We Have Helped Negotiate
Thousands of Financial Packages
While they may be excellent company negotiators, we have seen many strong people
leave serious money on the table when it came to negotiating their own package.
Since most people seldom face this experience, it should come as no surprise
that few of us are real experts at negotiating for ourselves.
We equip each client with our system for negotiating, which involves a soft
sell, negotiating skillfully and with dignity. Negotiating is not just about
money, but the nature of the job and everything that goes with it.
Many clients have commented that our negotiation advice has increased their
income by tens of thousands of dollars. In this discussion, we will share some
of the principles we have learned through our involvement with thousands of
negotiations.
In a world of complex negotiations, our goal is to help you negotiate a
financial package that is attractive at this stage of your career. For some,
this can mean a higher guaranteed income. For others, equity with a big upside
is preferred and salary is secondary.
We handled a marketing executive for Kellogg in Michigan. He wanted to have his
family move to a new area that met outdoor lifestyle requirements, and he
suggested to us that a 20 percent reduction in income would be acceptable.
However, after a three-month search, he accepted a top position with a firm in
Boca Raton. When negotiated, his compensation was actually 15 percent higher,
and he received a signing bonus as well.
Another executive was based in New Jersey with Johnson & Johnson. He left his
large company career behind when he was retained by a venture capital group. His
assignment was to oversee ventures which the firm funded by serving as acting
CEO. He was to complete the initial setup, find a permanent CEO, and then move
on to another assignment, but remain on the Board.
Based in Castle Pines, Colorado, he will handle two ventures simultaneously for
six- month periods—eight over two years. His base of $200,000 was a decrease,
but if just one firm goes public, his equity benefit will be in the millions.
Needless to say, the final staging of executive negotiations didn't just happen.
Negotiating Rules
#1—Never Negotiate Until the Sale Is Made
Some people mistakenly think negotiation is a continuous selling situation.
While there is some truth in this, you can't negotiate unless there is some hope
that you can get the employer to offer new terms, and there is no chance they
would offer you new terms unless they were sold on you.
Of course, when you are ready to negotiate, the easiest way to strengthen your
position is to emphasize other opportunities that have some appeal. It is
essential you have clear ideas about what you want. Realizing you will not
achieve everything, keep your main objectives in mind, and never risk an entire
negotiation by coming on too strong about less important points.
Remember too, in the job-search situation, intimidation and attack strategies
have no value. Here, you're setting the tone for your long-term relationship. In
fact, most people don't like "negotiation" because they associate it with
confrontation and role playing, something that does not come naturally. The best
negotiators are prepared and never cause irritation. Make sure to be sincere and
reasonable, never cold or calculating.
Negotiating Rules
#2—Avoid Discussions About Money
You need to avoid the hard lessons we see others experiencing every day. Here's
an example. One client was a general manager with Exxon, earning a sizeable
income, but wanting to win a new job at a 20 percent increase. After two
meetings, the CEO said, "Bill, we'd like to have you join us, and I'd like to
work out something attractive for you. What have you been used to earning at
Exxon?"
At that point, having been encouraged, Bill explained his income. To make a long
story short, he accepted a position. However, he later found out that the last
person had been paid 40 percent more, and the company fully expected to match
it. Now, the moral is that you should never negotiate based on where you've
been. Negotiation is like poker. Don't lay your earnings on the table!
Premature discussions about money can be a real deal breaker. Besides, the more
enthusiastic an employer becomes about you, the more likely he'll be willing to
pay more. Sometimes an interviewer will begin like this: "Jim, before we get
started, I'd like to know how much money you are looking for." Here is a
possible response:
"Charles, I could talk more intelligently about my circumstances after I know
more about the job. Will this job have line responsibilities?" Or, "Charles, I would not take your time if I did not have a fairly good idea of
the range you could pay. If we can agree that my experience fits your needs, I
doubt we'll have a problem on compensation. My concern is whether your needs
call for someone with my background."Or, "For my part, I am most interested in the situation, the people I will work
with, the company, and my role in the overall effort. While money is important,
I'm not locked into a specific figure, because of these considerations."
