Categorized | Finances

Negotiating the Executive Compensation Package

Merit alone doesn’t ensure a handsome compensation package – it’s all about negotiation. “You get what you negotiate, not what you deserve,” says Dora Vell, president of Vell & Associates, a retained technology executive search firm in Waltham, Massachusetts.

Negotiating is an art. Master it and your career has the potential to soar. Crash and burn and you could be stuck.

Some people may have trouble asking for what they want, but truth is, there’s a lot in life that’s negotiable, especially pay and perks. According to a survey by the Society for Human Resources Management, 92% of executives interviewed said salaries are generally negotiable, 82% admitted the first offer they make is just a starting point, and 70% said they are comfortable negotiating salary.

Know too, that you are in the drivers’ seat. “The executive job market is strong, particularly for diverse talent,” says Michael Kennedy, managing director/senior client partner, Global Financial Services, for Korn/Ferry International in Atlanta. As executive Boomers exit the stage, there are fewer replacements available with the experience and skill sets desired.

The ExecuNet Job Market Intelligence Report for 2007 says shortages in top level positions are expected this year, especially in high tech, healthcare and the business/financial services industries. They predict a 27% increase in executive search openings. As a result, employed executives are expecting a 17.5% salary increase when they move to their next job.

In 2006, the average CEO of a Standard & Poor’s 500 company received $14.78 million in total compensation – a 10% increase over 2005, according to a preliminary analysis by the Corporate Library.

However, supply and demand can vacillate from industry to industry. “While one industry may bemoan a dearth of capable candidates and is forced to pay higher salaries to attract capable executives, another industry may be flush with top executives and companies appear, temporarily to have the upper hand,” explains Kurt Weyerhauser, managing partner of Kensington Stone, an executive search firm in Irvine, California. But, the fact is, he says, “real talent will always have the upper hand because they are always in short supply. Also, any company seeking to fill a vacancy has an immediate need, thus putting pressure on them to fill the role and doing whatever is necessary to do so.”

Clearly, the game is yours to play.

Think Beyond Money

For sure, money is the big kahuna in the executive compensation package, but there’s a lot more that’s up for grabs than salary, bonus, and stock options. Debra Benton, an executive coach with Benton Management Resources in Livermore, Colorado, highlights some of the latest benefits that people are asking for and getting.

“You can negotiate any number of things, starting date, job title, salary review period put on accelerated basis, change of control arrangement (what happens to you if the company is sold), moving/relocation provisions, freedom to work at home one or more days a week, first shot at a new project or opportunity, company paid retirement planning or investment counseling, paid sabbatical, weekly massages, wellness programs, use of executive dining room and more.

Many private equity firms allow executives to co-invest in the firm’s existing portfolio of companies. These can offer high yields and be an attractive benefit for forward-thinking executives, and it also ties in the success of the company to the executive’s on the job performance. “Everyone wins,” says Juan Morales, a managing director in the Miami office of retained search firm Stanton Chase International.

One of the newest trends is education packages for family members after you have been with the company a certain number of years, says Marc Freeman, author of the upcoming book,Renegotiating with Integrity: It’s Not Business, It’s Personal.

“It’s important to look at the whole package in conjunction with career opportunities for future growth within the company – or elsewhere should you leave,” he adds.

Compensation is Changing

What’s changed in the compensation landscape? Plenty. Employers are more cognizant about attracting and retaining top talent. So increasingly employers are using 3-5-year vesting schedules as a method of retaining talent, says Kennedy. Employers are also adding “non-compete” language to employee contracts, and employees are adding “change in control” language due to the slate of mergers and acquisitions.

Luxuries like country club memberships and cars aren’t as common as they were. Fully funded defined benefit plans are nearly history. With newly established rules by the SEC and Financial Accounting Standards Board and the resulting proxy disclosure requirement, there is now more than ever growing sensitivity to how executive pay packages are interpreted by the shareholder. Additional changes by the FASB, specifically, rule FAS123R, makes it a requirement for companies to record as an expense the value of stock options granted to employees as compensation, so consequently the use of deferred stock is more common. Restricted stock grants, shares that vest after a certain period of time, or other types of stock grants based on performance are becoming more prevalent. Additionally, new disclosure means perks like private jets are likely to fall under watchful eyes by a company’s compensation committee says Jeff Greene, vice president, Battalia Winston International, a search firm based in New York City. Robert Lowe a partner specializing in employee benefits and executive compensation with the law firm of Mitchell Silberberg & Krupp in Los Angeles, agrees. “All the recent corporate scandals in which companies that had poor performance or even went bankrupt, yet they paid out large packages to executives, has compensation committees and boards of directors scrutinizing compensation packages,” he adds.

