lower than for a company that’s a startup that could get purchased in 3 years for $100M. And if you’ve got 1% of the stock, that’d be amazing.

So that’s one thing. The private stock tends to have more growth potential.

Another thing is that public companies have a market valuation. So when you look on Yahoo Finance or Morningstar, you can see that Apple shares are selling for X dollars right now.

On the other hand, a private company has an internal valuation provided by an internal auditor.

That internal valuation can sometimes be quite stale, especially now. So you have to be careful that the internal valuation they’re projecting for you in your offer is fair.

💰 The importance of asking for current information

Emily: Why would it be stale?

Richard: That’s a good question. Public markets are live. Everything’s valued every day.

But private companies typically submit 409A valuations on an annual basis. So you could have an internal valuation or a 409A valuation that’s 11 months old.

Well, anyone who’s looked at the market in the last 12 months knows that tech stocks have had a really hard time, and that old valuation could be 50% or 75% higher than the actual valuation right now.

We had a client who took an offer at a big tech company that was private.

She based her house purchase decision and acceptance of the job on the valuation provided by HR, which was based on old numbers and rosy projections. Where she thought she was going to have $8M in 5 years is now probably closer to about $1.5M.

She bought this fabulous house here in Texas and is now panicking a little bit because she bought more house than she probably should have, based on the valuation provided.

Keep in mind, this is a new client to us, so we weren’t a party to that decision.

💰 Understanding what we’d give up by leaving our current job

Emily: What are some questions candidates can ask on the front end so they can avoid these big mistakes later?

Richard: The first thing is to figure out what you currently get for compensation and what accolades you’ve had at your current job. That can help you negotiate a better job offer.

Have your history of raises, accomplishments, any teams that you’ve run, or new certifications you’ve earned at your current job. Look at your benefits package, like your 401k summary plan description.

Also include a listing of all current grants, like your restricted stock or stock options.

I had a client who negotiated as a salesperson for a tech company, was moving to a competitor, and had negotiated his entire offer. He had a nice salary coming in. He called me and asked whether there was anything he’d forgotten.

I said, Well, in the next 6 months, you’re going to vest $235,000 of restricted stock in your current company. Did you mention that to your new employer?

So he sent them an email. Within an hour, they gave him a vesting grant of $235,000 of stock in the new company. So with just a simple email, he earned a quarter of a million dollars.

💰 Considering best fit for our lifestyle (It’s not always obvious)

Emily: What are some other ways people can avoid leaving money on the table?

Richard: When you’re negotiating a new job, you want to think about the best type of compensation for you and your situation.

For someone who has a lot of risk tolerance and not a lot of need for cash right now, maybe they want to take more stock options, with the potential of greater earnings in the future. For others who’ve got a mortgage or college expenses, maybe cash is more important now.

We’ve got a client who’s young. He’s a phenomenal engineer, and he keeps getting hired away to new companies. The problem is, he’s too smart for his own good.

He’s amazing, but he gets bored easily.

He jumps to the next company and the next company, and we’ve actually talked with him about taking more cash upfront and less equity, because he’s not there long enough for it to vest.

It’s more valuable for him just to take cash, even though he has the risk tolerance to take the private stock. We just take cash with him and then invest it elsewhere because it just makes more sense for him.

💰 Wait! There’s more!

Listen to the full episode and get other great advice from Richard on:

• Exercising stock options for maximum benefit, including tax considerations.
• Managing the hurdles of sales restrictions and company stock-trading blackout periods.
• Negotiating exit packages and severance benefits on the front end.

Photo credit: Hywards from Getty Images

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