Here, you remain gracious while avoiding a direct answer. If an interviewer
persists, here is a response: "I'd rather avoid discussing compensation.
Challenge is most important to me, and I would like to talk money after we both
feel I'm right for the job." If all else fails, give a range surrounding your
estimate of what the job pays.
Negotiating Rules
#3—Express Vulnerability
Expressing a slight amount of vulnerability can be an effective weapon in
negotiations. It is done simply by letting the employer know that accepting the
job on the terms offered would cause you some personal difficulties.
When you use this strategy, it plays to the employer's desire to make you happy.
For example, you can be flattered by the offer, but say that you may have to
disappoint your family in order to afford the job: "I love the job and really
want to join you, but we'd have some difficulty because of the options I will be
losing. Is there a chance you could go a little higher?"
Questioning, rather than demanding, is the rule. The best negotiators persuade
others through questions. This gives them needed information to put themselves
in control. It also gives them time to think and to avoid putting their cards on
the table.
Good negotiators will not say, "I do not agree with you because ... " Rather, they
will say, "Charles, you do make a good point, but I wonder if there is room for
another view." They would never say, "That would not be any good for me." They
might say, "Charles, could you tell me how you think this would work for me?"
Then they will follow up with questions, so the employer can discover the
proposal is not quite enough. So, let employers discover for themselves the
validity of your request. If your questions lead them to discover they were
wrong, they will be more disposed to changing the terms.
Negotiating Rules
#4—Never Commit When You Get an Offer
When offered a job, take the opportunity to praise the firm and explain that you
need some time to consider it. "Charles, I am pleased you made me an offer. This
is an outstanding firm, and the position has great promise. I am sure you can
appreciate that I would like some time to give it further consideration. It
would not present any problem, would it, if I were to get back to you on
_______?" Our standard recommendation for almost all clients is to get the offer
in writing and ask for seven days to respond. In some cases we advise people to
respond quicker.
When you call back, after opening with one or two positive statements, consider
raising the possibility of redefining the job.
"Charles, with kids entering college, I had done some planning based on an
income that was $10,000 higher. Would it be possible to take another look at the
job specs? For my part, I know that if you could make a modest additional
investment, my performance will show you a handsome return. I sincerely hope
that we can make some adjustment. Can we take a look at it?"
Of course, if you do not want to redefine the job, but would still like to
raise the salary, you can use the same technique, but show vulnerability, then
suggest that a dollar figure be added to the base.
Normally, if that figure is within 15 percent of what you have been offered, the
employer will not take offense and will grant you part of it. Of course, asking
for more money is a negative, and needs to be balanced by positives. Consider
the following:
"Charles, I cannot tell you how pleased I am. The challenge is there, and I
think my experience is perfect. There is one problem, however. You see, one of
the main reasons I wanted to make a change was for financial balance. Can you
see your way clear to adding $10,000 to the base? It would ease my family
situation considerably."
Negotiating Rules
#5—Negotiate the Job Responsibilities
This is the most important factor to negotiate, since the range in which you
will negotiate compensation is determined by the responsibilities of the job. If
you can reshape the job into a larger one, the range will be higher.
To get started, begin with a positive comment about the job and the firm;
suggest that they might benefit by adding responsibilities to the job. Then
offer to share your thoughts on what might be added.
For example, "Charles, there is no doubt this is a good job. However, based on
what you have told me, I could be even more helpful if a few related elements
were added. There are three areas where my experience could make a difference.
I'd like to discuss them so we can see whether they could be included in the job
description."
You could then go on to talk about the areas where the firm might capitalize
on your experience, showing with personal stories how you have made
contributions before. If the interviewer agrees these are important, have them
added to the job description.
Believe it or not, reshaping the job can often be just that simple! Can you see
how we have applied basic principles here? There was no confrontation. The
manner was friendly and matter-of-fact.
H3-alpha
Negotiating Rules
If you load maximum enthusiasm into your statements, it becomes nearly
impossible for the employer to conclude that you should not be with them.
