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Tuesday, November 16, 2010

The Counter-offer Conundrum

People asked me yesterday if the Techcrunch $3.5M story was true. I said it was believable, because while I wasn't involved in negotiating that particular counter-offer, I had some role in assisting someone land a counter-offer within 20% of that number some time back.

It is important when negotiating these counter-offers to realize that the most important part of the negotiation isn't really about the money. The money is nice (and $3.5M is nothing to sniff at), but you must negotiate about what's important to you. In particular, if you were going to quit because grungy work wasn't getting respected, then you have to make sure you get moved to a more sexy project with a fast-track for promotion. That could mean switching groups, getting a new manager, or extracting executive protection and coverage so you can get fast tracked. (What does fast track mean? A promotion every year would be the fast track)

At the end of the negotiation phase, I am usually asked if I recommend taking the counter-offer. My answer is almost invariably no. Most of it is because the basic things that piss you off (the company promoting technically incompetent people over your head, or not respecting the difficult work you did because you're not a self-promoting loudmouth) won't change unless you suddenly get a new job title like "Senior VP of Engineering." (Even that's questionable!) What happens in the case of such a massive retention package is that you end up working for money. While that much money is a life-changing amount (though be realistic: $3.5M after tax is only about $1.75M. That'll generate about $60K/year in income using the 3% safe-withdrawal rate, which might not be enough for you if you have mouths to feed --- and since most of the compensation is in stock your return can be quite variable), I find that creative professionals like software engineers have an especially hard time working just for the money. I usually tell the person involved to get a bigger/better offer from the other company by using the counter, and in some cases encourage them to take the lower offer from the smaller company that has a better prospect of growth. In the long run, the ability to stay motivated and challenged in a new environment is better than the golden handcuffs.

The result for the retaining company is a triple whammy. Not only was the formerly creative/hardworking worker now gotten less motivated, you now have to pay him more. Then if the package leaks (and such large packages almost always leak), the rest of the team gets de-motivated as well.

One manager told me that even people who take such a package rarely stay longer than one year. One person who took the retention package confided to me a few months later that he did indeed feel less motivated. Seen in this light, the counter-offer conundrum isn't much of one: don't take it unless you're given the power and authority to change the things that pissed you off enough to start interviewing in the first place. Or make sure that the golden handcuffs are so golden that you really will never have to work a day for the rest of your life again after you are done vesting.
[Update: AllThingsD reports a $6M offer which I have not confirmed. I will note that $6M is enough to not have to work for the rest of your life, so I can understand taking that counter-offer]

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