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Welcome to episode 225 of the Nerd Journey Podcast [@NerdJourney]! We’re John White (@vJourneyman) and Nick Korte (@NetworkNerd_) – two technology professionals with backgrounds in IT Operations and Sales Engineering on a mission to help others accelerate career progression and increase job satisfaction by bringing listeners the advice we wish we’d been given earlier in our careers. In today’s episode we share part 2 of an interview with John Nicholson with a focus on compensation. We’ll talk through stocks as compensation, how resumes might highlight expensive skills in a manager’s eyes, and how good managers look at employee compensation.
Original Recording Date: 02-02-2023
John Nicholson is a Staff Technical Marketing Architect at VMware and co-host of the Virtually Speaking Podcast. If you missed part 1 of our discussion with John, check out Episode 224.
Topics – Compensation, Org Charts as Tools, Stocks as Compensation
3:35 – Compensation
- This blog John Nicholson wrote about points of consideration before taking a job offer was a jumping off point for much of our discussions.
- It’s probably best not to start with talk of numbers unless a recruiter asks you.
- Listen to John N’s strategy for dealing with random recruitment direct messages on LinkedIn. He mentions this has helped him avoid a lot of conversations but also that this blunt approach sometimes gets a recruiter to keep you in mind for something down the road (i.e. level sets on what you want).
- If you’re interviewing with a hiring manager / other members of a hiring team (not the recruiter), John N recommends not leading with numbers.
- If you’re working for a large technology company, you can do your own homework and get an idea for what the salary range might be.
- Check out levels.fyi – it’s a bunch of compensation specialists and former HR personnel who have experience with FAANG companies that have done salary surveys and reverse engineered pay bands.
- They (levels.fyi) also have details on stock benefits like RSUs (restricted stock units) and how vesting works for this type of compensation. If you get $250K in stocks but won’t see it until year 3, that’s a big deal!
- The above is different than Glassdoor, which usually only talks about base and variable components of compensation.
- Much of the above is covered in John N’s blog post if you want to learn more, but the idea is to consider all elements of overall compensation for a position.
- What is the bonus structure for the company, by how much are people usually hitting their bonus targets, and how often do bonuses get paid? It’s helpful to have people in your network who work for the company in question and will be able to tell you. If people tell you they haven’t hit the bonus in a number of cycles, it would likely not be contributing to compensation by much (if any).
- Start with the bigger numbers, but don’t overlook smaller things like ESPP (employee stock purchase plans). It’s a little bit of a roulette game, but you can earn some extra money by participating.
- Should we ask a recruiter how the benefits have changed over the last 6-12 months because of the economy?
- Some survey data John N has seen shows offers are going down slightly. Even with that said, the growth of offers over the past 10 years has probably been pretty crazy.
- If you look at the levels.fyi site, you can actually look at a specific pay band and see when the offers were made (i.e. recently or years ago).
- The site also allows you to compare multiple companies to one another.
- Knowing whether the salary you want exists in the job level being offered in an open position is helpful. You may be able to advocate for raising the job level based on your experience during the interview process. This may not work, but the right person advocating for raising the level inside the company may be able to make it happen.
- This could go the other way as well. If you seem like a good fit but perhaps do not have all the experience for the level of an open role, a hiring manager may lower the level to hire you.
- John N did this now and then as a manager when he spotted someone who could grow into becoming a senior consultant in a couple of years with mentorship. John recognizes a hiring manager can get an employee for a good price and also help the person looking for work get a raise.
- When John N looked at resumes as a hiring manager and saw skills that were expensive but that he didn’t need, he might not even interview that person (knowing they would be looking for high compensation as a result of the skills in question).
- This goes back to tailoring your resume to the job you want. If you keep being contacted about positions that are different than what you want, it may mean your resume does not reflect the proper skills and experience. This includes leaving out expensive, unrelated skills that may get you filtered out of the hiring process completely. Listen to the examples John N provides.
- Neither John White nor Nick had considered leaving out expensive, unrelated skills from the resume.
- John N tells us if he had an A+ certification he would remove it from his resume or from LinkedIn if he didn’t want to do doing entry level printer repair, for example.
- If you have a CCNA but have not touched a network for several years or don’t want to work on networking, John N would recommend removing it from your resume.
- Ideally you want a hiring manager to look at your resume and say "these skills all look like they are relevant, and I can afford them."
