When you get an offer,the next step after expressing great enthusiasm for the opportunity, is to ask clarifying questions to understand the real value of the offer--what is the employee contribution to medical insurance (if any)?, what is the company contribution to 401K or supplemental retirement?, what has been historically and is prospectively been budgeted for bonuses?
Then develop your negotiating grid. It may have as few as five components:
- Base salary, including provisions for discretionary or fixed increases.
- Annual bonus provisions including discretionary, performance based or fixed, based on company-wide or individual performance metrics, or combinations based on the company’s need for flexibility balanced by your need for certainty. (At the CEO and top five officer compensation level, IRC Section 162(m) regarding deductibility may apply.)
- Signing bonus, ostensibly to cover loss of vesting options, bonus, longevity and other benefits from your prior employer. It may also be negotiated to cover lower initial first year salary, increased risk, or other financial shortfalls. (Robert A. Adelson, “Negotiating Your Employment Contract: Getting What You Deserve” 2011,www.refresher.com/araacontract.html)
- Equity awards including stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards, etc., all structured to avoid unpleasant tax surprises.
- Perks and employee benefit plans--personal use of company car or car allowance, or airplane, country club/ association dues, financial planning/tax advice, special life or medical insurance, supplemental retirement, etc. (The above list from “Negotiating Executive Employment Agreements: Compensation and Benefits, Practical Law Journal, December 2011/January 2012, Pg.30-35)
Other terms might include (ibid, Adelson)
- Relocation assistance, including “grossing up” payments for taxable relocation expenses, and length of temporary living arrangements.
- Non-compete and non-disclosure agreements around taking a job with a direct competitor, soliciting customers or prospects, or raiding employees, all which you should attempt to match in duration to the severance agreement.
- Termination, clearly defining with and without cause and
- Reasonable severance particularly around change of control with accelerated vesting provisions, inclusion of bonuses and incentive payments, etc., the “golden parachute” vs. the golden handcuffs.
- “Good Vibrations”, whether the negotiations on both sides are respectful and flexible.
According to Thomas Friel, retired chairman and CEO of Heidreck & Struggles Intl.Inc, the better you understand industry standards, company needs and metrics, and the Board’s concern with “optics”, perceptions in the marketplace, with shareholders and employees, especially with Dodd Frank, the more effective you will be. (Thomas J. Friel, Negotiating CEO Compensation--Some Do’s and Don’t’s from 3 Decades on the Firing Line.
Once you have your grid, ask the company to review their offer in areas you consider too low, citing your research, and to come back with improved terms. Simply say “could you go back and sharpen your pencil on the offer?” After they have done that, creating a new, higher floor, make your counter proposal. Thanks very much, I was thinking more along the lines of $XXX. Cite where possible your efforts to align your numbers and terms with their business objectives, then settle somewhere in the middle.