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Everyone has different needs and preferences when it comes to the mix of salary, equity or cryptocurrency that make up their remuneration package. Salary has a guaranteed value (setting aside changes like inflation), while equity and crypto can end up being worth a lot more or less than anyone’s best guess.
Your response to salary versus equity versus cryptocurrency in an offer may stem from your risk preference. But often, it comes down to practical necessities.
As a Talent Advisor whose coached multiple developers through their job search, I’ve found developers can underestimate how different types of remuneration affect the overall offer. Delays in responding to an offer can mean you miss out on an exciting opportunity.
Here we look at how you can analyse different types of remuneration in a job offer to make the best, timeous decision for your next career move.
Determine your remuneration priorities and set your expectations before connecting with employers
You may only come across what types of remuneration the employer offers when you look at the job contract. Although it’s relevant at this stage to negotiate these terms, it’s best to set your priorities before you start interviews. You need to communicate what you’ll need early in the interview process and determine if an offer meets your expectations within a day or two.
The hiring manager may bring up the conversation themselves, but if not, ask them after the first or second interview if you can jump on a call to understand their compensation model better.
Chatting to the employer about their compensation model is an opportunity to express what you’ll need to accept an offer from them, as well as understand if they can meet your expectations.
You may feel uncomfortable raising the question of remuneration with a potential employer, but remember that neither party wants to waste any time in the job search space.
The different types of remuneration to consider: salary, equity and cryptocurrency
Salary:
Cash in your pocket today, which you can use how you’d like.
It's clearly evident how much a wage is worth today, whether it's spent towards living expenses or invested somewhere, and you can even predict how much money invested today will be worth in a few years.
Equity:
Owning stock in a private company is a wager on the company's future success.
Consider yourself (the employee) as a mini-venture capitalist, accepting equity in exchange for the value you bring to the company. Employees supply human capital and accept stock as a (partial) replacement for cash pay, whereas VC funds value capital in the form of cash.
Cryptocurrency:
A digital asset designed to work as a medium of exchange, usually using cryptography to secure transactions and to control the creation of new units.
There are many different types of cryptocurrency and it’ll be useful to understand the market value and history of whatever cryptocurrency you’re offered.
How do you determine your remuneration priorities?
- Can I survive on the lower salary offer?
If you’re offered equity or cryptocurrency over a higher salary, ask yourself if you can live comfortably off of the salary amount. Equity and cryptocurrency will likely not be accessible for a period of time. In addition, their value may decrease, meaning you get less at the end of the day.
Joining an early startup may be thrilling — not to mention a terrific learning experience. However, lower compensation is usually accompanied by increased stock stakes. The smaller the company, the less likely it has raised (or made) a large sum of money.
Take a look at your own expenses to determine the minimum salary you’d be able to accept. This is critical in an expensive tech hub like Amsterdam, where living expenses can eat up a huge chunk of your income.
- What's your four-year plan?
If your equity has a four-year vesting schedule, you won't be able to buy any shares until year one, and the remaining shares will take another three years to vest. If you plan to relocate, plan on going back to school, or don’t expect to stay long, factor it in.
You may not have immediate access to remuneration in the form of cryptocurrency, depending on your agreement with the company. Factor in how long you’ll need to wait to access it, and how you’d exchange it for money or different assets in the future considering the market value and history.
- How strongly do you believe in the company?
Hopefully, you're excited about the possibilities of any new company you're joining, but deciding between pay and equity is an opportunity to consider how positive you are about the company's future, as well as its exit chances, which will ultimately decide the value of your equity.
Of course, this isn't easy. Even professionals (such as venture capitalists) who are hired to do this frequently make mistakes. If you're leaning toward a lower pay but a company you're excited about, this is a crucial element to consider.
It should also be noted that dilution (i.e. the decrease in shareholding as new investors come on board) reduces the percentage of a company you own, but typically doesn’t change the number or value of your shares.
- Do the alternatives make financial sense?
If a company has offered you two different packages, one with more equity or cryptocurrency and the other with a higher salary, it’s worth running some quick calculations to figure out if the two numbers are reasonably equal.
Remuneration in the form of equity
In the tech industry, it's common for employers to provide stock options as part of their package. This is an appealing prospect for employers since it means they spend less money on employee compensation in the short term while incentivising employees to help the company succeed in the long run.
When it comes to cash and equity, you will have your own needs and preferences. A salary has a fixed value (apart from inflationary increases), whereas equity can be worth a lot more or less than anyone's best prediction. A salary is a commodity; equity in a company is not.
But what does it mean for future you and how can you weigh up the tradeoffs between the two forms of compensation? Here are a few equity benefits and drawbacks to consider:
Benefits of equity
- Ownership
Equity is compensation that allows employees to become part owners of the company. For companies that succeed, holding equity is a huge benefit for an individual.
- Increased earning potential
Ownership frequently rewards employees who stay with the company for a long time, and it can sometimes result in large cash payouts. This is especially true for employees of successful startup companies, whose stock value increases significantly over time.
Drawbacks of equity
Each employee’s agreement for equity as compensation is unique to their company and role. Depending on the circumstance, there may be some or no drawbacks to this form of compensation. Here are a few that you may want to investigate:
- Risk of loss
Some workers find that being awarded equity comes with time constraints and tax implications alongside a lower base pay. In addition, perhaps the company doesn’t succeed as planned and your equity amounts to little to no value.
- A less stable form of compensation
Equity is usually subject to vesting periods, during which you’ll need to remain in the company to receive the full value of your equity. If you resign before the vesting period is complete, you may need to forfeit some or all of your equity.