- John White says this is the idea that looking at a resume could (without needing a cover letter) convey to someone else the job the candidate is looking for.
- When John N looked at resumes he was essentially seeing dollar signs for every line item (much like a scene he saw in a movie).
- Do hiring managers get some type of incentive / extra budget if they get the company a good deal on an employee hire (i.e. come in under expected budget)?
- It never bothered John N that his people were making good money (during his time as a manager).
- Many younger IT folks believe their managers get incentivized to not give raises or pay their people better. There might be someone in recruitment who is incentivized to come in under budget (which is why they are likely part of the negotiation phase).
- Most managers are concerned with getting a hire approved and do not want to feel like they were burned or slighted somehow in the process.
- John N tells us most managers are not trying to keep people down in pay. Another consideration point is that if managers are paying people too little, they will leave.
- A nice thing about the people under John N in the consulting world is they were each billable. John could create a profit and loss statement to see how much his people were making the company (after taking into account certain overhead items).
- John N would compare what he was making for an employee compared to his cost of having the employee, and if the gap was too high (i.e. profit more than 2x employee cost), he needed to consider closing it so as to not lose the employee to another company.
- Sometimes a manager may need a person with a very specific and unique skillset for a role. Are you looking for a purple squirrel, hiring manager?
- When specific people leave they might have to be replaced with two people, teams may be shuffled around, or other personnel may need a lot of training to fill the gap.
- "Good managers just don’t want people to leave. It’s expensive. It’s time consuming." – John Nicholson
- A manager may have to help fill gaps when an employee leaves or explain why the team is missing SLAs.
- "A good manager should not begrudge anyone getting paid what they want or they are worth." – John Nicholson
- An employee moving to a different area of the company is not quite as damaging because you can get a little bit of overlap from them or at least ask them questions easily.
- It is much more challenging if someone left the company. You can only ask them questions about how internal systems worked and other tribal knowledge for a very short period of time. Even then it might be awkward.
- Good managers will encourage lateral movement within the company. Good managers John N has had in the past have encouraged an open dialogue about career aspirations and offered to help him work on things he wanted to pursue as a next step (i.e. "let’s work on that").
- Not everyone wants to be honest with their manager about career aspirations and would rather sneak out like a thief in the night.
- If a manager thinks you’re not going to be around very long and they have budget for raises, they may choose to give a raise to someone else they know is going to stay.
- "There is a perverse incentive to not reward your best employee if you know you can’t keep up with his skills and his pay." – John Nicholson
- John N has seen people sabotage their career by moving around too much. He shares the story of someone who despite their brilliance never got a raise or promotion because the person was never seen as loyal to the team they had joined.
- John White says people likely do not realize that giving raises or more stock rewards (whatever shape the compensation might take) have a political cost to a manager.
- John N says it’s not just your manager asking to get you or other members of the team a raise. It’s about multiple managers / directors making a case to higher level leaders for who gets part of the "pile of golden coins" they have to spend on raises.
- John N says he did not understand the above process until a director sat down and explained it to him. It’s not just about your manager liking you and wanting to get you a raise. It’s about other managers and other teams within your greater organization liking you and advocating for you too.
- In tech marketing, for example, John N would need directors and senior directors of product management to be advocating for him (i.e. agree that John has made an impact for them) for one thing. Listen to his description of who else might need to agree he’s made an impact.
- You may be great at making your team look good. But if you’re not helping the other teams within your organization look good, when up against others for a limited number of promotions available within the organization, it may not happen for you. You need the other managers / other people at the table to agree "it’s his time."
- We should be willing to help others even if it does not directly help drive our own KPIs (key performance indicators) or MBOs (manage by objective). It can hurt us in ways we might not realize.
- John N tells us if your manager’s peer asks you for something and you are busy, it is your manager’s job to block the request. But, if you can spare the time to help with these kinds of things now and then it can really help you build relationships that will help down the road.
- John White says we can also follow up with those peers of our manager to ask their opinion on what you need to do for promotion.
- There’s something to looking for feedback on how we are perceived. Some managers will give you blunt truth. Others are going to tell you everything is fine and then say (in meetings about raises) you meet goals but may not overachieve. John N prefers the blunt ones but reminds us there is a spectrum containing both. Spending time working with your manager’s lateral peers can provide some subtle hints as to how your manager actually views you.