Enthusiasm assumes even more importance when you have been underpaid. Ideally,
an offer should be based on your value to the company, but in reality, most
employers will base their offers on present earnings.
At the same time, follow the principle of introducing other criteria on which to
base the offer. This can include the importance of the job to the firm, what you
would make with a raise where you are, your total compensation package, what you
believe the market is for your background, or other offers you are considering.
In the example that follows, notice how there are no demands, only questions. By
inviting employers to explore the situation, you are giving them the freedom to
reach their own conclusions about whether their offer is too low.
Using this approach, you come across as enthusiastic, sincere, and slightly
vulnerable —never as cold, calculating or aggressively demanding, or as someone
who is putting them in a corner. Your comment might be:
"Charles, let me first tell you once again how pleased I am over the offer. I
feel very positive about the prospect of joining you, and I can only say that my
enthusiasm has continued to increase. This is the job I want. It's a situation
where I could look forward to staying with the firm for the long-term.
"There is one hurdle that I have to overcome. You see, I've been underpaid for
some time, and it has created a situation where I need to start earning at a
rate reflecting my ability to contribute. If I stayed where I am, I'd be due for
a raise, which would put me close to your offer.
"In talking with other firms, I've discovered that some of them realize this,
and they have mentioned ranges that are 25 percent higher. Now, I don't want to
work for them—I want to work for you. But I do have some pressing needs. Perhaps
the firm could approve a higher offer. Can we pursue this together?"
Some Basic Things
You Might Negotiate
Base salary and signing bonus. Also commissions, medical and life
insurance, profit sharing and pension plans. If you negotiate profit sharing,
know the accounting.
Exit strategy. Standard agreements cover a
minimum of six months' to a year's severance, and are triggered if the firm
lessens your responsibilities.
Stock option purchase plans. If you
purchase stock at market price, the company may buy an equal amount under your
name up to a percentage of your income.
Stock grants. You will most likely be
obligated for taxes based upon the market value.
ISOs (incentive stock options). This is an
option to purchase a certain number of shares at market value on a given day,
generally exercisable years away. The primary value of ISOs is that should you
eventually buy them, no tax is due on the day of purchase.
Restricted stock units. Stock units are
pegged in value, e.g., as one share of stock for every five units. The key is
when you can convert to cash or shares.
Phantom stock options and stock appreciation rights.
Rights to receive the difference in market value between the time granted and
value when converted.
Non-qualified stock options. This is an option to purchase stock below market
prices. Tax will be due on the difference between the price at which you
exercise your right of purchase and the market value of the stock.
Relocation expenses. This can include house purchase, moving expenses, mortgage rate differential, real estate, closing costs, cost of
bridge loan, trips to look for a home, lodging fees, tuition, and spouse
reemployment services.
Other perks. These can include automobile lease, luncheons, athletic/country
club membership, child care, physical exam, disability pay, legal assistance,
product discounts, dining room privileges, financial planning assistance,
tuition reimbursement, CPA and tax assistance, short-term loans, insurance
benefits after termination, special reimbursement for foreign service,
outplacement assistance and deferred compensation.
If you don't have any success in your negotiations, then shift from the
"present" and focus instead on futures: a review after six months, a better
title, an automatic increase after time. These are easier things to get.
Contracts. The following are usually incorporated: the length of the
agreement, your specific assignment, your title, location, to whom you report,
your compensation and what happens if there is a merger or if you are fired. It
should also cover the specific items on the negotiation list that are part of
your package. Any agreement you accept should cover all non legal situations under which an
employer may choose to terminate you. Signing bonuses and generous severance
packages are moving into all income levels—especially when there is a
relocation.
Some Typical
Negotiation Situations
Situation #1
A client of ours was in charge of Southeast Asia for a blue chip consumer
company. The firm had not been performing well, and he felt he was at risk. He
decided to negotiate an early retirement package which included an attractive
severance. His highest earnings had been $750,000.
