Your compensation package is made up of a base salary and an Incentive Bonus Engagement Letter is hereby approved, confirmed and ratified by the Board.
I love helping others understand their job offer letters.
Because students usually undercount their all-in compensation. It’s incredibly satisfying to show someone that their all-in offer is actually $85k when they thought it was $70k.
In this article, we’re going deep into compensation by unpacking the biggest misconceptions and understanding the concept of all-in compensation.
Before moving on, I want to highlight an important belief from my last article on evaluating new opportunities:
“I always prioritize the skills I would build over moderate compensation differences. I believe the best route to long-term compensation and self-confidence is to focus intensely on skill development early in my career.”
Compensation is not the be-all and end-all. There are many other considerations that are equally as or more important.
With that disclaimer out of the way, let’s start by defining all-in compensation, which is the central idea to this article and understanding your offer.
I use the following definition:
All-in Compensation = All Monetary Forms of Compensation + Estimated Values for Non-Monetary Perks
The goal of calculating all-in compensation is to capture all the value a prospective employer is offering you.
Why does this include non-monetary perks? Because a perk like catered breakfast and lunch can easily save you over $5,000 per year (more on this later).
But before we get to the details of all-in compensation, we need to first bust 3 big misconceptions.
When calculating compensation packages and comparing to other opportunities, I’ve noticed students tend to compare base salaries and ignore the other aspects of compensation.
This is a huge oversight because base salary only represents a portion of your compensation.
In some industries, base salary is the same or less than the performance bonus! This is very common in finance, where investment banking analyst positions offer ~$85k base along with the potential for another $85k in bonus.
As you become more senior across industries, most of your compensation shifts towards stocks and away from base.
Jeff Weiner, CEO of LinkedIn, is estimated to have a base salary of $815k but a total compensation package north of $80M according to this article.
Jeff and many other executives hardly look at their base salary, which is a drop in the bucket relative to total compensation.
While finance positions and executive compensation are extreme examples, you will usually find between 10-50% of your all-in compensation from sources other than the base.
Don’t over-index on base and forget the rest of the compensation package.
There’s a common saying that investment bankers make less than McDonald’s restaurant workers… on an hourly basis. While this is an exaggeration, it’s not far from the truth.
Let’s say an investment banking analyst makes $85k base + $45k bonus from middle-tier performance relative to peers. This totals to $130k annual base + bonus compensation. Not bad for a new college graduate!
But investment bankers are notorious for working very long hours. It’s common to average 80 hour work weeks.
Some quick math to calculate the hourly wage of investment banking:
80 hours per week * 50 working weeks a year = 4,000 working hours a year
$130k compensation / 4,000 working hours = $32.50 per hour
Meanwhile, according to the LinkedIn Salary tool, McDonald’s restaurant managers make ~$55k annually.
Assuming a 40 hour work week, that equates to $27.50 per hour.
So with these assumptions, investment banking still pays more than McDonald’s, but only by a margin of ~20% on an hourly basis.
What’s the point of this?
Make a mental note of the expected working hours when comparing multiple opportunities. It can make a huge difference.
Offer letters are usually very transparent about the max dollar value of performance bonuses but vague about the likelihood of receiving this max bonus.
Never assume that you will capture 100% of the performance bonus written in your offer letter.
In some jobs, employers will stack rank you against your peers and only give 100% bonus to the top 10% of performers.
In other jobs, employers will give all competent employees 100% of the bonus described in the offer.
Instead of assuming and later being burned, ask the hiring manager, recruiter, or new employees for the average performance bonus given to new hires.
Try to understand the distribution of how they give bonuses. What percentage of previous hires received 100% of the bonus? What about 0%?
Collect this information and assume you will receive an average performance bonus. Never assume you will receive the top-tier bonus, despite how confident you are in your abilities.
With those misconceptions out of the way, let’s break down the all-in compensation equation.
All-in Compensation = All Monetary Forms of Compensation + Estimated Values for Non-Monetary Perks
Monetary compensation is a function of base salary, performance bonus, signing bonus, stock RSUs, and 401(k) match. I’ve explained each component below.
Base Salary: The most obvious and one of the most important components of compensation. You will receive portions of your base salary every payroll cycle, which help you pay rent, bills, etc.
Performance Bonus: This is usually represented as a percentage of your base salary. Some companies use an equation to account for overall company performance along with your performance when calculating your bonus.
Signing Bonus: This is a one-time lump sum of cash that can range between $0 to $100k+. (Facebook is known to give top performing software engineering interns a $100k cash signing bonus.) This bonus is sometimes not given to you upon signing the offer but instead on your first payroll cycle around week two after starting work.
Stock RSUs: Many public companies give restricted stock units (RSUs), which is used to retain employees through a vesting schedule. This one gets a little tricky, but I’ll explain it in-depth below.
