With the Salary Survey running and my current career transition, now seems like a good time to discuss job searching, compensation structures, and negotiating in the ServiceNow industry. Obviously, I’ve spent some time interviewing and discussing compensation recently, so I’d like to share some of my thoughts on how to make the most of your compensation package. Unlike the salary survey, this is just my personal thoughts and experience on the matter. Like the salary survey though, this is purely informational and you should seek a professional for any legal, tax, investment, financial, or other advice. Before I begin, I’d also like to say that obviously there is more to consider in new opportunities than just compensation package. This article is specifically discussing compensation because to a large degree, my personal approach has historically tended toward maximizing compensation. Also, I am US based and my experiences have been strictly within the continental US. With that, let’s begin by looking at some of the negotiating techniques I use.
My Negotiating Techniques
This one might be my most controversial technique: I avoid negotiating numbers. I rarely negotiate directly and when I do, I tend to be terrible at it. So, I’ve started to leverage non-negotiation. I will either accept or reject based on the first offer. I’m starting to become more upfront about this as well with employers. My line of thinking is this, I offer my absolute best every day so I expect my employer to offer their best. I have found that an employer that negotiates with me up front is more likely to continue to negotiate over time and is therefore less likely to be a good fit for me. Some people prefer to negotiate and so may feel more comfortable with other negotiators. I prefer direct, best offers or at least good enough offers that don’t leave me wanting. When taking this approach, interviewing broadly is helpful because more offers means you can compare those first offers and make a better decision.
The need to interview broadly means one of my main negotiating tactics is to always be interviewing, even when I am perfectly happy with my job. Interviewing offers a number of benefits. First, it allows you to meet new people and possibly find teams you really click with. A great team is a multiplier for every member of the team in terms of value, skill, and honestly job enjoyment. So I am always on the lookout for a team I feel in sync with. Second, periodic interviewing gives you information about what employers are willing to pay you. Salary surveys are great in my opinion, don’t get me wrong, but there is a difference between how much other people are being paid currently and how much employers are willing to pay for you right now. The only way to find out the latter is to ask. Lastly, periodic interviewing keeps my interviewing skills sharp and makes sure I’m ready when I find myself in need of a job change.
Obviously, if I am interviewing I am not afraid to change jobs. Few things have increased my compensation package quite like changing companies. Most employers will try to offer you more than your current package to entice you to join their team. That worked really well for me for a long time. Sometimes, though, changing jobs within your current company can be just as effective as changing companies. In fact, interviewing has occasionally given me ideas to try at previous employers without feeling like I needed to leave. Regardless of whether you choose to stay with your current employer or leave, always be ready to take a new opportunity that better aligns with your career and / or financial goals.
Build a Network
Let’s not fail to address the elephant in the room, CodeCreative. I run my mouth on the internet and that has had a huge impact on my compensation. I know a lot of people and that helps immensely when I’m looking for a job. I have sent thousands of resumes (yes really thousands, thank you 2008) to those digital applicant tracking systems and only one of those jobs ended up on my resume. Every other employer that I have worked for was the result of someone I knew. In fact, most of the jobs I’ve blindly submitted applications to have not resulted in even a single call back. Even now, during the last year, most of the employers I applied to through their website replied with a rejection email and never interviewed me. For me at least, the old adage of “it’s not what you know but who you know” has been very accurate. So take advantage of the SNDev Slack, Developer Meetups, and ServiceNow events. Make friends, find people you want to work with, and then make it happen. The worst outcome is you meet some awesome people.
My Approach to Compensation
In addition to negotiating techniques, it’s important to know what you are negotiating for. Below are my thoughts on different aspects of compensation packages you may run into:
For me, everything starts with the base pay. I have reached a point where I rarely sacrifice base pay for equity, bonuses, or really any other compensation. There are some things that would make me consider it but overall it is a question of risk. Base pay is in my experience fairly stable and maintainable. Once you achieve a certain salary, it’s much easier to achieve the same salary or more at your next employer. Hourly rate varies a little more, but with hourly it tends to be easier to pick up additional work to compensate. Either way, base pay is something you can spend, something you can invest, and something over which you have a high degree of control. Most other forms of compensation open you to a higher level of risk, and more often than not in my experience the reward does not justify the higher risk level. For that reason, I almost exclusively seek to maximize my base salary over all other forms of compensation.
My second most important piece of the package is health care. I’ve paid for health insurance out of pocket for extended periods of time and few things save my family money quite like a great employer based health insurance plan. As an added bonus, plans that offer an HSA offer a unique way to invest at a tax advantage in the US for both short and long term health needs. This has been a great way to manage costs and get more out of my compensation package.
Right up there with health benefits is a 401k with employer match. Anything you invest in the 401k up to the match is like a free pay raise. With some healthy stock market growth and wise decisions on the investments (assuming you get to choose), it becomes the gift that keeps on giving. I definitely try to make sure I maximize my employer matched contributions, and I do prioritize employers that have a 401k match.