During his search, he uncovered a CEO position that matured into an offer. The
chairman of a dot-com company in the investment world sent him a short e-mail
with an offer of a $300,000 base, plus bonus potential, plus a reasonably
attractive package of options. This position had been one of the longest running
searches handled by a major recruiter. Our client had an ideal background,
demeanor and skill set for the assignment.
Once the chairman made the offer, he turned it over to his general counsel, who
was to get everything formalized. Our client retained one of the top law firms
in the Northeast to represent him, and our first assignment was to strategize
his initial counterproposal. We drafted that and he forwarded it to the general
counsel.
The next ten days involved a continuing series of discussions by all parties. We
could see that the general counsel of the company was under great pressure to
get the deal done. Our senior staff took the lead in telephone conferences,
which included our client, his attorney and the general counsel.
We, rather than the client, communicated the client's needs, and the rationale
behind our request. A minor sticking point was the signing bonus, but that was a
throwaway, since it was not as important as the equity package. To educate the
firm, we presented a written analysis of several other deals, and an option
package our client had available in another situation.
In the final analysis, we were happy to accept the $300,000 base offer, since we
were successful in negotiating an extensive series of stock options over the
term of the agreement—an amount equal to 5 percent of the currently outstanding
stock in the company. These options will be worth tens of millions to our client
if he grows the company—which he fully expects to do.
Situation #2
A client earning $250,000 was offered a position by a firm being pursued in an
acquisition. In this case, the senior HR executive took the negotiating lead.
Through similar discussions, we were successful in getting an initial offer of
$350,000 raised to $400,000. In addition, we negotiated a $50,000 signing bonus
in lieu of relocation assistance.
Again, we helped move the corporation up by educating them to the current
market, and other deals that were going down. Because risks of acquisition were
involved, we focused on concluding an attractive severance package ... one that
amounted to two years of income and immediate vesting of stock options—along
with other standard severance benefits.
Today, firms routinely have their general counsel, senior HR executive or CFO be
responsible for concluding their negotiations. This avoids unnecessary
confrontation between the firm's executive and their new direct report. It also
gives our clients a negotiating opportunity.
Frequently, our staff plays a major role in assisting clients in drafting their
response to specific offers. Experience has shown that the exact language in
these matters can critically impact the negotiation process. Listed below is a
sample of a letter that we drafted for a particular client.
Sample Letter for
Responding to an Offer
Dear John:
Thank you for the offer of employment contained in your letter dated July 1,
2002. I am excited about this opportunity and look forward to joining your
executive team. Based upon our meetings over the course of the past month, I am
convinced that this is the right fit for both of us. In thinking through the
offer, there are a number of items I would like to discuss with you, and I
appreciate the invitation in your letter to discuss the terms.
I view our discussions in this regard as our first business project and decision
together. Accordingly, I would like to conclude an arrangement that is
reasonable and attractive to both of us. I have the following thoughts and
suggestions:
1. Title. We should discuss the proposed title of Vice President of Program
Management, Transportation and Stationary Power. In terms of the functions we
have talked about and as outlined in the offer letter, should the title be Chief
Operating Officer and Senior Vice President? This would likely give me greater
credibility in my business development role cultivating customers and strategic
partners. I also think it would be beneficial to the company in utilizing my
relationships with utility and energy companies to attract financing and joint
ventures. From my standpoint and in terms of overall career management, it is also
important that I have a title that reflects progress in my professional career
from position to position. As you know, at Global Energy Company, I was
President and CEO, so I would be concerned about taking a new title at less than
the COO and Senior Vice President level. Let me know your thoughts.
2. Base Salary. As we have discussed, I have had the opportunity to review
current trends in executive pay. It is important to me to move forward in my
career on compensation, and that my package is competitive with current market
trends based upon industry, position and location. Under my most recent
employment contract with Global Energy, my base salary was $225,000, and my
total cash compensation was $275,000. Naturally, I would like to improve on this
package based upon the level of experience I am bringing to the company.
I have reviewed current market data on compensation trends for similarly
situated executives in the energy industry. I find that a base salary in the
range of $200,000 to $250,000 is consistent with several studies. It would help
my family and me a great deal if we could discuss a base salary in this range.