20:38 – Org Charts as Tools
- John White says perhaps we should learn to use company organization charts as tools if we’re not already using them.
- John N says it’s one thing to know the organizational structure from an org chart, but what should you be talking to people at each level of the organization about? The org chart tool on its own may not tell you.
- John N has been able to learn the org chart of companies for which he has consulted even better than the people who work there.
- It’s helpful to go to lunch with or meet others who work in your company (even if done at random). Working at a campus gives you an opportunity for happy interactions. John N tells us he found out about a team working on Arm years before the project was released because he asked what some other people do.
- This is harder if you work remotely because you don’t have the happy interactions. John N tells us to be guided by our curiosity. Ask people to have a brief discussion about what they are working on.
- Making lateral connections is advantageous from the standpoint that these other teams could be landing spots should you need a job, lose your job, or be in danger of needing one.
- John N tells us that at very large companies you can lose your job, reapply for another position internally, and get a new job. This may sound odd if you have never worked for a large organization like this, but it does happen.
22:48 – Stocks as Compensation
What about compensation in the form of stocks? This could be from being granted RSUs (restricted stock units) or participating in some kind of employee stock purchase program (ESPP).
- John N says we should not look at the company stock each week and freak out. He’s been through turbulent times after being awarded a stock grant and shares the story of stock value splitting in half after he was awarded some stock shares.
- Stock can be a golden handcuff because it is on a time delayed plan. Let’s define some terms.
- Cliff – if you get a stock grant, when do you get the first part of that money? A 4-year stock grant with a 1-year cliff means you would see the first part of that money 1 year after the grant took place.
- Nick shares that RSUs can be part of an offer letter. Not everyone might know this.
- John N agrees. You would need to ask for these up front as part of an offer and not after the fact.
- The cliffs we mentioned may not be an exact year of time. It could be a certain number of months for a specific percentage of the stocks in the grant to vest (i.e. you can sell them if you want).
- The stock grant could be back-loaded where you might not see the majority of the grant vest until toward the end of the vesting period. John N feels Amazon might have done this at one point.
- John N has heard of one specific software company that has a cliff period of 1 month (i.e. a certain percentage vests every single month that you can treat like consistent variable compensation tied to the stock price).
- John N recommends finding out what the cliff is (how long), what the releases are (i.e. if they are evenly distributed), etc.
- There is the initial stock grant, and then there will be what are called refreshers, which could be less than the original grant (but may not be).
- Keep in mind the company is aware of the stock price. John N knows of one person who was promoted and thought they would get a raise, but when the stock price went through the roof that person was told congratulations and that they were already paid for the great work (because of the stock).
- A release of stocks that were granted means they have become vested (i.e. you hit the cliff period) and can be sold.
- John N says we should sell released RSUs immediately upon vesting unless you’re extremely wealthy.
- Your RSUs are taxed as regular income at vesting time (i.e. they show up on your 2). The company may have held / sold some shares for you to help offset taxes (which may show up as stock offset or RSU offset on a payroll form). Be mindful of your tax bracket.
- Suppose you have a lot of stocks that vested in your ETrade account and the company goes bankrupt tomorrow. You still owe taxes on those stocks! Reporting a capital gains loss is not going to offset regular income.
- John White tells us it could be extremely ugly if you work for a company that both does stack ranking (i.e. 10-20% of people are going to get fired in a given year) and they back load the restricted stock. It might look like you got a great offer, but there is a big chance you will not be around to get all the money. So it’s all funny money.
- Zynga was highlighted in the news for looking at stock options (generally given out at private companies but could be given at public companies).
- The options are usually tied to a strike price and heavily back-loaded for periods of up to 5 years even (i.e. something to keep you at the company).
- John N shares the story of someone working for Zynga who had options that were about to vest after the Zynga IPO who was approached by finance and asked to surrender options under threat of being fired before the vest date (because the person was about to cash in millions). The company got sued over this.
- The above (stock options) is not something a person with RSUs working for a public company really needs to be concerned with.
- With private companies, stock options are like negotiating the right to, in 5 years, lease a car of unknown value in an unknown currency.
- John N shares that we should check out tldroptions.io. Based on the series of funding your company is in, it will help give you an idea of how you should value the stock options (based on likelihood of company IPO, how well it will exit, etc.).
