Negotiating Equity Compensation

Friend: "I got an amazing offer! 50,000 shares!" Me: "What's the total outstanding shares?" Friend: "Um... I don't know" Me: "What type of shares are they?" Friend: "Not sure..." Me: "When can you sell them?" Friend: "I should probably ask..." I've had this conversation at least seven times in the last year, and here's the playbook I usually share with those friends. 1/ Understand the type of equity Not all equity is created equal: ↳ RSUs are actual shares that vest over time ↳ Stock options let you buy shares at a set price ↳ Preferred vs common stock have different rights 2/ Know your vesting schedule The classic is "4-year vest with a 1-year cliff" Translation: You get nothing if you leave before year 1 Then you get 25% after year 1 And ~2% each month after But don't assume this is standard. Always ask: ↳ What's my vesting schedule? ↳ Are there acceleration clauses? ↳ What happens in an acquisition? 3/ Get the full picture before discussing numbers Ask for: ↳ Total shares outstanding ↳ Latest 409A valuation ↳ Investor preferences ↳ Prior funding rounds ↳ Expected exit timeline 4/ Model different scenarios Don't just focus on the "we IPO at $10B" dream. Model out: ↳ Down round ↳ Flat round ↳ Modest growth ↳ Hyper growth ↳ Acquisition 5/ Understand the downsides If you're getting options, know that you might have to: ↳ Pay to exercise them (could be $$$$) ↳ Hold them for years before selling ↳ Pay taxes before seeing any gains ↳ Lose them all if you leave too soon 6/ Negotiate the details, not just the number Key terms to discuss: ↳ Early exercise options ↳ Extended exercise windows ↳ Acceleration triggers ↳ Refresher grants ↳ Tax implications 7/ Plan for the "what ifs" ↳ What if the company gets acquired? ↳ What if I need to leave early? ↳ What if the next round is a down round? Pro tip: Email these questions to the recruiter. Create a paper trail. Get the answers in writing. Remember: Equity can be life-changing. But it can also be worth zero. Your job isn't to be optimistic or pessimistic. It's to be realistic. What other equity negotiation tips would you add?

3 things every People leader should negotiate before accepting their next offer. At the executive level, negotiating a smart package is about more than getting a market competitive salary. It’s about aligning on a set of terms that incentivize you to drive business success while providing a safety net for you and the company both if things don’t work out. Here are 3 things every People leader should ask about — and how to do so effectively — before accepting their next role. Equity While nothing is ever guaranteed, the right equity package can make you a millionaire overnight. If your company makes it big, you don’t want to be kicking yourself over losing out on a smart equity package. Explore guarantees that protect your equity while incentivizing you to optimize for the company’s success: - Single or Double Trigger Accelerations: To protect your stock if the company gets sold before you finish vesting - Extended Exercise Window: To buy yourself more time to exercise vested options post-departure  - Equity Top Ups: To protect against dilution during funding rounds Bonus Smart bonus plans don’t just focus on the dollar amount awarded, but the structure they’re built around. Consider: - Guarantee language to cover periods of approved leave, especially parental leave - Signing bonus — especially if you’re walking away from a hefty bonus at your current company and/or taking a big risk switching to an earlier stage startup - Annual bonuses tied to business metrics — to round out your total comp package while signaling that you prioritize business success over team-specific metrics Exit Plan Think of it like a prenup. You’re going into this with a confident outlook, but if things don’t work out, you want to have a smart plan in place *before* things get messy — not after — to ensure a smooth and mutually beneficial transition. Ask about: - Guaranteed COBRA coverage - Guaranteed salary payouts  - Guaranteed transition period where you stay on payroll as an advisor or consultant vs an abrupt departure — better for optics and enables smoother handoffs As with all things, the key to effective negotiation is being thoughtful in your framing. You want to come across as business-savvy, not out of touch. It’s the difference between pushing for an unrealistic bonus structure that would put the company financials at risk and pushing for a bonus structure that hinges upon the company’s ARR goals — you only win if the company wins. And remember: These discussions shouldn’t stop at the offer letter. Roles evolve, expectations expand, and company realities change. Smart execs revisit these terms over time. Want to learn more about what to negotiate, how to frame your asks, and what is (and isn’t) realistic depending on company size, stage, and industry? Check out my negotiation cheat sheet below. 👇 #hr #people #compensation