A company might give you 400 shares of stock at a current market price of $100, which equates to $40k in value at current price. This is usually vested over four years with a one year cliff.
What does this mean?
So how does this retain employees?
Usually, by the time your stock fully vests, you will have been promoted. When you get promoted, many companies refresh your stock package and create a new vesting schedule. If you’re a strong performer, you will receive new stock packages and vesting schedules before vesting the first package.
The stock granted in your offer letter is represented as a # of shares at the current market price. For example, when I joined LinkedIn in 2017, I received Microsoft stock at a price of $70 (LinkedIn is owned by Microsoft). Today, Microsoft stock is trading at $106, which means my total stock package is worth 50% more than when I joined.
If you’re working at a big company with a strong stock, I consider the stock package “as good as cash.”
However, you should not make this assumption if you
401(k) Match: For the US readers, this is your retirement account. All savings in this account can (and should) be invested in the stock market,and grows tax-free. I wrote an entire article on how to start investing, and a 401(k) is an important aspect of building a solid financial foundation for your future.
You are legally allowed to contribute up to $18k from your pre-tax income into this account. Some companies match a portion of this, thereby giving you free additional compensation.
According to Investopedia, the most common employer match is 50 cents on the dollar of up to 6% of your base salary.
This means if your base salary is $80k, your employer will give you up to $4.8k in your 401(k) account. But to receive this free cash, you have to first invest twice that amount, or $9.6k. So by investing $9.6k of your pre-tax base salary, your 401(k) account balance will actually be $14.5k ($9.6k + $4.8k).
You should 100% factor in the 401(k) match program into your total compensation.
This is far less standardized than monetary compensation but includes big perks like free food, health and wellness stipends, free gym membership, health/dental/eye insurance, etc.
Free Food & Snacks: Free food is an expensive and amazing perk worth counting. Given that I work at LinkedIn in San Francisco, I estimate the value of free breakfast, lunch, and snacks at $20 per day (food in San Francisco is expensive). This perk alone saves me ~$5,000 in post-tax disposable income.
Wellness Stipend and/or Gym Membership: Some companies have a wellness stipend. LinkedIn gives all employees a $2,000 pre-tax bonus for use on health and wellness purchases such as massages, fitness classes, gym memberships, sports, etc. Aside from this, many companies offer free or discounted gym membership, which is worth roughly $500 a year.
Health/Dental/Vision Insurance: Depending on your situation, this could be the most important “perk” to evaluate. For college graduates in the US, you are allowed to stay under your parent’s insurance plan until the age of 26. Because of this, I won’t go too in-depth on this topic. However, keep in mind some companies offer far better insurance than others. This could mean you get better quality care and coverage at a significantly lower cost. It’s worth investing a few hours of research if you will not be on your parent’s insurance plan.
For those of you with job offers, take another look at your offer letter and see if you can find hidden pockets of compensation.
If you don’t yet have an offer, just remember that all-in compensation is very different from base salary. You can always revisit this article when you have an offer.
When it comes to comparing and negotiating two offers, recruiters may try to focus the conversation on base salary. But a smart negotiation tactic is to anchor on the all-in number — after all, that truly is how much value the company is giving you.
Lastly, some of you may be surprised by the figures in this article. All these numbers are based off real offer letters from entry-level jobs.
It is 100% possible to graduate with a 6-figure all-in job offer. A big part of 2 by 22’s mission is to help you realize this and achieve financial security early in your career.
All the content in this blog is tested advice that works for these jobs. But it’s up to you to run with it and make it happen in your life.
Jan 19, 2016 Salary should only be about 70% of your total compensation. you can ask for to augment your compensation package, says Alyssa Gelbard.
When planning on negotiating a job offer it is important to consider the full compensation package and not only the base salary.
Once you have an accurate evaluation of the whole job offer you can plan your negotiations around this. This guide to how to negotiate salary will help you get the job offer you want.
Compare the complete dollar value of the offer to your competitive market value in order to enter into successful salary negotiations.
Key to developing your negotiation strategy is to look at all the elements of the job offer. Decide what it will take to turn an unacceptable offer into an acceptable offer and which items you can negotiate.
1. Evaluate the benefits
Negotiating a job offer includes discussing the benefits.
Benefits can add up to 35 percent of the total compensation. Latest research shows the average total benefit costs as a percentage of total compensation costs were 31.6% (US Department of Labor) in private industry.
Assess the value of these commonly offered benefits to you personally when evaluating your job offer. Put a direct $ value on each benefit.
2. Evaluate indirect benefits
Also consider benefits that provide personal satisfaction such as the number of leave days provided.
Apart from compensation what else does this job offer include? Consider these aspects before you begin negotiating a job offer.
After considering the entire compensation package and all its aspects you are in a position to decide what is most important to you. You will now know which benefits you want to negotiate in addition to the salary itself.
Planning your job offer negotiation
Negotiating a job offer requires these major steps.