- If you have stock options after having been with the company for 5 years and then need to leave, you essentially have to execute the options and pay taxes on them. The company could still fail or delay in its IPO, leaving you with worthless lottery tickets.
- "People commonly refer to options for private companies as lottery tickets for good a reason." – John Nicholson on stock options
- We emphasize the vast difference between RSUs granted by a public company that can be sold upon vest for immediate cash and stock options.
- John N cautions us to watch out for promises of private shares / stock options as they are often greatly talked up when offered to you. What are they actually worth, and how many were given out to others? What were those folks promised?
- Sometimes things like ratchet clauses come into play in late stage startup funding rounds when a startup hits IPO lower than what was promised. These are used by investors to take back equity for investors before anyone else can benefit from the transaction.
- When it comes to being offered stock options, consider…
- How many shares are outstanding?
- How many more funding rounds will there be?
- There’s no real SEC involvement in private companies. Someone could posture they are going for big IPO and then sell a week later with your options being worth nothing.
- One of the startup trends John N is seeing as a result of regulatory overhead is startups going public much later than used to be the case. You may only have the chance to work for a startup once or twice in a 5 to 10 year period to try and see it through exit to public offering, and we only have so many working years.
- Pay attention to stock performance of a company over time. If you’re applying for a job there and the stock is trading significantly lower than it was, why is that? Try and find out as this is a sign something unhealthy may be happening.
- Employee stock purchase programs (or ESPP) allow you to purchase company stock at a discounted rate over time by withdrawing post-tax funds from your paycheck.
- There are IRS maximums per calendar year in which you contribute, but this can be limited by the company allowing ESPP as a benefit to employees. See this article for more detail. The stock can be offered at up to a 15% discount to employees and is essentially a 6-month guaranteed return of 15%.
- Even if the stock goes up during the 6 month period, your share purchase through ESPP is based on the price when the period began (i.e. could be more than a 15% return). There are variations to how this could be done at a specific company within the bounds of IRS limitations.
- Some companies may require you to hold the shares 1 year before selling, but if they are given to you immediately after the period of investment, that is free money on the table. The amount of return above 15% is dependent on being in the right place at the right time according to John N.
- Remember we’re talking about investing post-tax funds to then buy stocks at a discounted rate as part of ESPP. If you invested $10,000 and made $1,500 as a result of selling the stocks you owe taxes on the $1,500 (the gains). Selling the stocks immediately means it is a short term capital gain and is taxed the same as your normal tax bracket percentage. If you hold the stock for a year after it gets purchased and released to you through ESPP, it would cost less in taxes and be a long-term capital gain for the $1,500 for example.
- John N tells us there is risk involved in waiting the year. He prefers to sell the stocks once they are released as part of the program. We are risking the original investment to save tax money on the gains. Unless you’re in some odd situation where the stock has doubled in value over the ESPP period and you need to hold the stock to optimize taxes, it is more advisable to sell the stocks immediately.
- John N would caution us about holding our own company’s stock. If something bad happened the stock would go down, we might lose our job at the company, and by holding stock we’re risking the savings we would need to rely on if we lost a job. We need to make sure we have contingencies.
Mentioned in the outro
- Stock options as it relates to startups are not something previous guests have shared with us in detail, and we’ve covered restricted stock units in detail here too.
- The discussion about removing seemingly expensive skills from your resume was fascinating. The perception of expensive comes from the hiring team and not from the candidate applying. Maybe you should leave skills off that aren’t relevant to the job for which you are applying?
- Maybe we should bring this up with other guests who are hiring managers in future episodes!
- The discussion of John Nicholson’s filter for unsolicited recruiter messages is proof that we shouldn’t expect a recruiter to always tailor their contact to us in the same way we would tailor a resume for a job description.
- But, interacting with a recruiter and letting them know what you’re looking for can make them a potential advocate for you. Check out Episode 213 with guest Leah White for more detail.
- The idea that there is no incentive for managers to hold down employee compensation strongly aligns with John White’s experience with his tenure as a manager thus far (i.e. pay people well to promote longevity and retention).
- Remember John Nicholson is a co-host of the Virtually Speaking Podcast with Pete Fletcha. In addition to good Vmware and virtualization ecosystem content there are some good episodes that focus on career. Be sure to browse their catalog!
Contact us if you need help on the journey, and be sure to check out the Nerd Journey Podcast Knowledge Graph.
- stock-market-g99e48d13a_640: sergeitokmakov