You’re negotiating your job offer all wrong… Most people hear “we’re offering you equity” and assume it’s a great deal. It might be—or it might be worthless. The difference? How you negotiate it. Step 1: Gather Intel First When they mention equity, don’t rush to accept. Instead, ask: • “How do you typically structure equity grants for this role?” • “What would need to happen for the equity offer to be adjusted?” • “How do you determine refreshers and future grants?” These questions keep them talking and reveal flexibility. Step 2: Uncover the Real Value Numbers alone don’t mean much. Push for details: • “How should I think about the value of this equity?” • “What happens to my shares if the company is acquired?” • “How has the company’s valuation changed over the past three years?” Watch for red flags in vesting schedules, strike prices, and liquidity risks. Step 3: Reframe the Offer If they say, “This is our standard package,” respond with: • “How am I supposed to feel confident in that without knowing its future value?” • “I imagine you want top talent fully invested—how do we make this a win-win?” Then anchor high: “I was expecting something in the range of 20,000 RSUs—how far off are we?” Step 4: Use Tactical Empathy If they resist, show you understand their constraints while guiding the conversation: • “I get that budgets are set, but what flexibility do you have on refreshers?” • “What’s the path to a larger grant if I perform at a high level?” The key is keeping them engaged, uncovering flexibility, and making them feel like they’re solving the problem with you—not against you. Have you negotiated equity before? How did it go?

Your $400k offer might actually be a $250k offer. And it's not because you negotiated badly. It's because no one showed you what could happen to that equity two years later. At most tech companies, equity is what turns a good compensation package into a great one. But that number on your offer letter is a snapshot and not a guarantee. Your RSU grant is priced at the stock on your start date. If the stock drops, your actual take-home drops with it, even though nothing about your "package" has changed. This just played out publicly with Snowflake. Snowflake reported $1.71 billion in stock-based compensation last fiscal year while still posting billions in GAAP net losses. Investors have taken notice, increasingly scrutinizing SBC as a real cost. Snowflake's stock has fallen over 55% from its 2021 peak of ~$400 to around $175 today. For engineers who joined near the peak, the impact is real. A $200k/year RSU grant at $400/share is now worth roughly half. Their title didn't change. Their base didn't change. But their actual compensation did. What's interesting is what we found digging into the data on Levels.fyi. When we looked at new offer data at Snowflake and controlled for level, Senior SWE packages have actually held steady and even grew a little from ~$453k in 2022 to ~$500k in 2025 despite the stock dropping nearly 50% in that window. That means Snowflake is granting significantly more shares per engineer to keep packages competitive. That's likely a major driver behind the $1.71B SBC figure investors are raising alarms about, and it creates a dilution cycle that can eventually pressure headcount. The contrast is telling. Netflix, with their flexible comp model allowing for full cash packages has maintained stable Senior SWE compensation around $500k for years. Not necessarily the industry standard, but it still meant no vesting surprises, and no dilution math. Much easier to forecast what your compensation will look like a couple years out. The takeaway: when evaluating an offer, it's important to not treat equity as guaranteed income. Check what people are actually earning over time and not just what an offer letter said the day it was signed. Levels.fyi has data from existing employees and from new offers, meaning you're able to get a live pulse on what people are making after stock swings like this one, and also what they're discussing at the negotiation table. View live compensation trends and salary data for Snowflake and others on Levels.fyi: https://lnkd.in/gKyCnBMv And, if you’re in HR and are interested in deeper dives, check out our Levels.fyi, data explorer tool where you can query our data to generate visualizations based on your specific questions here: https://lnkd.in/gHYZXTSf

