Financial Planning

Evaluating Your Offer: Equity Compensation for Tech Professionals

By  Richard J. Archer

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Tech is (still) booming.

The field is constantly shapeshifting, and its novelties and inventions are being incorporated more deeply into our lives. Jobs across all industries are demanding employees gain tech skills to keep pace with this unceasing digital hegemony. And for tech professionals, their expertise is in high demand, giving them the upper hand in all aspects of employment.

This economic environment means people in tech have options and a lot of them. It’s no coincidence there is a rise in job mobility – and opportunity – for people with the right resume. Tech professionals are often ambitious individuals, driven by the concept of more: more innovation, more challenge, more everything. So, tech pros, when it comes to your next opportunity, here’s how you can determine if it’s truly more.

Evaluating Your Offer

If you’re always on the prowl for new, better work, and are extremely employable, how do you evaluate your job offers? What’s the best move for you? Our guide is designed with tech in mind.

Flexibility

The industry’s desperate need for talent, paired with new notions of work, has yielded more options for professionals regarding where they work. Recruiters can look across the country, and even the globe, to find the candidates they need. What does this mean? More remote options for workers, especially in smaller markets or nontraditional tech cities, like Austin, Chicago, Seattle, and Lansing.

Employers are accepting talent from the source, which gives prospects more flexibility in where they live, and autonomy over their day-to-day. Hybrid or remote work is becoming the norm, not the exception. If autonomy over your day-to-day is important, if you’re looking to live outside Silicon Valley or in a smaller city, or if you’re a parent who generally requires flexibility throughout the day – remote work is key. 

Salaries

To attract top-notch talent, employers are offering competitive salaries no matter their size; start-ups with robust cash infusions are matching, if not surpassing, enterprises. Hired, an AI-driven job board that matches prospects and companies, reported “incredible growth in salaries” since the start of the pandemic. And this increase was not limited to the US but was mirrored in the UK and Canada too.

What is the cause of this tremendous amelioration? Some experts point to the Great Resignation, which has been empowering workers of all industries to leave their jobs for better-paying roles in better conditions. And the theory has merit. The information technology industry ranked #3 for highest quit rates – the metric used to track the phenomenon – at 33%. Tech professionals may have themselves to thank for their burgeoning salaries.

But some cities have seen more growth than others. Austin, Texas tops the list, according to Hired. For Austin-based software engineers, there was a 9% increase in base salary over the past year, which translates to $151,000 in 2021 from $139,000 in 2020. And this is only a portion of their compensation – most companies offer bonuses and equity compensation: options, restricted stock, and/or performance shares.

Equity Compensation

Often, when startups are in their early stages, they don’t have the funds to hire the talent they need to execute on the leader’s vision. Thus, they grant their newly minted employees incentives through ownership in the company via equity, also referred to as shares or stock. Equity may or may not come with a paycheck; it depends on many factors such as what stage the startup is in, how much capital the founder can invest, and more.

Although equity is one way to be compensated at an early-stage startup, being granted company stock is also common at large, more established companies as well. The equity granted can be vested over months or years, giving the employee incentive to continue working at the company. Often, established companies will dole out stock units annually, but they will vest over several years, creating what many call “golden handcuffs.” When considering your overall compensation, don’t simply assess base salary alone; be sure to include the value of the shares you expect to gain.

Evaluating Your Equity Compensation

We’ve defined the terms, but how can you know what your compensation package will do for you long term? Markets are volatile, and risk is inherent to stock. Your shares could plummet in value or become worthless. And for employers, it is to their benefit to offer equity compensation and a lower salary. However, just because a company claims to be a “startup” doesn’t mean that you should anticipate unfair compensation – whether that is base salary or total compensation. If you feel that you are being unfairly under-compensated, consult an employment attorney about your options.

Before you accept an offer, here’s what to consider.

  • Industry trends and historical data. During the pandemic, eCommerce sites like Amazon made record profits, and conversely, the leisure industry was hit hard. While you cannot predict everything, you can get insights into how much the company is worth and how profitable it is.
  • Understanding your unique stake in the company. Essentially, how many shares you’re offered relative to outstanding shares. This will give you an idea of how much your piece of the pie is worth.
  • Vesting schedule. When will you receive the equity? What are your long-term plans? Do these timelines align?
  • Taxes. In addition to the vesting schedule, you should have an idea of what taxes you’ll have to pay, when, and if you are able to exercise your stocks and pay your taxes before the window closes.

What’s more – if you’re leaving a position with equity compensation as well, you don’t want to just abandon your vested or unvested assets. It’s important to consider how all the pieces fit together to form your overall financial situation. Base salary alone is only one aspect, and it might not even be that significant when looking at your entire portfolio and considering your financial plan. Keep in mind that a financial plan helps guide you to make meaningful decisions about your life and career.

This can be a lot to consider, especially when you’re not an expert. To make the best decisions for you and your stage of life, it’s best to lean on an advocate who guides you through your options. And for Austin-based tech professionals, you want Archer Investment Management. Personable and precise, we can help you evaluate your equity compensation with confidence, and make sure you don’t leave any money behind on your way. Contact us today for more information.

Sources:

This article was originally published on Archer Investment Management and is republished on Wealthtender with permission.

About the Author

Richard J. Archer, CDAA, CFA, CFP®, MBA

Hi, I’m Richard Archer. Growing up, I experienced the financial stress and anxiety that divorce and unexpected unemployment can bring. My family’s financial instability came while I was attending junior high school in a wealthy Indiana suburb, surrounded by kids with gold cards, the latest fashions, and spring break trips to faraway places. This created a strong desire in me for financial security and led me to work very hard in school, taking advantage of every opportunity. Read More…

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Disclaimer: In order to make Wealthtender free for our readers, we earn money from advertisers including financial professionals and firms that pay to be featured on our platform. This creates a natural conflict of interest when we favor promotion of our clients over other professionals and firms not featured on Wealthtender. Learn how we operate with integrity to earn your trust.

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