what should I look for in a job offer letter?

by Alison Green on December 3, 2012

A reader writes:

I have a question about offer letters. I’ve received an offer that is pretty amazing (they pegged me at the high end of my salary range, put in a very generous potential bonus, a really nice title bump, and stock options) and I really feel like I can’t say no to it, especially in this economy and with my field being kind of small. That being said… I want to make sure all my t’s are crossed and i’s dotted before I sign on.

Are there specific things to look for in an offer letter, things that should be there (and if they aren’t to be sure and ask about), things that shouldn’t be there (and if they are, is it a worry)? Offer letters are kind of a new thing to me; most of my jobs have been just a phone call to say “you’re hired and here’s the start date.” This is my third job that has come with an offer letter and it’s the most complex I’ve ever seen. My first one was literally two paragraphs and a more formalized version of the phone calls I’ve gotten in the past. The second one was a bit more involved than that, but still a one-page letter. This one is seven pages long and reads almost like a contract [it even has sections about having to sign an NDA when I start, that employment is at-will (which is kind of a given in my state), etc.]. We’d discussed a telecommute scheme (3 days in office, 2 days at home) which wasn’t mentioned in the letter, though I expected it to be, and stuff like the at-will employment and NDA I did not. They mention that I’m eligible for all the benefits the company offers, but only mention health insurance (I’ll be asking about the rest, of course). Seeing a letter this complex, as it were, just has my head reeling a bit.

I know every company is different and will have different ideas about what can/should be there, but I do wonder if, outside of salary and such, there are any general things I should be looking for as I make up my discussion points on this offer (and future offers!). I’ve never really felt like I had agency in the employment process before, so this is a bit daunting.

Also, when I got my letter, my presumptive manager was sure to point out the stock options section as the part I should pay really close scrutiny to, saying that it could be the most “valuable” part of the offer (this is a start-up, they’re not public as yet), as well as giving insights into their thinking. I know nothing about stock options and frankly don’t really care about them a whole lot. If I ask about other things, and not this particular section, is it going to look odd?

Different employers handle offer letters differently. Some employers don’t use them at all — you hear the terms of their offer in a phone call. Others send fairly casual emails with the same information. And some do use formal offer letters, either short ones like what you’ve seen in the past, or longer ones, like the one you have now.

In any case, there’s nothing to be daunted by here — what you’ve described sounds pretty normal, including the at-will statement, which is in most offer letters. Take it piece by piece and make sure you understand what each section is saying. If you don’t, then ask for clarification. If you don’t particularly need clarification on something (like the stock options), you don’t need to delve into it further, and no one will think it’s weird that you didn’t. (But it’s good to understand how your stock options work, so don’t skim over that part just because you don’t care about it too much now — you might care quite a bit in the future.)

And you can certainly ask to see details on the benefits they offer other than health insurance, if that’s going to be a factor in your decision (or even if it isn’t — but if it’s not, you might rather focus on the stuff that does matter to you).

The fact that the letter doesn’t include the agreement you reached about telecommuting isn’t surprising, because the letter is almost certainly the standard boilerplate that they use for every position they offer, only changing the details like title, salary, and start date. You should absolutely get the telecommuting and any other details you’ve negotiated in writing so that there’s no question about them later, but it doesn’t have to be part of the offer letter itself. It could be as simple as you sending an email summarizing your telecommuting agreement and asking for their confirmation.

That said, keep in mind that getting this in writing doesn’t guarantee that they’ll never change that agreement; you could get a new manager in six months who doesn’t like telecommuting, or the company could decide that a change in your projects means that your job no longer lends itself to so much telecommuting. If that happens, having the agreement in writing won’t protect you. Rather, the point of putting stuff like this in writing is in case there’s a misunderstanding later about what the agreement was or if the person you worked out the agreement with leaves and no one else knows about it. In other words, it’s helpful for miscommunications or memory lapses, but not for them simply changing their mind.

And speaking of all that, you should also keep in mind that an offer letter isn’t an employment contract. It’s not a guarantee of employment, and it can be changed at any time (although not retroactively). It’s really just spelling out in writing what both sides have agreed to at this particular point in time.

Anyway, don’t be daunted by the complexity or length of the letter. Translate it into plain language for yourself, make sure you understand what each part is saying, ask when you don’t, and get a written agreement on anything you care about that isn’t there.

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{ 12 comments }

{ 12 comments… read them below }

  1. Laurie*

    Congratulations to the OP. About valuing stock options in your offer, I would suggest looking on websites such as Quora and the Hacker News forums. I’ve seen similar topics come up for discussion, and since these websites are very heavily SF-valley based, the posters tend to know about receiving stock options in their employment offers. Good luck!

  2. Canuck*

    Congrats! But I also agree, you should care about the stock options. Those are the reason why so many employees of companies (like Facebook, for example) became millionaires once their company went public!

    A very quick and simple explanation is this: you are given the “option” to purchase a set amount of stocks at a set price, at a specific time (e.g., 2 years from now). The idea is that the set price is usually much lower than the price the stock will actually trade at when you are allowed to take your options. Sometimes it is drastically lower, e.g. your options allows you to buy at $1, but the stock actually trades at $100; in this example, if you have 1,000 options, you would make $99,000 profit!