Though total compensation is up, more pay is at risk now, says Michael Soon Lee, author of the upcoming book, Black Belt Negotiating. “Compensation is being tied to company and/or CEO performance. It’s estimated that both short- and long-term incentives make up over 80 percent of average CEO compensation,” he adds.

Make Yourself a Top Contender

Long before you negotiate though, do your best to ensure that you’re the only “real” candidate. Being viewed as the top candidate will undoubtedly have you negotiating from a position of power.

How do you put yourself on such a lofty perch? “Find out what is important to your potential employer and then show how you meet these needs. Early in the interview process ask the question, ‘What is most important to you about the candidate that will fill this position?’ Then show them how you can provide whatever the need is,” says Paul Endress, president of Maximum Advantage International, a Harrisburg, Pennsylvania firm specializing in hiring and sales solutions.

Develop a hypothesis about why your contribution might be valuable to them. Put yourself in the decision-makers’ shoes. What will help them achieve their goals or address their challenges? “Do research about key organizational goals and challenges and inquire about them in interviews,” says Joan Kofodimos, author, Your Executive Coaching Solution.

Honestly assess whether you are a good fit, not only in terms of skill sets, but culturally.

Research the prospective employer thoroughly by going to their website, looking at press releases and articles about them and other information. All publicly-traded companies, foreign and domestic, are required to file registration statements, periodic reports and other forms electronically. You can find them by going to (

Present a bottom-line story. “Top executives articulate their balance sheet impact (pointing to ROI against budget, revenue growth, market dominance, stock value, etc), both conversationally and on their resume. They consistently relate their function to the broad company goals through language, perspective and examples. Do the same, showing how you can lead in your area of specialty while adeptly serving company investors,” says Vell.

Ready, Set, Go

Once the company has indicated they’re more than a little interested, prepare for the negotiating process.

First off, know what you want, need, are concerned about, and what you absolutely won’t accept, says Kofodimos. Make sure this is a job that you really want, that it will move your career forward and is worth fighting for.

Understand the company’s compensation framework before negotiating, says Kennedy. Is the compensation structure more cash heavy, or equity focused? How much is the long-term incentive plan as a percentage of the package? What is the company’s executive contracts and severance philosophy?

Know too, the compensation range of peer groups, you can get information from professional organizations, as well as websites like ( You must be clear about your worth, your value. “Talk to mentors who can help you understand your true value or at least the values of others with similar skills and capabilities,” says Weyerhauser.

You can calculate your total compensation for the past three years to give yourself a baseline for comparison, says Soon Lee. Be realistic about your expectations.

When you play the game, use a “throw away,” says Endress. “A throw away is something you ask for but know that you don’t really need. You can then concede the point in negotiations and make them feel like they are winning.”

Just as important, is what not to do. One of the most common mistakes candidates make is to start talking about salary too soon. “Savvy candidates leave salary discussions until the hiring committee brings it up. This means you are in the final ‘cut’ and they just want to make sure that your expectations are within the budgeted salary range,” says Soon Lee. Negotiate benefits before salary.

Don’t appear needy. “People have a tendency to want what they can’t have,” says Endress. Also don’t allow minor issues to sidetrack negotiations. Prioritize your demands and focus on deal-breakers and leave minor issues to the very end.

Remember too, that negotiations should not be overly adversarial, says Weyerhauser. “Tough but fair negotiations are one thing, but winner-take-all, adversarial negotiations can create second thoughts with the company. It can lead to the relationship souring before you even join, making your job so much harder,” he adds. Furthermore, when a company feels like it has been raked over the coals and given much more because they acquiesced to your steep demands, often they’ll raise expectations of you. “Your ability to ramp up and build success over time may be greatly curtailed. This is no way to start a new relationship with an employer and it puts great pressure on you to deliver almost immediately,” he adds

Finally, says Weyerhauser, “Compensation negotiations are more nuanced than ever before because of the importance of landing the right job. In previous decades the focus was mostly on the title and negotiating the biggest financial package possible. But that’s no longer the case. It’s much more important to consider what will benefit you long term. It’s no longer simply a matter of demanding a particular figure and walking away if you don’t get. Understand the value of a particular position. In the end, it’s about the fine art of compromising without necessarily compromising.