| Some Things You Might Negotiate |
In recent years firms have been more open to employment contracts. In the past, contracts have usually guaranteed employees' compensation for a certain length of time, as long as people worked "to the best of their ability in normal business hours."
Under the terms of most contracts, employers are guaranteed very little, and the individual can usually break a contract quite easily. On the other hand, corporations are often forced into a settlement if they dismiss an executive under a contract, and the courts tend to favor individuals in these matters.
Today, a contract is just one more element in your total negotiation package. It may be just as negotiable as questions relating to salary, bonuses and stock option participation. If you can possibly arrange a contract, keep the following points in mind.
Keep the contract simple and try to keep your lawyer behind the scenes -- out of the communication process. Try to make sure the following are incorporated into the contract: the length of the agreement, your specific assignment, your title, location, who you report to, your compensation, and what happens if there is a merger or if you are fired.
Some contracts can also cover bonus arrangements, deferred compensation, insurance, release with compensation in case of merger, salary benefits to your family in case of death, special reimbursement for foreign service, and outplacement in the event of termination.
From a company standpoint, you should expect that they will want you to enter a nondisclosure or trade secrecy agreement. This is a legitimate request.
Executives should always bring up the subj1ect of a contract. A request, as opposed to a demand, will never result in a revoked job offer. In most large companies, both signing bonuses and severance packages are spreading down the ladder. This is especially true when relocation is involved.
Obviously, there are certain firms with which you must be very firm about a contract. These would include companies in financial trouble, acquisition candidates, or those which have just been merged or been acquired, family-controlled organizations, and companies where one individual dominates the environment.
In any case don't ever make the mistake of treating contract terms lightly, and be sure to review all the fine print with a lawyer.
If you can't get a formal contract -- try for a termination agreement. These are often substitutes for employment contracts. They are usually in the form of a short letter in which an employer agrees to irrevocable severance.
Many people favor the idea of these agreements. While few companies will acknowledge it, in some industries these agreements have already become quite common for salary levels above $80,000.
In most cases such agreements provide for a minimum severance compensation of six months' salary, relocation expenses, insurance for twelve months, and professional outplacement. Any agreement that you accept should cover all nonlegal situations under which an employer may choose to terminate your services.
Try to Negotiate for the Future
If you don't have any success in your negotiations, then you should shift from the "present" and focus instead on "futures," e.g., a review after six months, a better title, an automatic increase after twelve months, etc. These are easier things for an employer to give.
With inflation always a threat, the whole area of salary negotiations has become more fluid. Guidelines have been set aside by employers in order to attract good candidates.
Still, many people allow themselves to be deceived by discussions focusing on before-tax annual dollars. From a financial standpoint, what you must be concerned with are the opportunities for improving your standard of living.
Before accepting an offer, you should calculate just what an increase means in terms of "added funds on a weekly or monthly basis." This generally puts things into a much more meaningful perspective.
If you are an executive, very little in the way of "rules of thumb" can be provided. However, it does help to take the time to write the positives and negatives on paper. While it is convenient if the highest offer is also the most attractive opportunity, things rarely work out that way.
Other Items That May Be Negotiable
Depending upon your situation, you may be able to negotiate many other forms of compensation. What follows is a brief discussion of major subjects which you might bring up during the course of your negotiations. Keep in mind that many perks may be out of reach because company policy excludes them for all.
Base salary and commissions
Make sure that you fully understand any commission structure, and when and on what basis it is paid out.
Bonus
The object for most people will be to negotiate a bonus related to their accomplishments. However, if you are a superstar, you might try for a signing bonus. Mid-level people can also get signing bonuses if relocation or partial loss of pension is involved.
Profit sharing pension plans
Your next employer may have a program. Tax laws now mandate vesting rights at 5 to 7 years maximum. If you are negotiating a share of profits on a private basis, you need to understand the accounting methods of the company to ensure the integrity of any understanding.