3. Bonus. We have discussed an incentive bonus plan, but there is no reference
to such a plan in the offer. As you know, I am highly motivated by incentive
compensation plans and would like to discuss this further with you.
4. Signing Bonus. Does the company offer such a recruiting incentive? I
understand from reviewing the current data that signing bonuses in the range of
15 to 25 percent of base salary are quite common. Also, I have previously
received a $30,000 signing bonus, and this was quite helpful in making the
transition to the new job.
5. Relocation. I would like to discuss a relocation package that would insure
that the company pays all reasonable and necessary expenses incurred in
connection with the move (with gross up for tax purposes). I understand that
this is the norm in the market these days, so that the executive does not incur
any financial losses to join a company. The most significant expense I would
incur would be the real estate commission on the sale of my present home, and I
would estimate that the total cost of the relocation would be in the range of $90,000. I would also like to
discuss the timing of the relocation.
6. Benefits. Could you please provide me with the details on the corporate
benefits package referenced in your letter? For example, does the plan cover all
members of my family. Also, I understand that, at the senior executive level, entitlement to benefits
typically occurs on the first day of the employment.
7. Stock Options. As you know, I am very excited by the equity opportunities
available at the company. I understand that equity compensation for senior
management is typically related to a percentage of the authorized and
outstanding stock. Are the 150,000 incentive stock options referenced in your
letter tied to a certain percentage of ownership in the company that is related
to what other senior executives joining the company have received? I am also
told that a 4 year vesting schedule is the current market norm. Additionally, I
would like to discuss the exercise price with you.
8. Vacation. I am accustomed to receiving 3 weeks of paid vacation each year,
and I understand that this is consistent with what other senior executives are
receiving. Can we discuss this?
9. 401(k). Could you please provide me with the details on the company's plan? I
understand that, at the senior executive level, eligibility typically occurs on
the first day of employment.
10. Confidentiality and Non-Compete. The agreement you have sent to me is
acceptable.
11. Severance. I understand that it is quite common for severance benefits to be
tied to the length of the non-compete agreement. The company's agreement is for
2 years, and I am also told that severance for a period of 1 to 3 years is the
norm at the senior executive level. Severance packages typically include base
salary, accrued bonuses, and continuation of benefits for 6 to 12 months.
Entitlement to severance typically occurs when the executive is discharged
without cause or in the event of change of control. In addition to the other
elements of the severance package, the executive ordinarily receives immediate
vesting of all equity. Can we discuss these matters?
12. Start Date. Let's firm up a start date.
13. Contract. Does the company utilize a standard employment contract to
formalize arrangements regarding the compensation package and other matters? In
my discussions with Harold Perkins, I understand that he utilizes a number of
different employment contracts based upon the industry, size of company, and
position. I am sure he would be happy to help us with appropriate documentation
for our employment relationship. In closing, John, let me reiterate my appreciation for the offer to join your
organization. I look forward to a long and mutually profitable relationship with
you.
Very truly yours,
James R. Smith
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How a Few Clients Used
Our Negotiation Methods
A general manager of a large coffee plant at $130K, blocked from further
progress, successfully negotiated an offer with a competitor for a base of
$170K, plus annual bonus and stock options. Neither of those had been included
in his previous compensation.
An executive joining a nationally known nonprofit in a #2 capacity, received
an initial offer at $210K. Over six weeks this was raised to $245K. More
importantly, all moving expenses and an excellent exit package were incorporated
into her final contract.
The chief operating officer of a major sporting goods equipment manufacturer
negotiated a similar position with a noncompetitive firm in the sports field.
Besides an excellent financial package, he negotiated his succession to CEO when
the current chief executive retires in two years. Time elapsed from the initial
offer to final contract was four weeks.
A highly respected doctor left a major medical center to join a pharmaceutical
firm known for its top flight R & D capability. Guaranteed salary and bonus was only equal to his previous
earnings, but the stock grant and future options he secured were expected to
cover his retirement needs.
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