This makes equity a less stable form of compensation, which can cause complications if you rely heavily on equity as part of your remuneration package.
What to ask a potential employer about equity
- Does accepting equity as compensation mean a lower salary?
Not always. Sometimes an employer may offer significant equity as part of a total compensation package, resulting in a lower salary. This is not always the case. Some corporations include stock options in their already excellent salary packages.
The stock is being used to entice talent and improve prospective profitability in this scenario. It's crucial to look into the offered equity and compare your basic wage to national standards.
- When can you cash out equity compensation?
At the time of vesting, an employee acquires all rights to their equity. When this occurs is unique to each person's agreement with their employer. When you have complete control over your equity, you can cash out by selling your share of ownership back to your employer.
- Can you negotiate equity compensation?
Yes, just like any other sort of remuneration or benefit, people can bargain for equity. They can demand more income instead of stock, as well as a larger percentage of ownership or a faster vesting term.
Before negotiating with a potential employer, you should examine your specific needs and study equity choices.
- Does company equity come with tax liability?
Uninvested stock often has no tax implications. However, vested equity can be taxable in some cases, depending on what you do with your partial ownership. It is taxable if you cash out or sell your stock, or if you receive dividends or other forms of income from your equity.
- Can a merger affect employee equity?
Yes, mergers can possibly have a negative impact on employee equity. If you have fully vested shares and full rights to your ownership, a merger is likely to require you to cash out your equity.
If your employee equity is unvested, a merger could have other consequences. It's possible that a merger could result in a new vesting schedule, or that your existing equity agreement will be cancelled.
Remuneration in the form of Cryptocurrency
Cryptocurrencies could become more common in salary negotiations, especially with younger workers in the near future!
A cryptocurrency is a digital asset that uses computer code and blockchain technology to run autonomously, without the need for centralised management. The usage of cryptocurrency to pay parts of employee wages is known as crypto payroll.
When offered as remuneration, cryptocurrencies can come with both rewards and risks for employees. Here are a few benefits and drawbacks:
Benefits of cryptocurrency
- Fast access
As soon as your employer makes a payment to you using digital currency, it is in your account. You don’t have to wait to receive your compensation.
- It's decentralised
The peer-to-peer network of cryptocurrency avoids centralised bodies such as banks and governments that regulate the supply of traditional cash. In other words, the value of cryptocurrency is unaffected by governmental or banking organisations.
- An investment
Cryptocurrency, unlike typical fiat payments, has the potential to appreciate in value. If the value of cryptocurrency rises, employees may be able to earn significantly more than their base income. Of course, it also has the ability to depreciate over time.
Drawbacks of cryptocurrency
- Avoiding taxes - or not
The country you work in matters when it comes to cryptocurrency tax legislation. Some countries are particularly liberal.
In South Africa, cryptocurrency is regarded as an 'intangible nature' asset rather than currency or property. As a result, cryptocurrency is subject to both capital gains and income taxes. It is unclear whether cryptocurrency should be taxed as income or capital.
- Volatility: a double-edged sword
Cryptocurrencies are inherently risky. In just a few months, the price of Bitcoin rise and falls dramatically. Bitcoin is an unreliable basis for wages and fringe benefits because of its volatility.
Due to market volatility, accepting cryptocurrency payments could result in employees earning less than their normal compensation.
- Cybersecurity threats remain
Though cyber threats aren't exclusive to Bitcoin and other cryptocurrencies, industry experts predict that hacks will continue as long as the digital currency is popular.
Many scammers and attackers are focusing on cryptocurrency wallets, and they're employing social engineering in the same manner that we get phishing emails. As a result, using a cryptocurrency platform that prioritises safety and security is critical.
If you’re unsure where to begin looking for a trustworthy digital currency exchange platform, check out Luno.
What to ask a potential employer about cryptocurrency
- How will my cryptocurrency earnings be accounted for? What is the taxation rate on cryptocurrency earnings?
Cryptocurrency earnings may be subject to capital gains tax or income tax, depending on how they are classified in your local tax laws. Consult a tax professional or your hiring manager for specific advice on how to handle your cryptocurrency earnings.
Keeping good records of your cryptocurrency earnings, including the value of the cryptocurrency at the time of receipt, will be important for tax purposes and may also be helpful for future reference.
- How often will I be able to access my cryptocurrency earnings? Are there any minimum vesting requirements?
Some employers may have specific methods to paying you your cryptocurrency earnings, and you want to fully understand what they are to track your earnings. You may need to set up an account with a specific platform they use, or perhaps they’ll suggest the best platforms you can explore.
Either way, you’ll need to determine how you’re going to access these earnings, and how long you’ll need to wait until you can.
- What type of cryptocurrency will I be paid in?
There are many different types of cryptocurrencies out there. A basic understanding of what exists and how they’re performing in the market will help you decipher if a cryptocurrency offer will be worth your while. Here are some resources to get you started:
- A crypto portfolio tracker by Koinly
- A live view of cryptocurrency prices by Live Coin Watch
- Cryptocurrency prices by market cap on CoinGecko
It can be overwhelming if you feel you don’t understand the different types of remuneration in a job offer. It’s important to remember that you can always ask a hiring manager for clarity to have a more informed view of what compensation you’ll be entitled to.
Any offer you accept without this clarity and understanding could mean you’re in a difficult position in future. Rather take the time to benchmark your remuneration expectations before connecting with potential employers.
Amy Thompson is a Talent Advisor at OfferZen with a wealth of experience assisting software engineers in their job search. When she's not helping developers in achieving their job search goals, she's discovering the scenic Cape Town mountain ranges, free diving on the coast or cooking up a storm.