Senior? Negotiating for a job? It’s hard.
a Conversation on Salary, the Market and Negotiation
Sitting across from me is a senior executive that I’ve known for a number of years. He sits with an arm over the chair next to him and talks about the challenges with the ongoing consolidation in his company. We talk about how much the market has changed in recent years.
When I started in executive search for the energy space, there were twice as many publicly traded companies whom I considered potential or active customers. Today, those same companies exist in brand only; bought, acquired or merged.
It was supposed to get easier as we got more senior and specialized. That is where all the jobs are at, right?
“Can I ask your advice on a company I’m speaking with?” He asks during a pause in the exchange. “They approached me recently to join the C-team, but I’m not sure how to approach the negotiations.”
This was the third similar request I had that month. As large companies have consolidated, as a category, they are hiring fewer senior management professionals and continuing to produce a steady stream of succession-planned, senior-management-expectant talent. There are now large numbers of mid to senior level, capable, senior management professionals on the market and a limited number of junior and mid-level specialist talent.
Negotiations are changing
Many of these senior professionals are founding their own firms, becoming advisers, joining startups or other smaller, regional, local companies. Shifting dynamic so completely involves adjusting many levels of expectations and leaves executives with few good benchmarks on salary negotiations.
“The discussions have been going really well, but I haven’t been given any idea on numbers or benefits and I think I need to bring it up. Where do you think I should start?”
“Is there any way you get them to give you an indicative range?” I start. There are so many ways that salary negotiations can go wrong, so I prefer to start with a rough overview or range from the hiring company. Pretty much anything is negotiable — as long as both parties come to the table to talk.
Stocks, Options and Vesting
“I’ll go back to them and ask. How should I handle things like vesting, stock plans…?” He asks. I cringe as I’ve had my own bad experiences with stock and share programs. “I can recommend a lawyer to go through with you. Companies can often just walk away. Employees rarely take legal action.”
When exploring a role with a company where shares or equity may be involved it’s best to request information on what the existing program is.
There may be multiple different documents and cross-references. In recent years, share programs have become increasingly abstract and restrictive. Unfortunately, we can no longer assume good faith when discussing share programs.
“Once you have the agreements, review then for coverage of exits, early sales and anything that is missing like the agreements cover IPO but don’t mention sale of the business before IPO.” The agreements and supporting clarifications should follow your assumptions of how things should work.
I would also spend some time thinking about what leverage you have in the negotiation. Ask yourself, ‘Will I create or bring something of measurable value for the business during my time there that deserves recognition beyond the salary I am paid?’ I normally use the yardstick of value-creation which will outlast your time in the business. If you have only contributed in “operating” the existing structure, a normal base plus bonus package is sufficient.
If you have created a new solution, built a new platform, created something of lasting value which will continue to contribute value to the business after you are gone — it is easier to argue for more control of equity, shares and ownership.
“You will also want to consider the nature of the business you are potentially joining.” I add on. Some companies see shares / share options purely as a retention benefit — exactly designed to prevent early exits for any reason. Crudely, you could say that these plans are designed to buy absolute loyalty. In those situations, it is almost impossible to convince the management team to allow you some kind of partial or managed exit. Doing so would potentially remove the retention hold of such shares.
Resign or exit on good terms
“What about for the business that I’m potentially leaving? How should I handle the exit?” If you are certain that it is time for you to move on, I would recommend giving your existing business reasonable advanced warning before you actually resign. ‘I’d like to have a discussion about my thoughts around the future and what I want to do with myself and how that relates to this business. Can we sit down and talk through some things?’ Then ask lots of questions:
‘where do you see me in the business?’
‘what value have I created?’
‘do you want me to be more or less active?’
‘what if I decided I wanted to do something else, could we still maintain my role?’
It’s better to do this before you actually have an offer in hand so you can honestly answer people when asked: ‘no. I don’t have anything, but I’m starting to think about where I want to be / what I want to be doing / what I can add the most value to — in the next 5 years.’
He sits back and considers for a while before smiling. “It sounds so easy when it is described.” “Yet it isn’t easy to sit down and have these discussions.” I reply. “Prepare as much as you can, then approach it as a discussion among peers; among people.”
If the Company won’t give you a benchmark
If there is trouble getting a clear benchmark from the company, you can use an indirect means by looking at the total profit and loss account under your responsibility and the profit margin. Generally, companies will use a multiplier benchmark against the profit of a business.
Example if your business is generating 10 Million in net profit. One tenth of that may be a reasonable level of compensation.
There is also a consideration on whether your role will be focused on growing revenue, growing profit or keeping things stable. I’ve seen executives brought in with a mandate to grow and their compensation is thus tied to a heavy growth multiple. Examples of this in practice:
100 Million USD P&L. Profit of 10% or 10 Million USD. Target to grow profit. Base package of 500K USD with a bonus of 1 Million USD tied to achieving a growth in profit of 50% (10 million to 15 million).
Sign-on Bonuses, Exit Bonuses
“Do you think I can ask for a signon or exit bonus as part of the package?” He asks. “Like everything we have been discussing, it depends.” Sign on bonuses are normally only relevant when you are sacrificing something of measurable value to join the company. An example of this would be if aren’t able to exit your existing share agreements positively. You can then get a financial consultant to do a rough valuation and use that as a benchmark against the hiring company.
Exit bonuses are rare outside of select senior appointments. Normally there will be some wording around ‘if you leave the business, the company agrees to a severance package of a certain amount’. That package is normally some calculation of your package and an expectation on how long it will take you to recover your position in the market. I normally recommend asking the client to ‘include some form of severance package/consideration’ in the agreement/offer and then see what they come back with.
Its confusing for everyone. Be principled.
You will want to have a principled, negotiated justification of what you are asking for. There are plenty of situations where the company comes back with a better offer based on their own internal balancing of factors. There are also situations where you have so much leverage that you can pretty much ask for anything. I’m seeing an increasing number of situations where everyone doesn’t know where to start. And, no one wants to ruin the chance to work together.
“So where do we start?” he asks as we start to wrap-up the meeting. “Start with the rough range from the company. If they can give you that, it makes the rest of the process so much easier.” They have a team of executives in the company already. They should be able to give you an idea of how everyone is compensated. You then have a framework to think within.