Posted By Editor@TheTechMag.com
2001-11-27, 11:30:06 CST

Compensation Negotiations Often Creates Anxiety For Execs On Both Sides Of The Table

By Jim Leverette

Despite the enduring image of executives as hard-nosed, sell-their-own-grandmother negotiators, many business leaders actually dislike the bargaining process. In fact, only 32 percent of American business executives feel comfortable negotiating a compensation related matter — either their own or someone else’s. Actually, a mere 22 percent haggle out compensation related terms on a frequent basis.

So in other words, most grandmothers are relatively safe.

Part of the challenge involves image-related concerns. A candidate interviewing for an upper-level management position may be torn between fear of appearing stubborn or greedy — or is driven by the fear of appearing soft or incapable of driving a deal. After all, the person on the other side of the desk is going to be either a future boss or co-worker. However, more compensation negotiations falter due to lack of current market information. Many prospective candidates for executive positions base compensation expectations on a few and sometimes unrealistic slivers of information gleaned from questionable sources. On the demand side of the equation, almost 90 percent of companies hiring underestimate just what it will take to hire a person fitting their exact skill requirements.

Yet if both sides, the hiring company and the candidate, put in enough time and thought before sitting down at the table, these negotiations will reach a quick, painless, and mutually satisfactory conclusion.

Information is the key to pain-free compensation negotiation. Candidates and companies alike should learn — from a reputable third party (a compensation consulting firm or an executive search firm, for example) — the salary ranges and current value of certain skill sets in their particular market segment. The moment we start a search for a particular client, the research arm of our organization begins pulling together data reflecting the market for particular skill sets at that particular moment. And, as the process continues, as supply and demand fluctuate or the client narrows their focus, we continually feed that real-time information back to the client company. Gathering compensation data points from previous related search assignments, as well as current information prior to beginning the search process is clearly one of the most important steps to setting realistic expectations of what it will take to attract the caliber of candidate the client is looking for.

Value is Key

Acrimonious or unsuccessful negotiations typically lack a solid foundation, a reasonable set of expectations based on accurate and current data. Several issues typically drive a company’s executive compensation package: salary surveys compiled by publications or consulting firms, the departing executive’s compensation, internal assessments of the value that certain skills bring to the company, the amount they can realistically allocate to salaries, and compression. This last issue — compression — rears up when a hiring company underestimates the going rates of high demand skill sets. One of our clients, for example, initiated a search for a vice president of engineering. They needed a diverse set of skills, including telecommunications network experience. Unfortunately, every qualified potential candidate already earned as much as the hiring company’s CEO (it was an emerging growth company). In most cases, the hiring company structures a compensation package based on these issues. However, the company will deviate from the original targeted offer on occasion when a strong case can be made that this particular candidate brings an impressive array of skills and experience that will have an immediate and long-term positive impact for the company and its bottom-line. Interestingly enough, candidates usually enter negotiations believing the company can and will always offer more — wrong! Hence the potential for contract negotiations to disintegrate. Instead, hiring companies should base expectations on current marketplace realities and develop packages according to these realities and their ability to attract the final candidate with the required skills. Candidates, for their part, should do their homework and determine the current value of their skills.

If you are the final candidate working with an executive search firm, negotiation of the compensation package is often easier as they act as the buffer and objective third party in facilitating this process.

The second thing to remember is always wait for the hiring company to open up the discussion related to compensation. Dialog concerning expectations and compensation for executive positions should be outlined as early on in the process as possible, with both sides putting ‘must-haves’ on the table once a mutual interest has been determined. This can sometimes occur during the initial meeting – so be prepared. We know that traditional hiring practices discourage such discussions until well into the process, but each side enters the hiring process with certain expectations and desirables, and the sooner the company and the candidate reveal these, the better for both parties. In other words, some items are fixed and some items are moveable. Successful negotiation depends on discerning between the two, then focusing on how to structure the flexible areas in a way that achieves balance between the fixed. Keep in mind that every win-win negotiation is achieved when both parties understand that each must give a little in order to receive a little – and give a lot if they expect to receive the same in return.

Remember, $250,000 can come in many different forms — base salary, bonus, stock options, car allowance, and a number of other creative ways to reach that “magic number,” whatever it may be.

Putting everything on the table as early on in the process is extremely important. If the candidate was underpaid at his or her previous job, for example, it benefits them to address that up front — backed by facts and figures — before the hiring company or search firm verifies the candidate’s previous salary. Work from the assumption that everything will be verified. Unexpected discoveries almost always set negotiations back and are often “show stoppers.”

It takes a certain amount of confidence and diplomacy to enter salary negotiations early in the hiring process, this comes from doing your homework. However, it is wise if the candidate not introduce the issue of money first, but wait for the company to do so. Otherwise the candidate runs the risk of either “low-balling” or overpricing themselves – and in every case, turning the hiring company off before establishing your value in the company’s mind. Do not expect that a strong interview will drive up your value if you are currently earning far beyond the company’s stated compensation range.

Oftentimes, too, a candidate believes the new company should make up for a short-fall in how they should be compensated in their potential new role if their current package is far below the going market rate. But demands, presumed value, or desire to reap a six or seven figure salary mean little without the information and more importantly the ability to back it up. Or, from the other side of the table, the dream of bringing in top candidates for industry-average compensation packages rarely solidify in reality unless the company provides additional incentive, either in the form of a strong bonus or growth potential, and usually both.

If everyone involved in the process does their job — gathering supporting data, providing and verifying information, discerning wants from needs, and so on — there should not be any surprises at the end of the negotiation. With a little bit of preparation, coupled with open and honest communications, both parties should be able to reach a good solid agreement.

Jim Leverette is senior vice president and partner of The Broadmoor Group, a Dallas-based global executive search consultancy. You may contact Jim at jleverette@randall-james.com.

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