Engineers Suck at Negotiating, so Don’t Negotiate, Be Fair - from me, after being pissed off about hiring practices I experienced from bad founders.
Over the years, I have noticed some sort of weird inverse correlation between the talent an engineer has for coding and their ability to negotiate. I’ve seen people that could have hacked into NSA suddenly shit twinkies the second I bring up the topic of their salary. I don’t exactly get it, but it’s there.
Founders, on the other hand, are almost by nature programmed to negotiate everything. In some cases, I have seen founders take advantage of engineers who don’t negotiate well, or who simply hate to negotiate so much that it’s a near-phobic experience.
DO NOT DO THIS! If you do, you’re an ass-hat.
Besides being unfair and a dick move, it is also stupid and even worse yet in my book - it’s illogical.
What inevitably happens is that the engineers, who all have different deals, get drunk one night. Then the shit hits the fan when they tell each other what they all make and what equity they got. Come Monday morning, every engineer’s password is “my_founder_is_a_dick,” several viruses and backdoors are suddenly installed into the code base, and the founder gets the silent treatment - none the wiser of his impending doom. Way to go ass-hat!
If you can’t tell, this one pushes my buttons. I don't give a frog's fat ass how good a negotiator an engineer is when I'm interviewing them. I want them to have such pristine code that it makes my other engineers cry. I want them to have a beautiful mind that can use logic and reason to solve the engineering challenges that I hand them. It is completely irrelevant how good they are at negotiating.
No Negotiation - (principles: hire for talent, not negotiating skills; be transparent)
One of the things that is incredibly important for a founder in today's engineering world is to create a logical and rational hiring plan with salaries and equities mapped out.
- Outline 10 levels of competency per talent type; i.e. one for each type of engineer, one for designers, one for product people and so on.
- Create your high and low salary bookends for each competency, which may be unique depending on your industry.
- Then create 10 levels of salary for each competency: Junior 1-3, Mid 1-3, Senior 1-3, and a VP. Then all Junior 2 engineers would have identical salaries, as would all senior 3 engineers, etc.
- For your ESOP pool, you will have a specific number of shares to allocate - usually around 20% at or just before Series A. With your VC develop a timeline of how long that pool should last. If you are planning to raise several rounds of financing, plan out how much ESOP should be left right before each round of financing, keeping in mind, new investors typically apply pressure for the the past investors and existing employees to take the dilution needed to shore up the ESOP pool.
- Once you have your pool targets, then work with your board to create a general plan of how many employees, and of what type, you want right before each round.
- Then back into how much equity each competency level gets using the following methodology. Start off by using relatively standard equity disbursals for each type of role - VCs can help, they have many, many stat sheets on this one.
- Then, after you have your beginning equity allotments per strata, take the remaining equity to be allocated in your ESOP and dole that out to each strata based on your hiring plan. Remember to reduce the amount of equity each strata gets over time by the proportion by which you believe your total company value will grow; i.e. make it so that while your ESOP stock's estimated stock price is going up over time, you are reducing the amount of shares you are giving out.
Therefore, if you gave employee A, who is a junior 1, 10 shares at angel funding and you estimate your stock price at .01 and you are hiring employee B who is also a junior 1 at Series A, when common stock is value at 10 cents, you would give that employee one tenth the stock. The point is, you're giving the same or less starting cash equivalent to both people because people that joined earlier took more risk and therefore should get more reward. There are many ways to do this, but it is important that you reduce the amount of stock issued over time so that earlier employees get equivalent or better value.
It is important that you do this in a systematic and rational way so that you can show it to your employees and new candidates. Once you have the spreadsheet developed, follow it as best you can. Be strict on following the salary amounts and do your best on the equity. If you need some sort of sweeteners to get someone on board, do your best not to budge on the core compensation.
Sometimes you can hold 83b elections as a benefit, or an offer of RSP instead of ISOs, but never adjust someone's salary within a level to get them on board - the other engineers will know you did so and kill you. One of the big benefits of using this strategy to hire people is that engineering candidates on whole have a very positive reaction to hearing that there is no negotiation.
- Engineers generally hate negotiating anyway and if there was one word I would use to describe their general reaction, it would be "relief" on the candidates part.
- Engineers are highly logical people and if you email them your spreadsheet and explain that you negotiate with no one and that their peers in the company determine their skill sets and thus their strata, not HR, then all that's really left is for them to check your logic in your spreadsheet. If it is sound, then I have found it removes perhaps the most awkward and stressful part of the hiring process and turns it into a logical and rational process - which engineers like.
- Further, you will like it as well, it will help prevent you from doing stupid things that you regret and get bitten in the ass for later anyway.
- It will also enable you to have a very different conversation when the candidate gets to you. Instead of this part of the process being confrontational, where you are the opposition, there is no opposition. You and the candidate can simply talk about what's really important. Them interviewing you.