    Now, do pay attention to the specific details of your options, because there are usually a whole bunch of stipulations and restrictions. The idea behind stock options is to provide an incentive to stay with the company, and to make it do well – because the better the stock does, the more you personally gain. Now, with a start-up, there is no telling when or if it will go public – so if your options are based on that, be aware that it can generally take years for that to occur!

  3. Sharon*

    I beg to differ with the other commenters about the stock options. Learn everything you can about them, sure, but don’t put too much importance in them. And this isn’t your case, but it has happened to others in the past: never EVER accept stock options in leiu of pay! Options are not the same as stock. They are just saying that you have the right to buy company stock at some point in the future at a particular price. It may be a wonderful thing, but it just as easily could amount to nothing. Start-ups especially try to seduce workers into working unpaid overtime, or unpaid regular time, with stock options that later become obviously worthless. This was extremely common in IT during the dot-com bubble.

    1. Not So NewReader*

      Really solid advice, Sharon.

      OP, the conservative action with stock options is to consider them as something nice, but not part of your pay. Not much different than if you are told “oh you might get promoted in a few years.”
      Sure, you might get promoted, but you might not either. It’s nice but not part of your current paycheck. Same deal with stock options- you might make money on them in a few years or you might not.

      DO keep the stock options in a safe place, such as your firesafe if you have one. DO make note of the dates they expire. You will want to check on them before that date. Look around for a financial adviser or someone licensed to work with stocks to help you. You will want help/advice when the company starts selling stocks on the open market.

      And definitely- do not get excited over stock options. I have some here that are set to expire and they are worthless to me. The market price of the stock is less than the price stated on the option. I will not be using that option.

    2. Canuck*

      I agree completely – taking stock options in lieu of pay is very risky for a startup, and I wasn’t suggesting that. The OP did say that they received the upper end of the salary they were asking for, a nice title, and a bonus structure. So I was just commenting that the OP should not ignore stock options just because he doesn’t understand what they are.

  4. badger_doc*

    I have an opinion on stock options as well. I started working for a start-up right out of college and in my offer letter, we were given 1000 options that we could pay $1 for whenever we chose to exercise those options. In this case, we were acquired, after which we all were to exercise our options for a return of $0.99 per option ($1.99-$1.00). So we all made some money after the company was bought out. Additionally, we went through a hard patch where, instead of a raise that year, we were given more options. Normally, for most start ups, this wouldnt be worth the paper they were printed on. Options are not worth anything, as Sharon stated above. But in this case, it paid off becuase the company was not doing well financially and I got an additional 1000 options on top of my original 1000 and got to exercise those when the company was acquired, basically doubling my return. My advice to people going into start-ups — always take the stock options. You NEVER know when they will pay off and if they do, the payout can be awesome! That said, they are not better than a raise, so if you have a choice, don’t turn down actual money for potential money. I’ll always negotiate for more options if I ever work for a start-up again. Congrats and good luck with the job! That offer letter sounds very similar to the ones I have received in the past. Don’t worry about not understanding it now. If you get acquired, there will be plenty of people willing to explain it to you.

  5. Anonymous*

    On the stock options, you should check them out as others mentioned, I’d add to see if they mention a vesting schedule. For example, you may have to be there a certain amount of time before you are fully vested in options they are giving you.

  6. Hwally*

    There are some good comments here about the Stock Options but I just wanted to throw in that it might be a good idea to find yourself a good financial advisor. They can look over the stock options and break down your choices for you. Most advisors include this in their services if they are good at what they do. Since you sound like a new investor, it would be good to have someone you trust spell it out for you. They can also help with 401k choices.

  7. Blinx*

    Since it is a 7-page letter, it is curious why they are not spelling out all of the benefits, instead of just saying “company benefits”. I’d also want to see the telecommute schedule in writing. But to AAM’s point, things can always change later, so not sure how persnickety you want to be about the offer letter.

    Another note about stock options… while they can be worth many thousands in the future, at *some* companies it’s only while you are still an employee. If you are quit, are fired or laid off, the options disappear. After you’re hired, find out the company policy regarding options, just so you won’t be surprised later on.

    1. KarenT*

      Regarding benefits, it may just be because you get a seperate package for benefits. I know when I was hired I was given the vague “company benefits” line, but was given a package from our insurer that outlined everything and allowed me to choose between different packages. I would still inquire, however.

    2. Chinook*

      If in doubt about what they mean by “company benefits,” ask. My offer letter mentioned vacation benefits (required by law in Canada) as laid out in Company manual which is given on the first day. I should have asked for more detail as I would have negotiated something better than not being able to take any vacation time my first year and only what I earned in that first year in my second (which boils down to 5 days vacation in a year and a half instead of the 3 weeks which I get to have in my 3rd year.)

  8. OP*

    OP here, thanks everybody. In regards to the stock options… when I said I don’t care about them overly much, it’s more in regards to how they play into my overall package. I definitely agree that they’re a nice perk, and tend to leave them there. I’m more concerned about benefits, salary, and my duties (though not necessarily in that order). I’m not going to ignore the options by any means! They may, indeed, turn out to be worth a great deal. But I certainly wouldn’t take them in lieu of a pay raise, I’m in too much student loan debt to want to take anything other than cold, hard, cash thanks :)

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