On their own, many people leave tens of thousands of dollars on the negotiating table, but our interview strategy will help you negotiate a stronger offer.
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.
Your job search negotiation strategy should involve a soft sell, negotiating skillfully and always 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 0,000 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.
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.
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.
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.
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 ,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 ,000 to the base? It would ease my family situation considerably."
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.
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
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 0,000.
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 0,000 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 0,000 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.
A client earning 0,000 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 0,000 raised to 0,000. In addition, we negotiated a ,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
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:
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.
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 5,000, and my total cash compensation was 5,000. 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 0,000 to 0,000 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.
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.
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 ,000 signing bonus, and this was quite helpful in making the transition to the new job.
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 ,000. I would also like to discuss the timing of the relocation.
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.
- 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.
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?
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.
Confidentiality and Non-Compete. The agreement you have sent to me is acceptable.
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?
Start Date. Let's firm up a start date.
- 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
How a Few Clients Used Our Negotiation Methods
A general manager of a large coffee plant at 0K, blocked from further progress, successfully negotiated an offer with a competitor for a base of 0K, 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 0K. Over six weeks this was raised to 5K. 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.