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I've been involved in a job search for CTO positions, primarily targeting central European startups that are a little bit past early stage (either self funded with revenue or Series A+).

I think I've developed a great relationship and chemistry throughout the interview processes with one of the companies that I'm in the final interview stages with.

During our last call we discussed some feedback (positive), and proceeded to discuss compensation. My own expectations are based on thorough research on both market value, as well as living costs in that area. We got into a rather strange negotiation process that has me feeling devalued, and doubting whether I want the job.

If they felt that my expectations are too high (100k), I expected a reasonable counter-offer. Instead, I've been asked if I'm willing to trade off part of that salary for a potential future ESOP. That some employees are willing to completely give up on their salary just for that ESOP, stressing how much more valuable this is.

I was then asked if I would accept a low base salary, and a performance based payout to reach the final number, which I think is wrong because a CTO might be incentivised to make wrong decisions just to get to his max salary, so I refused.

Then I was told that living costs in their city are cheaper than I think (not according to my research)and that while I'm waiting for an offer or rejection I should let them know if I'm willing to drop my price in exchange for ESOP. I instead asked for a counter-offer.

Long story short, I now feel that the company must be struggling financially, and worry what such employment tactics must mean for the quality of their employees.

I really don't understand why they would undermine the effort and relationship we built during a long interview process, all over a really small amount of money for such a company (+/- 30k a year?).

Was this all a test, to see if I can stand my ground? I really like the company and the people, but this step was so destructive, I still can't get my head around it...

Is this a normal practice for this position, or maybe in this part of the world?

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    Wow, that is a lot of text. Only you can decide what is important to you in a compensation plan. If the company isn't offering what you want, either counter-offer or decline. ESOPs can be nice, but they don't pay the bills today and may or may not be worth anything in the future. Personally, I prioritize paying my bills today. – Seth R Dec 2 at 22:28
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    "...we could make much more together within a year that they would forget about the salary they offered initially." That's not always the case. I know of one that startup that went bankrupt because it hired a C-level executive from a large corporation. That being said, the reverse can also be true. I've seen a number of startups continuously shoot themselves in the foot simply because they were still running the business like a personal project and were unwilling to pay market rate for actual real professionals. – Stephan Branczyk Dec 3 at 9:33
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    Yeah, when a startup interviews C-level marketroids, it's important to know whether they themselves know PowerPoint, or whether they relied on secretaries to do that kind of stuff. No secretaries in startups. Those big-company d00dz can kill small companies. – O. Jones Dec 3 at 12:18
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This is business. Your self-worth is not at stake. You are being asked to invest your only irreplaceable resource, your time, in this company.

By trading cash salary for shares / ESOP / options / RSUs / whatever, you become an investor in the company. This is fairly common at early-stage companies. Therefore: part of your decision-making process should be asking investor-type questions.

At this stage of the negotiation you and the company are on opposite sides of the table: you and the company have opposing interests. It's OK to be in that position. When you take the job, you'll then be on the same side of the table.

Here are some questions to consider:

  • Who has invested? Founders, VCs, banks? Names, please. They probably won't tell you how much each entity invested, but they should tell you who.
  • Who is on the board of directors?
  • What is the value of the company? Specifically, how much was the company worth "pre-money" right before the most recent investment?
  • What fraction of the company are they offering you in shares? For example, if four million shares are outstanding, and they're offering you the right to purchase 100K shares, you're being offered 2.5% of the company.
  • Does the company have revenue yet? If so, how much per annum? If not, how long do they think it will take to get revenue?
  • How long will it be until they run out of money and must obtain another investment?
  • When do the founders think they will be able to bring cash salaries up to market level?
  • What does success look like for the company? How will your shares become worth something one day? (Going public? Selling to a larger company?) If the company is sold, who gets paid first (who has preferred shares)?

You can preface these questions in a smooth and polite way, saying "I need a little more information to make a wise decision."

They should try to be transparent in their answers to these sorts of questions. If they don't it's a serious danger sign. But keep in mind that the founders might be doing this kind of thing for the first time themselves.

Then, ask yourself:

  • Is this project worth ten years of my life?
  • Do I want to spend the next ten years working with these people?
  • With me working on this project, does it have a reasonable chance of success?

Companies do this kind of thing to conserve cash, and to give key employees like you a share of their hoped-for success.

Good luck.

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    The question seems too broad to be a good fit for Workplace, but you gave a pretty solid answer, and advice that's worth having on here. +1 – AndreiROM Dec 3 at 18:07
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    OP should also see if they are being offered preferred shares or not. I read something about it some time ago that, the employee had shares but after the company was bought, they preferred shares were paid off, but not the ordinary shares. – luizfzs Dec 3 at 20:38
  • Good point, @luizfzs. I updated my answer. It's extremely unlikely that an employee (option holder) would be offered preferred shares. Usually investors get them. And, yeah, they sometimes take the money and run. – O. Jones Dec 3 at 20:57

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