Equity, some form of ownership in a company in the form of shares or units, was once one of the most exciting additional aspects of compensation. At this point however, it is much less important to me. To put things in perspective, the most equity I was ever given by an employer was worth 1.5 times my annual salary at the company’s target sale price. That’s a great payout and money I’d love to have. At the same time, a 15% increase in base pay today would yield the same amount of money in 10 years as long as you don’t face a significant pay cut. And that money can be invested to increase earnings. Sure, it’s a lot less sexy but the numbers add up and it’s completely doable. Equity on the other hand tends to be a bigger risk with a multitude of caveats that can potentially go wrong and rob you of the promised value such as vesting periods, buyback provisions, dilution, and a host of other things. Salary in my experience has been much more stable.
That’s not to say equity is bad. I love equity as icing on the cake after I get the base package I’m looking for. I simply haven’t encountered many situations where sacrificing base compensation for higher equity was actually mathematically worth it.
That’s also not to say I would never sacrifice base pay for equity. Ultimately though, the reward would have to match the risk I’m taking. For me personally, that requires three things: a high degree of trust between me and the owners, a clearly communicated estimated value, and a multiple of my base salary that I can not easily achieve otherwise. The reward has to match the risk.
I have much the same feeling about bonuses that I do equity; it’s nice as icing on the cake but I’m not sacrificing the base pay without a solid return. A lot of offers I have received over the years would match my target compensation package but would shift 15% to 20% of the base pay to the bonus. Usually, the organization will reassure you that the bonuses almost always pay out and for the most part I’ve always received at least some of my bonus. But let’s be honest, even at the best companies the bonuses don’t always pay out. If your bonus potential doesn’t exceed your desired target pay, the only possible result is that you will be payed less than you hoped.
Some bonuses, such as utilization bonuses, are baked into the company as a benefit everyone receives. It’s not part of the salary negotiation, it just exists as a standard offering like the 401K match. I love these sorts of perks and make sure to add those in when comparing total compensation packages. Utilization bonuses can be frustrating sometimes, especially if you don’t feel like you are in control of your resource plan or if you are putting on your superhero cape and feel like the bonus doesn’t justify the extra work. In these situations, I’ve typically gone to hourly pay and been much happier for it.
The important lesson that I’ve learned is that any bonus needs to be treated like all other financial risks. First, you need to understand the risk. How are the bonus targets established? What happens to those targets if priorities change in the middle of the bonus period? Who is responsible for making those decisions? Once you understand the risk, then you need to make sure the potential for reward is worth the risk. I’ll touch on this more in a moment.
I have never received a commission. Ever. That said, I’ve talked to folks on commission and also seen a lot of different data on commissions through stuff like the Salary Survey. Some of the highest paid people I know only do so through commissions and we’re talking salary x2 and more. Under the right circumstances, commissions can be one of the most lucrative compensation structures. For me there are a couple drawbacks that have kept me out of commissions despite the really great risk-reward ratio at the top end. First, you have to be in sales and pre-sales and I tend to gravitate more towards operations / delivery. I would love to see a more streamlined sales and delivery pipeline integration but thats another story. Second, you have to be in the right position, know the right people, or otherwise have access to a healthy sales pipeline to make the most of it. Third, sales and pre-sales are highly competitive environments. There is high incentive to be territorial over deals in the pipeline. The result tends to be pareto principle where 20% of the team is receiving 80% of the most lucrative deals and therefore the commissions. If you can get into that in-group, then there is huge upside. That’s not to say there is no money to be made if you aren’t at the peak but for me the risk-reward ratio doesn’t check out. Like many of the other variable pay scenarios, to be truly successful in maximizing the potential payout you need to have access to the right information and have some degree of control over the outcome, in this case the deals/sales activities that come your way.
On Hourly vs Salary
Another variable pay technique is to choose hourly pay in lieu of a set salary. This is common in contracting and consulting. I have done Salary, W2 Hourly, 1099 Hourly, and also done hourly and fixed rate projects C2C through an S-Corp. Which one do I like the best? It depends.
Fixed rate projects are my favorite more recently but in the ServiceNow industry they have been rare for me. Most of my fixed rates have been building websites outside the industry. The advantage is that I can leverage my technical efficiency and build tools and components that help me get the job done faster. That lets me spend less time making the same amount of money.
