You’ve aced the interviews and impressed the hiring manager, and now it’s time to look at the numbers on your job offer. This moment is both exciting and critical, as it sets the stage for your future. However, there are more things to consider apart from the base salary. There are many compensation elements within your job offer that can contribute greatly to your financial well-being. Whether you’re evaluating offers for your first job out of college, or looking to switch jobs, this post will outline the most important compensation pieces to understand when considering your new job offer or possibly multiple offers.

Total Compensation: Salary, Bonus, and Stock

The main thing you need to consider when looking at your job offer is total compensation. This refers to your all-in pay, and can be calculated by adding your base salary, expected bonus, stock, and possibly other one-time bonuses like sign on or relocation bonuses.

The Core Component: Base Salary

The most talked about and often most significant part of your total compensation is your base salary. Base salary refers to the fixed amount you get paid on a regular basis through your paychecks. This can either be represented as a yearly figure on your job offer, i.e “$75,000 annually”, or through an hourly rate, which will depend on your specific job.

Yearly and One Time Bonuses

Then, your job offer, will usually state your target yearly bonus percentage. For instance, your offer might say something like: “Annual Bonus Target: 10% of base salary”. This bonus is paid out once a year and can fluctuate depending on both your performance. Depending on your experience level and industry, your yearly bonus can be highly variable, but the target percentage is a good reference point when comparing job offers.

There is also the possibility for one time bonuses related to you joining a new company. The most common ones are a sign-on bonus and a relocation bonus. The sign-on bonus is used to incentivize you to accept their offer, and the relocation bonus is used to help you with moving expenses. One thing to consider for relocation bonuses is that some may require receipts and reimbursements, while others just pay you the money outright.

Stock Compensation

The final major part of your total compensation is the stock portion. This can also depend highly on your company and industry. For instance, tech usually tends to have more stock based compensation, whereas finance and consulting tend to not give stock at all, but can give higher cash bonuses based on your performance. Your job offer will outline a vesting schedule, which determines the conditions that need to be met for the stock to vest and be fully owned by you. Usually this comes in the form a specific time period that you must be employed to get your shares, with many companies either having quarterly or yearly vesting schedules. There might be other restrictions if you are joining a private company, for instance, your shares or options might not fully vest until the company goes public or is acquired, even if you’ve met the time requirements, and therefore you won’t be able to sell your shares. Stock compensation usually comes in two forms: restricted stock units (RSUs) or options.

RSUs

RSUs are simply stock shares that are awarded to you and can be sold as soon as they fully vest. You might have certain blackout periods based on important company events like earnings reports, or new product releases, but otherwise you are free to sell once your shares fully vest. When you receive RSUs, it’s very common, especially in tech, to receive an initial grant that vests evenly over four years. Once that grant runs out you will typically get more grants, called refreshers, that help to make up for the initial grant finishing.

Options

Options are a bit more complicated. You don’t get granted stocks outright, but after the options have vested, you have the right to buy a certain number of shares of company stock at a set price. This means that if the set price (aka the strike price) is below the current price of the stock, you can buy those shares (exercise the option) and sell them right back to make a profit. One important thing to remember is that having the right to buy those shares doesn’t mean you have to. So if the strike price is above the current price you would not want to buy those shares, and the options are worthless (unless the price goes up more). The downside to options is that you need to spend your own money to buy those shares but you can make your money back and also lock in the profit by exercising the option and selling the shares right away, or holding those shares for longer.

Other Forms of Compensation

At some jobs, there are other less tangible forms of compensation that need to be considered. This can include 401k matching, health savings account contributions, commuting stipend, tuition assistance, and more. These are harder to quantify but are important to consider when choosing your job. Read about other types of benefits in our post: “Unlocking Hidden Value: The 6 Most Important Job Benefits for Gen Z’s Financial Success“

Concrete Examples

Let’s work through some examples to see how to calculate your total compensation and evaluate multiple job offers. You can either calculate it manually or use a calculator.

Offer A

• 65k base salary
• 10% target bonus
• $100k worth of RSUs, with 25% vesting each year for 4 years
• 5k sign on bonus

Now to calculate the total compensation, we simply add up each component. $65,000 salary plus 10% target bonus of $6,500, gives us $71,500. Next, for our RSUs, $25,000 will vest every year for four years, so we can add that and get a total recurring compensation of $96,500. But we still need to factor our $5,000 sign on bonus, which brings our first year total compensation up to $101,500!

Offer B

• 60k base salary
• 10% target bonus
• Stock option to buy 10,000 shares of company stock at a strike price of $10, with 25% vesting each year for 4 years
  • We can assume that the company stock costs $25 on the open market (and that value doesn’t change)

To calculate the total compensation, we can add the $60,000 base salary and the 10% target bonus of $6,000 to get $66,000. The stock options are a bit harder to factor in. Each year we get the option to buy 2,500 additional shares every year at $10 a share. And if we assume we can sell those shares for $25. This means we can profit $15 per share on 2,500 shares, or $37,500 a year. Which then brings our recurring total compensation to $66,000 + $37,500, or $103,500 a year.

Comparing Offer A and B

On the surface it would seem by the numbers alone that since offer B has a recurring total compensation, even when factoring in the sign on bonus in offer A, offer B is the obvious choice. However, remember that when exercising options we need to use our own money to buy the shares. So we need to invest $25,000 of our own money per year to make the $37,500 in profit. Clearly that is a sound decision, but it can be hard to come up with that money every year especially given the $60,000 base salary. Whereas in offer A, you are simply granted $25,000 worth of stock every year.

Personally, we think the decision between these two offers would come down to other factors like benefits, culture, work-life balance, and what type of work we would be doing. This just goes to show that the total dollar amount isn’t everything but knowing how to calculate your total compensation can help give you extra clarity when deciding between two job offers.

Negotiating and Seeking Clarity

When reviewing your choices, don’t hesitate to negotiate! If any part of the offer is unclear or seems unfair, reach out to HR or your recruiter for clarification and possible adjustments. Negotiating respectfully can often result in a better offer! Be clear that you are excited about the job offer and the prospect of joining the company, and don’t let them think you are stringing them along to decline their offer. If you can back up your asks through referencing market averages or comparing to other offers, that can also give you additional leverage. Some helpful tools to use see compensation for similar roles are levels.fyi and Glassdoor! Be respectful, but always remember unless you have no other options, you shouldn’t feel obligated to accept an offer you feel is unfair.

Closing Thoughts

Understanding your total compensation, including salary, bonuses, and stock compensation, is crucial when making informed decisions about your job offers. Each component plays a large role in shaping your financial future. Dig into the details, ask questions, and seek guidance to ensure you’re not only accepting a job but setting the stage for a fulfilling and prosperous career and financial future.

Disclaimer: The content provided on this blog (Zooming to Fire) is for informational and educational purposes only. It represents the opinions and perspectives of the authors and should not be considered as financial advice. The authors are not licensed financial advisors, and no content on this blog should be in any way interpreted as professional financial counsel or advice. See more here.