Medical and life insurance, dental and vision coverage
Severance payments
For senior executives a standard agreement will cover two years' compensation. This should apply if you lose your job for any cause other than an illegal action. It should also be triggered if the company lessens your responsibilities or relocates you. Some severance payments have included private school tuition for dependents if you are relocated.
Stock options
The company may allow you to purchase stock at market price and have them buy an equal amount under your name up to a percentage of your income (e.g., 6% of annual income).
Stock grants
You may be able to negotiate stock as a gift. However, you will most likely be obligated to pay taxes based upon the market value of shares you are given.
ISOs (incentive stock options)
Some companies have arrangements which allow you to be granted the option to purchase a certain number of shares at market values of a given day. Generally, they won't allow you to exercise the option to buy them for a couple of years. The primary value of ISOs is that should you eventually buy them, no tax is due on the day you purchase the shares.
Restricted stock units
Some firms will offer you an opportunity to receive stock units. They may peg the value of these units, for example, as one share of stock for every five units. The key question is when you can convert them to cash or shares.
Phantom stock options and stock appreciation rights
Here you negotiate the right to receive the difference in market value between your shares at the time you are granted these rights and their value at the subsequent time when you can convert the rights to shares or cash.
Non-qualified stock options
This is when a firm gives you an option to purchase stock below market prices. Whenever you exercise your options, 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 expense and other perks
This includes company purchase of your home; moving expense; mortgage rate differential and prepayment penalty; real estate brokerage; closing costs; cost of bridge loan; trips for family to look for a home; lodging fees between homes; tuition; installation of appliances, drapes and carpets; spouse outplacement assistance. Other executive perks can include:
Automobile
Country club membership
Child care
Annual physical exam
Luncheon club membership
Athletic club membership
Disability pay
Legal assistance
Consumer product discounts
Executive dining room privileges
Financial planning assistance
Tuition reimbursement
CPA and tax assistance
Availability of short-term loans
Insurance benefits after termination
Outplacement assistance
Deferred compensation
It is most important that you first reach clear goals as to what you really want to negotiate. If you use our process for negotiating, you stand little chance of losing anything. No one is going to withdraw an offer just because you thought you were worth more. Once negotiations are completed, always confirm your understanding with a short letter.
A Process for Evaluating Job Offers
It is important to have a means to determine just how well any job offer -- whenever it's received -- meets your objectives. The time to develop the "yardstick" against which you can measure each offer is NOW.
Recognize at the outset that any criterion for evaluating a job offer is necessarily subjective. Although criteria will vary, certain areas of consideration will likely be common to all: the position, organization, compensation (starting and potential), geographic location, etc. These should be supplemented by any other specific factors important to you personally. Here are some steps to help you evaluate any offer.
Consider what the position offers
Does it look like I would enjoy it? Would I be successful in it? Does it call for my key capabilities -- and minimally call upon areas I have yet to develop?
Will I have the authority, resources and time to accomplish what's expected of me?
Does it present sound and attractive growth potential -- in terms of earnings, promotions and the opportunity for further career advancement?
How comfortable do I feel with my immediate supervisor?
Consider what the organization offers
Is it well positioned for growth? How well can it withstand competitive pressures?
How do I feel about working with those whose understanding and support I will need?
Do the people seem happy or uptight? Am I comfortable with the apparent management style?
Consider what the compensation offers
Base salary and performance incentives (commission, bonus, etc.) Are they independent of the performance of others?
Perks. Company car, expense account, club memberships, stock options, deferred income, investment programs, outplacement counseling, etc.
Fringe benefits. Profit sharing, pension, insurance, educational expenses, etc. (Don't hesitate to ask what the benefits package is worth.)
Termination agreement. Is it assured?
Consider what the job offers you personally
Geography; how is the commuting time? If relocation is involved, how appealing is it in terms of preferences? (e.g., proximity to the lifestyle factors important to you: recreation and leisure pursuits, distance from family, friends, taxes, cost of living, etc. )
Your needs or your family's (medical facilities, special schools, sports, hobbies, etc.)
Consider competitive positions in other companies -- use SEC info.
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