In this guide
Base Salary: The Foundation
The base salary clause specifies your annual or hourly pay, the pay schedule (e.g., bi-weekly, semi-monthly), and the currency. It may also state whether you are exempt or non-exempt from overtime under the Fair Labor Standards Act (FLSA) or applicable state law. Ensure the salary amount matches your offer letter and that the pay schedule is realistic for your cash flow.
Look for language about salary adjustments. Some contracts state that salary is reviewed annually but not guaranteed to increase. Others may mention discretionary bonuses or cost-of-living adjustments. If you expect a raise, try to add a clause that specifies a review date and criteria.
Also check for provisions on salary deductions. Employers may deduct for overpayments, unpaid leave, or other reasons. Make sure these comply with state law, which may restrict deductions that reduce your pay below minimum wage.
- Verify the gross vs. net salary and the pay frequency.
- Check if you are exempt or non-exempt; this affects overtime eligibility.
- Negotiate a salary review date if not already included.
- Clarify the effective date of salary changes (e.g., start date, promotion date).
Bonuses and Incentive Pay
Bonus clauses can be discretionary or formulaic. A discretionary bonus means the employer decides whether to pay and how much, often based on performance. A formulaic bonus might be tied to specific metrics like revenue targets, individual goals, or company profitability. Understand which type you have and the exact calculation method.
Key terms to scrutinize: the bonus period (e.g., fiscal year), the payment date (e.g., March 15 following year-end), and any clawback provisions. Some contracts require you to be employed on the payment date to receive the bonus—this is common and means you could lose it if you resign before then.
If you are a salesperson or in a commission-based role, ensure the commission structure is detailed: commission rate, when it is earned (at order, delivery, or payment), and how returns or chargebacks affect it. Negotiate clear definitions to avoid disputes.
- Determine if the bonus is discretionary or formulaic.
- Clarify the performance metrics and how they are measured.
- Ask about the payment timeline and any conditions (e.g., still employed).
- For commissions, define the 'earned' trigger and the impact of cancellations.
Equity Compensation: Stock Options and RSUs
Equity clauses are common in startups and tech companies. They may include incentive stock options (ISOs), non-qualified stock options (NSOs), or restricted stock units (RSUs). Understand the type, the number of shares, the exercise price (for options), and the vesting schedule (e.g., four-year vest with a one-year cliff).
The vesting schedule dictates when you actually own the equity. A typical schedule is 25% after one year (cliff), then monthly or quarterly vesting over the remaining three years. Some contracts have acceleration clauses that vest your shares faster in case of a merger or acquisition (single-trigger) or if you are terminated without cause (double-trigger).
Also check the exercise period after you leave the company. For options, you usually have 90 days post-termination to exercise, but this can vary. For RSUs, unvested shares are typically forfeited. Be aware of tax implications: ISOs can have favorable tax treatment but come with complexities like the Alternative Minimum Tax (AMT). Consult a tax advisor.
- Specify the type of equity (options vs. RSUs) and the exact number of shares.
- Understand the vesting schedule and any acceleration triggers.
- Know the exercise price and the post-termination exercise window.
- Ask for a copy of the equity plan and the option/RS agreement.
Benefits: Health, Retirement, and Perks
Benefits clauses usually reference separate summary plan descriptions (SPDs) rather than detailing everything in the contract. You should ask for these documents to understand your health insurance (medical, dental, vision), life insurance, disability coverage, and any flexible spending accounts (FSAs) or health savings accounts (HSAs).
Retirement benefits like a 401(k) plan may include employer matching. The clause might state the match formula (e.g., 50% of your contributions up to 6% of your salary) and the vesting schedule for employer contributions. If you leave early, you might forfeit unvested match amounts.
Other perks might include paid time off (PTO), sick leave, parental leave, gym memberships, tuition reimbursement, or remote work allowances. These are often outlined in an employee handbook, but if they are important to you, ask to have them included in your contract to make them binding.
- Request the SPDs for health, dental, vision, and life insurance.
- Clarify the 401(k) match and vesting schedule.
- List all paid leave types (vacation, sick, parental) and accrual rates.
- Negotiate any specific perks you value (e.g., cell phone reimbursement, professional development stipend).
Expense Reimbursement and Other Protections
If your job involves travel, entertainment, or other business expenses, the contract should specify how you get reimbursed. Look for a clause that requires you to submit expense reports within a certain time (e.g., 30 days) and that the company will reimburse 'reasonable and necessary' expenses. Some employers provide a corporate credit card; others require you to pay out of pocket.
Also consider clauses about relocation expenses, sign-on bonuses, or retention bonuses. If you receive a sign-on bonus, there might be a clawback clause that requires you to repay it if you leave within a certain period (e.g., one year). Understand the repayment terms and whether it is prorated.
Finally, check for any indemnification or liability insurance provisions if your role involves making decisions that could lead to legal claims. This is more common for executives but can apply to managers. Ensure the company has D&O insurance if applicable.
- Define what counts as a reimbursable expense and the submission deadline.
- Clarify handling of company credit cards and cash advances.
- Review sign-on bonus clawback terms and proration.
- Ask about relocation support and whether it's a loan or a grant.
Negotiation and Red Flags
When reviewing your contract, never assume anything is standard. Negotiate on items that are most important to you, but prioritize. For example, if you value flexibility, negotiate remote work or flexible hours. If equity is a key motivator, ask for more shares or a better vesting schedule. Be reasonable and prepared to justify your asks.
Red flags include vague language like 'competitive salary' without a number, or 'benefits as per company policy' without attaching the policy. Be wary of clauses that allow the company to change your compensation unilaterally without your consent. Also watch for overly broad clawback provisions that could penalize you for leaving.
Remember that verbal promises are generally not enforceable if the contract is the final agreement. Get everything in writing. If you don't understand a clause, ask for clarification or seek legal advice from an employment attorney, especially for complex equity or bonus structures.
- Get all compensation details in writing, not just verbal assurances.
- Negotiate on key items, but prioritize what matters most.
- Watch for unilateral change clauses and vague references.
- Consider consulting an employment lawyer for complex contracts.