By: AnnaMarie Mock, CFP®
Worrying about being laid off turns into elation from a well-deserved job offer. All the preparation you did in advance made the job search and application process much more manageable.
Evaluating a job offer
Deciding to accept, reject, or negotiate a job offer is very important and requires much forethought to assess all the components in the offer letter. Before diving headfirst, ensure your potential new employer matches not only your compensation expectations but also your values.
A 2023 survey conducted by Pew Research Center shows that 66% of workers are less than somewhat satisfied with the compensation but are overall satisfied with their relationships with co-workers and managers. Jeff Weiss, president of Lesley University and author of the HBR Guide to Negotiating, advises to
"Step back and think expansively about your objectives. Think about the offer in terms of your development, your quality of life, and the variety of the work you want to do."
Your work environment can highly dictate your job satisfaction and should be part of the evaluation process. Of course, pay is relevant – but be sure you're not chasing just compensation but total work fulfillment.
It's important to feel comfortable in the environment you will be working in. Company culture reflects an organization's "personality" and sets expectations for how people behave, work, and function as a team. To discern if it's compatible, determine your preferences, like prioritizing work-life balance, working from home, and working with a unified team. Organizational culture can be marketed on websites and social media but is based on actions rather than the preached mission statements. Their compensation package, benefits, and perks should align with their values.
In addition, you can interview your prospective employer to get a feel for the culture and management style – what do you like about working here? How is this organization different from competitors? What would you change about the company? A company that respects open communication should also react positively to your curiosity. It can be very effective to speak to as many employees as possible and even research employee reviews to learn more.
Reviewing the Employment Offer Letter
After much deliberation, you determine the company's principles are congruent with yours and want to move forward reviewing the offer letter. An employment offer letter outlines details of the position, including job role, total compensation, and benefits. Letters can vary from company to company but typically include some standard items.
Job Title & Description: having clarity around this provides context as to what your daily activities will look like and ensure it matches your expectations.
Salary: outlines your annual compensation, including salary, bonuses, and commissions.
Work Schedule & Paid Time Off: Hours expected to work specifics around vacation and flex time. According to the Pew Research Center, every 3 in 5 workers prioritize regular paid time off and a flexible schedule. This will help you coordinate your personal life and responsibilities with work demands.
Benefits and Perks Package
Reporting Structure & Start Date
Offer Letter vs. Employment Contract
The employment offer letter can contain full details and replace a more formal employment contract depending on the company. This letter would be the document signed and returned to the employer to begin work. For some positions, an employment contract may accompany the offer letter and goes into more detail about the company policies, conditions for termination, and a comprehensive look at the salary components and benefits.
What is a Conditional Offer of Employment
Sometimes, a candidate would get a conditional employment offer contingent on them fulfilling requirements like background tests, drug tests, training, and certifications. This may be the precursor to the employment offer letter but can contain some broad information about the position and benefits. Although it reserves your spot if the conditions are met, the employer can revoke their offer at any point. To avoid confusion, clarify which document you've received and any expectations.
How Long Do I Have to Review the Letter
Regardless of the document presented, you should respond promptly to the letter or contract acknowledging receipt and that it will take some time to consider the job. The offer letter may specify time constraints to notify them of your decision, and you can ask for an extension if necessary. If there are no deadlines, you should respond within 2-3 days, especially if you want to negotiate some features.
Where should you begin to evaluate the offer? Your professional progress, or career development, is your human capital. Over your career, your human capital will compound and grow in value. Being intentional with human capital decisions upfront with an offer can pay off with higher income, promotions, and benefits over time.
Evaluate the Job Offer's Salary
Begin by reviewing your base salary and cash bonus. Bonuses are short-term incentives because they are merit-based or depend on company profits. Bonus percentages can vary widely depending on the industry and job level, and it is typically discretionary income because the amount may fluctuate. Although bonuses are beneficial, they are typically not guaranteed income and should not be the only enticing factor to accept the job.
There may be room to negotiate a higher salary if the offer is less than anticipated based on your skill level and experience. Many online resources can provide the average salary within your industry, company, and location. Your income should keep pace with inflation, plus a determined salary scale based on your relationships, advancement in knowledge and skills, and value to the company over time. Are there any guaranteed annual cost-of-living adjustments, merit-based raises, or room for internal growth and development? Evaluating the tradeoffs rather than just focusing on immediate pay is essential.
It may be difficult to envision where you want to be in the future compared to where you are now, professionally and financially. It can be overwhelming to assess a job offer when looking at it in isolation. The decisions you make on your employment may impact your financial future and goals in the long run. Take a step back and start with the big picture.
If you've ever assembled a jigsaw puzzle, recall what is the most essential piece. It's the picture on the cover of the box. Without the end picture, you randomly attempt to fit pieces together.
Likewise, financial planning for pharmaceutical executives starts with the end in mind – where you want to be, not where you came from. Incorporating your personal lifestyle spending and financial goals into the salary decision can determine if you accept the offer. To evaluate your income and current expenses, create a cash flow capturing your income and everyday expenses.
Gross income. Add up all sources of income for your household before tax and deductions – including the salary offer.
Total taxes. Nothing is certain except paying taxes; this should be reduced first because this is a necessary expense.
Fixed expenses. List the items you must pay monthly to maintain your current household, such as your mortgage or rent, car payment, insurance premiums, and utilities.
Financial priorities. This is your monthly savings target for any short or long-term goals.
Discretionary Expenses. The joy of life is doing what you love. Whether traveling, hobbies, or dining out, this section allows you to spend on the 'fun stuff' without fear of overspending.
Will this offer be enough for you to balance the needs of today with your needs of tomorrow? If the salary is not enough, there are a couple of ways to approach this - (1) negotiating for a higher salary if feasible, (2) reducing expenses (3) looking for a higher-paying job.