Hourly work I love when I have more time to offer. Getting paid hourly has made it very easy for me to scale my pay up and down as needed or wanted. When I was W2 hourly, I enjoyed the fact that if I got allocated heavily on projects I was making money for every extra hour I had to put in. During the late hours where I was hammering away at the keyboard, it really took the sting out of it to know that I was going to see a nice pay day out of it. When I was 1099 hourly, it also made me feel more in control of my time off. I could literally buy my time off. If I had wanted to, I could have added an extra project, worked some late hours, and then quite literally bought myself a month off. It also gave me more control over my resource allocation. If I wanted to coast on a single project, I could. If I was feeling particularly hungry for work, I could pull some additional work. One downside to hourly is the end of projects gave me anxiety. Would I be able to pull another one? Would I have to drop my rate? Could I increase my rate? The other downside for me was that it could get lonely. Some projects I had an amazing team but others I ended up solo. Going solo as a contractor can be way more isolating than being on projects solo at a consultancy where you still have an internal team. Of course, at the time I wasn’t a part of the SN Dev Slack and I imagine that would make a huge difference.
Salary on the other hand is nice because it is stable. The pay hits my account and I don’t have to worry or think about it much. The odds of my salary “rate” going down are pretty low. And job security at least feels a little more solid. When I am salary and rolling off a project there isn’t any anxiety. Additionally, you have the support of your team. Got a question? Someone can help you. Need an extra set of hands on keyboard? Someone is bound to have availability. The downside for me is the loss of control. When resource allocations get screwy and you end up stacked with multiple projects, you usually just have to deal with it. Also, there tends to be more unproductive tasks as salary because your salary cost is already sunk, so there’s no budget impact for adding you to one more internal meeting or non-billable activity for the consulting folks. There always seems to be this weird sense that “you’ll figure it out”.
There’s also the hybrid approach where you work one job salary and then do some side work as hourly or fixed rate (assuming your employer doesn’t have a policy against it). In my opinion, this is better than a bonus but worse than just working hourly. Keep in mind, I’ve done this a number of times. It’s a nice way to add additional money but you have to be especially careful because you control some of your work but not all of it and that can lead to conflicts.
Overall, I’ve chosen each of these at different times for different reasons and I don’t think there is a one size fits all. You really do have to evaluate your situation to determine which approach is the best for you.
A few times through this, I’ve mentioned risk and reward. Over the years, I’ve come to realize that I am much better off when I treat pay negotiations the same way I would treat any other investment. If a company is asking me to give up a guarantee (salary) and accept a risk (bonus, equity, commission, etc) then there needs to be a reward (larger potential total compensation). Similarly, I also have to evaluate the likelihood of the risk (both positive and negative outcomes). For me, I look for a minimum risk-reward ratio of 1 to 2 when it comes to compensation package. That is, for every one dollar I put at risk I expect two dollars of potential return. So, if a company wants me to convert 15% of my base pay to bonus then I expect a bonus of 30%. The first 15% is the potential to get back to even and the second 15% is my potential return on investment.
Similarly, as I discussed with equity, I also have to evaluate the potential for me to earn that money in a lower risk way. Equity takes time to realize, usually to the tune of at least 3 to 5 years but sometimes more. A small multiple of annual salary spread over many years is easy to accomplish with either a pay raise or even some part time side work. I for example have built websites and done some off platform app consultations on the side to make extra money. Some people do part time contract work on platform on the side (check your non-competes and company policies before doing this). For equity, my risk-reward ratio is more about the years I expect to invest. For each year I expect to commit, I look for some multiplier times my annual compensation which would be challenging to obtain through other means. So if I can easily make 25% of my annual salary through other means per year, I’m not likely to worry myself with the equity unless the reward is twice that amount. That’s not to say it is or is not a reasonable expectation that I will receive an equity offer in that range. Your risk calculation may be different, especially if on average you stay with most companies for 5 years or more. This is just an example of how I calculate the risk-reward ratio that I need for equity to hold weight for me.
The important thing is to begin to view these transactions as risk and reward. Decide for yourself up front what sorts of risk you are willing to take and how much reward you expect to get in return. Too often in the past, I’ve taken on risk and didn’t really understand what I was doing or what I could expect to get out of it. These conversations can be very emotionally driven and feel like a lottery rush, so it’s important to remember that math can help ground you and make the best decision.
So to sum up my overall approach to pay and negotiations:
- I place the highest value on base compensation (salary or hourly) because I can’t spend or invest promises for money tomorrow. That means avoiding trading base compensation for variable pay
- Securing a good health plan, HSA, and 401K plan are next on my list
- When evaluating variable pay (bonus, commission, equity, etc), I treat it as a risk analysis and calculate the likelihood of outcomes and the risk-reward ratio to determine if the compensation component is worth it
- I avoid negotiating and try to either accept or reject first offers and encourage employers to make their best offer first
- I’ve never been afraid to look for a better opportunity or to take it if I find one
Overall, discussing anything around pay and negotiations can be a really sensitive subject but I feel it is important that we have them. Knowledge is power and if you are like me then you probably feel like that scale is tipped against you when talking to potential employers. Most of the time all I am equipped with is “this is what I make now”. To overcome that I’ve developed a better strategy over the years that has worked well for me and I hope it helps you develop or refine your own strategy.