Asked for a 30% hike, got only 7% → RESIGN? I've felt that impulse too. But hold on, let's look deeper. From the management's side, salary decisions aren’t always about performance alone. They're often about managing optics and budget constraints. Engineering payroll, especially senior-level roles, is closely scrutinized because it’s one of the company's largest fixed costs. When you ask for a 30% hike, the question in the CEO or CTO's mind isn’t just about your worth, it’s about how they'll justify that increase when everyone else is getting around 7-10%. So, here’s a better approach: Instead of negotiating purely around salary ($$$), offer management multiple options: 1. If they can’t match your salary expectation (30%), ask for equity or increased ESOPs. Equity has a softer impact on immediate cash flows, and your success ties directly to the company's growth. 2. If equity isn’t possible, ask for a one-time performance bonus. Bonuses are typically easier to justify than salary hikes because they’re non-recurring. 3. If not a bonus, negotiate for a higher-level title or clearer career path (e.g., Principal Engineer → Staff Engineer/Engineering Fellow). This improves your market value and can unlock further opportunities. 4. If a title change isn't feasible, request flexible work arrangements, more WFH days, or hybrid options. Better flexibility can improve your work-life balance without additional payroll burden. 5. If flexibility isn't viable, ask them to invest in high-value certifications, conferences, or leadership training. Upskilling is beneficial for you personally and signals continued growth to your employer. 6. If training isn’t available, request a salary review again in 6 months, clearly setting milestones. This makes the discussion concrete and actionable. 𝗡𝗲𝗴𝗼𝘁𝗶𝗮𝘁𝗲 𝗗𝗲𝗲𝗽. Don't limit negotiations strictly to your salary, think holistically. Know your value, know your priorities, and structure your negotiation accordingly.

Engineer's 1% startup equity was "worth" $500K on paper. After dilution, preferences, and exercise costs, he owed $15K. He literally paid the company to work there for 4 years. This is how the equity game actually works. Day 1: Seed Stage "You're getting 1% of the company!" Year 1: Series A cuts you to 0.7% Year 2: Series B drops you to 0.4% Year 3: Series C shrinks you to 0.2% Final year: Option pool expansion leaves you with 0.1% But wait, there's more. Company exits for $50M. Your 0.1% should be worth $50K. Except: - Investors get their money back first - Then they get their liquidation preference - Next they split what's left with common shareholders - You're dead last in line Your $50K becomes $20K. But you still need to exercise your options to get anything. Exercise cost: $35K. Pay $35K to receive $20K. Net result: You owe $15K. Four years of 70-hour weeks. Months of below-market salary. Endless believing in the dream. The company keeps your forfeited equity. Issues new options to your replacement. At the same strike price. Runs the same playbook again. Meanwhile, your college friend who took the FAANG offer: - Made $300K more in salary over 4 years - Got $150K in stock that actually vested - Works 40-hour weeks - Sleeps at night The startup equity system works exactly as designed. Designed to extract cheap labor from smart people, while making you feel and work like an owner. 98% of startups exit below $50M. Most don’t exit at all You’re paying to work overtime for a lottery ticket. The house always wins. Imagine working for free for four years. Then paying $15K for the privilege. Take the money. Buy actual lottery tickets if you want to gamble. At least those don't require 70-hour weeks and a $35K exercise fee.

“We sold the company for $50M… but after six years, the four founders walked away with just $8M total.” Yes, $2M each sounds good. But after six years, it was less than they would’ve made in Big Tech compensation packages—plus equity upside. Here’s what destroyed their real exit payoff: participating preferred, with a 2x multiple. At the time, it felt like a small technical detail. At the exit, it became a black hole. Here’s how the math played out: • Raised $15M at a $20M pre-money valuation (investors owned 43%) • Term sheet included 2x participating preferred • Sold the company for $50M Payout waterfall: • Investors first pulled out 2x their money = $30M • Remaining $20M was split based on ownership: • Investors took 43% of $20M = $8.6M • Founders and team got the balance: $11.4M After taxes, and after paying out early employees, the four founders split around $8M. This is the dark side of “successful” exits nobody warns you about. The announcement looks great. The founders? They’re wondering if it was all worth it. Fast primer: Participating vs. Non-Participating Preferred • Non-Participating Preferred = Investors pick: their liquidation preference or their ownership percentage (not both). • Participating Preferred = Investors get both. • Adding a multiple (like 2x or 3x) turbocharges how much they take first—before founders see anything. And it gets worse. Layer in compounding dividends (8% annually), and these deals bleed even more founder equity over time. I’ve seen exits where investors made $140M on $50M invested—and the founding team walked with scraps. Lesson: Treat liquidation preferences like real debt. Read your term sheets like your life depends on it—because it does.

