An offer letter is rarely just a salary. Most packages combine several components with different guarantees, different timing, and different levels of certainty — and the headline "total compensation" number often flattens all of that into one figure that looks more solid than it is.
The four components
- Base salary. The guaranteed, recurring part. This is the number to weight most heavily, since it's the only one you can generally count on regardless of company performance.
- Bonus. Usually expressed as a target percentage of base, tied to individual and company performance. A target is not a guarantee — it's what you'd receive if performance goals are met, and actual payouts can land well below target in a weak year.
- Equity. Stock or options, almost always subject to a vesting schedule — commonly four years with a one-year cliff, meaning nothing vests until you've been there a full year, then it releases gradually after that. Unvested equity isn't yours yet, and its value depends on a private company's valuation holding or a public company's share price — neither is guaranteed.
- Benefits. Health insurance, retirement matching, paid time off, and other non-cash items. These have real financial value but vary widely in how to compare them across employers — a strong 401(k) match is worth quantifying rather than treating as a soft perk.
Why "total comp" numbers can mislead
A recruiter's total-comp figure typically adds base, target bonus, and an annualized slice of equity into one number. Three things make that number less solid than it looks:
- Bonus target vs. actual. If bonuses have historically paid out at 70% of target, a package built on 100% of target is overstating what you're likely to actually receive.
- Unvested equity. A four-year grant is often presented as if a quarter of it is "worth" claiming every year, but none of it is realized until it vests, and its value can move significantly — up or down — before it does.
- Refresh assumptions. Some total-comp figures fold in an assumed future equity refresh that hasn't been offered yet, inflating the number beyond what's actually been committed.
None of this means equity or bonus don't matter — it means treating them as certain as base salary is a mistake worth avoiding, especially when comparing two offers with different mixes of guaranteed versus contingent pay.
Adjusting for cost of living
Comparing offers across cities on raw dollar figures alone skips a real variable: what that money actually buys. A higher salary in a higher cost-of-living city can leave you with less disposable income than a lower salary somewhere cheaper — housing costs alone can vary by two or three times between metro areas. Cost-of-living calculators can give a rough adjustment, but local specifics (state income tax, commute costs, housing type you'd actually choose) matter more than a single index number, so treat any calculator's output as a starting point rather than a final answer.
This article is educational and general in nature — it isn't personalized financial advice.