Use the salary negotiation tips to get the job offer you want.
Negotiating a Job Offer Techniques
Accepting a Job Offer
Job Interviews > Negotiating Salary > Evaluate the Job Offer
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When negotiating a job offer factor the full compensation package along with salary into your negotiations. How to negotiate your salary successfully.
This is how to negotiate a job offer at your level.
As you gear up to interview for an executive role, don’t let a shot at that coveted corner office throw you off your game. You need to know how to negotiate a job offer at your level. Beyond salary requirements, there are several things you might not have considered, but that are definitely up for grabs.
If you’re a first-time executive, get ready for the negotiation talks to become longer and more detailed than previous conversations you’ve had about salaries and start dates. While employers expect all candidates to negotiate every job offer, at the executive level, they expect you to get especially detailed about each provision.
The following are five areas you must cover in your talks. Similar to any successful negotiation, when all discussions are completed, your job offer should include all of the provisions in writing.
Obviously, salary requirements are going to be top of mind. But think beyond your paycheck. Show me the money…and also the stock options, sign-on bonus, and guaranteed minimum annual incentives. Your focus during salary talks should begin with base compensation. Do your due diligence in researching what others are earning at your level, and aim for at least a 20% increase of your current compensation.
Next, talk about a sign-on bonus to be paid within 90 days of your start date. As a former corporate recruiter, I’ve seen sign-on bonuses for executive roles get paid in the vicinity of $50,000—higher than the base compensation for some of the other roles I recruited for!
Sweeten the deal by speaking about an annual incentive award with a clause stating there’s a guaranteed minimum amount mentioned in the contract. Your new boss may say the bonus is based on how the company performs and how your performance is evaluated, but you can add a clause saying regardless of the company and your performance, you’ll receive at least $20,000.
From here you can speak about stock options, loans to purchase restricted stock, loans to pay taxes and purchase a home and more.
Walk the walk, talk the talk and look the part. Every executive needs to look polished and professional to the max, especially when representing the company at client and board meetings.
Ask for a stipend, such as $20,000 paid annually, to cover the cost of your wardrobe. You’ll need to properly care for and maintain your suits, so a portion of this amount may be used for dry cleaning bills.
Although there’s no tangible compensation attached to your job title, it speaks volumes about your clout in the company. Plus, every job offer you accept is a stepping-stone to your next job—yes, even at the executive level.
If you’re being hired at the director level, request that your title be an executive or senior director instead. In another example, a sales director can request to be named regional or national sales director. Get the idea? Think bigger and expand upon the initial title on the job description.
There are literally hundreds of benefits that companies are using to lure new employees to sign on the dotted line. These three are high on the list of perks to negotiate:
Tuition: If you have children, ask about a tuition stipend for them or reimbursement for private school. Ask about tuition reimbursement for yourself, such as an online MBA program, and club membership dues reimbursement.
Relocation costs: If you’re moving to another state for the job, inquire about reimbursement of shipment of household goods. If you purchased a new home but haven’t yet sold your old one and have items that need to be put into storage, your prospective employer may cover that cost, as well. In that case, you should also ask about temporary corporate housing until your house is sold.
Travel: While you’re in transportation mode, ask about using a company car—either a car provided to you or reimbursement for monthly costs. As far as air travel goes, find out if you’re eligible for first-class plane tickets on business trips.
This provision is particularly important if your proposed job offer is at a startup or company with a rocky history or you’re in an industry that is rife with mergers and acquisitions. That said, remember, employers can let you go at will for any reason at any time, so it’s a good idea to have a termination provision included in your job offer regardless of what business you’re in.
Ask the hiring manager for a guaranteed severance package written into your actual contract, in case the company lays you off or files Chapter 11. Since this topic is sensitive in nature, approach it with tact and point out that your goal is to stay at the company for the long term.
A standard severance package for employees is either one or two weeks for every year of service, plus unpaid PTO and eligibility for COBRA. At the executive level, you should negotiate for at least six months of pay, a payout for unused PTO and COBRA eligibility—as well as a stipend for an executive coach and/or outplacement firm for six months to a year.
A job interview is stressful enough without worrying about how to negotiate a job offer when it finally lands in your lap. That's why it's crucial that you do your homework in advance so you know what to ask for when the time comes. Could you use some help staying a step ahead? Join Monster for free today. As a member, you can sign up to get career advice, job search tips, and negotiation strategies sent right to your inbox. From learning what to look for in an offer contract to deciding when to pursue a promotion, you'll have a wealth of expert information at your fingertips.
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Monster’s career expert Vicki Salemi has more than 15 years of experience in corporate recruiting and HR and is author of Big Career in the Big City. Follow her on Twitter at @vickisalemi.
Jan 25, 2019 A clearly written compensation letter tells an employee exactly where to your employees when you write your company's compensation plan.