The Society for Human Resource Management (SHRM) reported that 65 percent of executives negotiating executive compensation at the time of their offer were successful at securing additional compensation. That other 35 percent may need a better negotiating strategy.
Too often, people fail to get what they want because of their approach or lack of strategy from the beginning. However, with some research and careful preparation, you can negotiate a compensation package that meets or even surpasses your objectives.
The Key To Successful Negotiation Lies In Preparation.
Consider focusing on four key steps as you gear up for negotiating executive compensation:
- Be able to articulate your value: Demonstrate how you have contributed to other roles with specific examples and metrics. Also, be mindful that all positions will eventually be impacted by Artificial intelligence (AI) – even the highest-level decision-makers. Be ready to discuss how you will augment your skills using AI, without being replaced by it.
- Research comparable salary range: Information is power so find out what the marketplace thinks the position and your experience are worth. Salary transparency laws aren’t the norm, yet. Use salary calculators to help understand current trends, such as PayScale, Salary.com and LinkedIn Salary. Business publications like Forbes, Bloomberg, and Fortune often publish articles on executive compensation with specific salary data.
- Familiarize yourself with different compensation arrangements: Executive packages are about much more than salary and commonly include perks such as equity or stock options, retirement plans and bonuses. All of this can significantly impact your total compensation and long-term financial plans. Get educated about possible benefits and what will meet your goals. (Some are listed below.)
- Don’t jump at the first offer: Strategic thinking and patience are critical during negotiations. Assume an employer’s first offer is often just a starting point, so have your expectations in mind and be prepared to negotiate. When you have an offer that you think is right for you, get it in writing then spend time closely evaluating all aspects to fully understand the true value of the package.
Common Incentives Found in Executive Compensation Packages
Executives typically structure their compensation packages to include a mix of base salary, performance-based incentives and various perks. Here are various incentives to consider:
- Golden Parachutes: These are lucrative severance agreements designed to protect key executives in the event of a corporate takeover or merger. Golden parachutes provide substantial benefits to the executive if they are terminated or resign due to new ownership of the company. Agreements often include stock options, cash bonuses, or generous severance pay.
- Incentive Stock Options: These options allow you to purchase company stock at a pre-determined price, regardless of stock value increases, with favorable tax treatment if certain IRS requirements are met. This can result in significant financial gain if the company’s stock performs well.
- Nonqualified Stock Options: These are more flexible than incentive stock options and come with fewer tax advantages. They still provide the opportunity to purchase company shares at a set price, offering potential rewards if the stock’s value rises.
- Phantom Stock: Unlike regular stock, phantom stock does not constitute actual ownership but offers bonuses based on the value of hypothetical shares. This arrangement allows you to benefit from the company’s stock performance without the need for actual stock issuance.
- Fringe Benefits: Non-cash benefits can include a range of perks, such as extra vacation time, flexible hours or office locations, company car or new laptop and phone. Fringe benefits can enhance job satisfaction and make your total package more attractive.
- Nonqualified Deferred Compensation: These plans allow you to defer a portion of your current income to be paid out in the future, often enhancing retirement benefits. This strategy can be particularly advantageous for tax planning and long-term financial security.
- Split Dollar Life Insurance: This cooperative arrangement between an employer and employee shares the costs and benefits of a life insurance policy. It offers current life insurance protection at a lower out-of-pocket cost, making substantial coverage more affordable.
- Executive Bonus Plans: According to CNBC, 70 percent of executives receive bonuses as part of their compensation. Designed to boost motivation and job performance, these bonuses (often referred to as Section 162 plans) provide additional compensation based on company success. Usually a percentage of your base salary, get clarity on both the percentage and the typical level of payouts. For example, your bonus is 35 percent of your base and typical payouts are around 88 to 105 percent. You want to understand how likely you’ll be able to hit the bonus.
Finally, consider talking with a financial advisor or compensation consultant. These professionals can provide valuable insights and strategies tailored to your unique situation. If you’ve already accepted the new position, just like any other big life change, this is still a valuable time to review and possibly update your financial plan.