Will you make money as an employee at exit? Do the math. Dilution and liquidation preferences and are two things that most employees don't understand. 1️⃣ First, let's look at dilution. If you get 1% equity in your job offer and later on, the company raises $20M at $100M valuation, then it's a 20% dilution. So your equity becomes 1 * 0.8 = 0.8%. This happens every round. Assume that the company dilutes 20%, 20% and 15% over three rounds. So your 1% can become = 1 * 0.8 * 0.8 * 0.85 = 0.54% Carta benchmarked average equity across first hires in 2024 as shown in the image. ------- 2️⃣ Then comes the surprise. Enter Liquidation preference. In a bad market, or in a startup with a lower hand, investors hedge their risk though preferred exit clauses. This means if money is made, they will be given the exit on a preferred basis. Assume the company does 3 rounds of raises with following liquidation preference. Series A of $20M: 2X participating preferred Series B of $50M: 3X participating preferred Series C of $100M: 2.5X participating preferred If a company exits at $750M, investors have the first right of getting paid. Series A investor will get $20M*2 = $40M Series B investor will get $50M*3 = $150M Series C investor will get $100M*2.5 = $250M Total money preferentially allotted = $440M Total money left = $310M Your diluted 0.54% is not on $750M but on $310M which is $1.674M. ------ The company has to sell for MORE than investor preferences before employees see anything. If the company sells for less (in this example, assume things go bad, and the company sells for $440M or less), employee share will become zero because nothing is left to be distributed after preferential distribution. So even though the company made an exit, you don't get a penny. High percentage of nothing = nothing. Low percentage of something = almost nothing. If you're betting 4-5 years of below-market salary on an outcome, do the maths. VCs know this. Founders know this. Employees are the last to figure it out. This is the risk you take for the potential upside as an early stage employee. Risk is fine as long as you're aware of the probability that you will not make money. Share it with someone who needs to understand this.

Only a few founders prepare for the control they’ll lose along the way. Raise too little → you stall out. Raise too much → you give away the company. That’s the dilution paradox. Raise early and often? • You lose leverage • Investors set terms • Cap table crowds fast • Future rounds get harder Wait too long? • You miss market windows • Burn rate eats you alive • Growth slows • Competition passes you by Both paths come from the same pressure: Trying to build something great—without enough capital. The answer isn’t avoiding dilution. It’s understanding how to manage it. Smart equity strategy looks like this: ✓ Clear ownership targets at each stage ✓ Realistic valuations backed by traction ✓ Balanced use of equity vs debt ✓ Pro formas showing dilution impact ✓ Rights that protect founders ✓ Investors aligned for the long term This is how founders scale with speed and strategy. Without waking up one day with 12% of their own company. The best founders don’t just raise capital. They protect their seat at the table while doing it. What’s your biggest dilution lesson so far?

Fundraising isn't one decision. It's six different games. And the terms you sign at seed will cost you 15–20 points of equity by Series B if you don't understand the compounding. Most founders don't realise until it's too late. Here's what changes at each stage: 1. Pre-seed, they're pricing the team. Check: $250K–$1M. SAFEs, no board, no metrics. The cleanest round you'll ever raise. Don't trade clean terms for a small valuation bump. 2. Seed, they're pricing the wedge. Check: $1–5M. Early traction or a strong founder-market story. First option pool top-up lands here. That's where founders quietly lose 5–10 points before the new money even arrives. 3. Series A, they're pricing product-market fit. Check: $5–15M. You need at least $1M+ ARR and proof that the growth isn't a fluke. Below that line, you negotiate from weakness and accept worse terms. 1x non-participating preference becomes standard. Multiples sit at 15–40x ARR, but only the top of that range if growth is 200%+. 4. Series B, they're pricing the engine. Check: $15–50M. Repeatable acquisition, clean cohorts, payback under 18 months. This is where investors stop forgiving messy data. Early secondaries can appear. 5. Series C / Growth, they're pricing durability. Check: $30–100M+. Crossover funds enter. Multiples compress to 8–15x. Growth alone stops being enough. Investors now price in unit economics, retention, and capital efficiency. The question shifts from "can you grow?" to "can you keep growing without burning?" 6. Exit, the waterfall runs. Debt → liquidation preferences → common. A 2x non-participating pref on a $20M Series B means investors take $40M off the top of a $100M sale before anyone else sees a cent. What you signed three rounds ago decides what's left for you. Here's how that compounds in practice: a messy option pool at seed forces a top-up at Series A. That top-up dilutes the founders before the new investor wires a dollar. Then, Series B prices off the cap table of the top-up created. One term, three rounds of damage. Which stage do you think founders prepare for the least? PS: drop the stage you want a deeper read on, and I'll walk through it in the comments.