Regardless of the path, I recommend reflecting on your current lifestyle, prioritizing your spending, and emphasizing the savings category to grow wealth over time. Financial planning is making all your financial pieces work together for a common purpose or goal. Your lifetime goal is to achieve independence from your human capital.
Understanding the Benefits Package
The benefits package comprises non-monetary compensation and can be essential to a total compensation package. These benefits can significantly reduce household expenses or offer tax deferrals. All benefits deserve careful consideration as part of a financial plan and current lifestyle structure.
Insurance: Group benefits can be inexpensive to ensure you and your family are adequately covered and minimize the risk of unexpected out-of-pocket expenses.
Medical/ Health Insurance: Picking the right coverage is based on your utilization, not just the deductible or premium figure. A lower deductible typically translates into a higher premium and more robust coverage. While a higher deductible plan has a lower premium, it gives you access to a health savings account (HSA). HSAs offer "triple tax savings" because contributions are tax-deductible, and earnings and withdrawals are tax-free if used for qualified medical expenses.
Disability Insurance: This provides a stream of income if something unexpected happens to you and you cannot work in some capacity. There are important terms to know, like the definition of disability, elimination period, benefit payment, and benefit period. Employers may offer basic disability insurance for little to no cost.
Life Insurance: This provides a death benefit when the employee (insured) passes away. The coverage is inexpensive, and your employer may even cover the premiums.
Retirement plans: The most common plan is a 401(k), which allows you to defer a portion of your income into the plan on a per-paycheck basis. The deferral is limited to the amount the Internal Revenue Service sets annually. Depending on the plan, you may be offered a Traditional 401(k) funded with pre-tax money and a Roth 401(k) funded with after-tax money. Your employer may also contribute money to your account based on a set percentage of your salary or a matching contribution up to a determined threshold. According to Vanguard's 2021 annual report on how Americans invest, the average value of an employer match on a 401(k) was 4.5%.
Additional Fringe benefits: This encompasses items like tuition reimbursements, pet insurance, and gym memberships.
Misc. Benefits: This includes paid time off (PTO), career development opportunities, and work-life benefits/flextime.
How to Evaluate Stock Options in a Job Offer?
Equity compensation deserves special attention because it involves timing and unique tax considerations as part of your wealth creation. You must account for what you are awarded to maximize your equity compensation. Similar to your salary, stock awards can also be negotiated.
Equity compensation is simply non-cash pay, encompassing awarded stock options like non-qualified stock options (NQSOs) and grants like restricted stock units (RSUs). Options and grants are long-term incentive compensation because they typically vest over three or more years. They encourage employees to contribute to the company's growth and development, hoping their awards grow in value over time. Until the awards vest, there is no tangible value.
Non-qualified stock option (NQSO): Type of option where you have the right to exercise the company stock at the strike price after vesting. Ordinary income tax is triggered when exercised, based on the difference between the strike price and stock price on the exercise date.
Restricted Stock Unit (RSU): Type of grant where ownership of the shares is transferred at vesting, and the market value is realized as ordinary income on your tax return.
Verify the amount of your initial grant is clearly stated in your offer letter and a separate stock option agreement. The stock option agreement contains all the details on the treatment of the awards, including the strike price, vesting schedule, early exercising opportunities, and exit strategies.
You will be responsible for all taxes resulting from the vesting and exercising stock options. Depending on your situation, you may be able to cover the tax from the liquidity of the shares or automatically sell shares to cover the tax liabilities.
Important Note: Equity compensation deserves special attention because it involves timing and unique considerations as part of your wealth creation. Your employee stock and benefits come with complexity and taxation, which may make you apprehensive about making mistakes or missing out on opportunities. To make the most of your equity compensation, you must account for what you have and how it will affect your income. Doing so will minimize tax surprises and stop reactions based on emotions or 'gut feelings.' Ongoing monitoring and creating a long-term strategy as part of your financial plan can help you stay objective.
Sending a Counteroffer Letter
If there are aspects you would like to negotiate, you can certainly address this in person or over the phone. Before connecting, you may want to write a counteroffer letter/ email that expresses your interest in the position with some changes to the terms. The proposed changes can include salary, benefits, and equity compensation.
According to BambooHR, 75% of salaried employees prepare for compensation discussions by using references like researching similar roles, past job history, and asking other professionals in the industry.
Although knowing what fair compensation and benefits are for your position and your value as an employee is crucial, Simon Sinek advises that this alone is not enough for this conversation because it turns into a yes/ no answer. Instead, frame it as I want to continue to grow with the organization and want to develop a path to get to the desired pay scale & benefits. This creates open dialogue and more desirable outcomes.
Responding to the Offer Letter
After negotiations and considerations, you should respond to the offer by sending a letter or email.
If you accept the job, convey your appreciation, summarize some of your employment details, and inquire about the next steps. In addition, you should inform other employers that you are no longer available and have accepted another position.
If you decline a job offer, a similar approach can be taken by formally sending a letter or email. You may want to provide a brief reason to help maintain a positive relationship moving forward.
The whole process can be challenging to navigate on your own. I suggest contacting a trusted advisor to help you make the most advantageous decisions for you and your family.
AnnaMarie Mock is a CERTIFIED FINANCIAL PLANNER™ and Partner at HIGHLAND Financial Advisors, LLC, a Fee-Only financial planning firm that offers comprehensive financial planning, retirement planning, employer retirement planning, and investment management. AnnaMarie graduated from Montclair State University with a degree in finance and management and successfully passed the CFP® national exam in 2016. She has been working at Highland Financial Advisors since 2013 as a fee-only, fiduciary Wealth Advisor and is a member of NAPFA.