Tag Archives: Salary negotiation

The Job Offer Negotiation: Do You Understand It?

Money does not grow on trees. You negotiate it.

It takes three steps to get a great job. First, you need a good enough résumé and LinkedIn profile to be fished out from an ocean of candidates. Otherwise, you are invisible and irrelevant! Second, you need to beat your competition in the contest called interviewing. After all, there’s only one job, and applicants not chosen for interviews are losers. And third, you have to maximize what you get from this deal. The company is getting you, the best; at least, that’s the organization’s impression by going through this lengthy selection process. But do you understand what’s going on during the job offer negotiation process? And are you good at it? If so, then you know that such negotiation is the most rewarding part—both emotionally and financially—of this otherwise grueling and arduous process. I’m sure you know by now that a job offer negotiation is not one size fits all. A junior system analyst’s negotiation of a job offer is different from that of a director or a vice president and very different from that of a big-company CEO. Typically, a CEO candidate doesn’t even negotiate at all, because that’s done for the candidate by the candidate’s team of advisers with the compensation committee, a part of the organization’s board of directors. But what is common to all job candidates is that they have to be liked and wanted by the organization, because if not, the negotiation will break down fast.

Job offer negotiation is by definition a candidate’s desire to improve on what’s been initially put on the table—primarily because the candidate considers himself deserving of more. If that is indeed the case, then the candidate must articulate the reason(s). Greed—or negotiation simply for the sake of gaining experience in negotiating—is hardly justified and often ends in disappointment.

Good job-offer-candidate negotiators clearly understand the art of negotiating; they study the person they’re negotiating with to the extent they can; and they try to learn the constraints the employer has. Some things can be negotiated; others cannot. Also, be ready for pushback in the form of difficult questions. Like a chess game, sometimes you attack, and at other times, you retreat.

Don’t start job offer negotiation unless you are fully prepared and have practiced it. When you took your driver’s license road test, for instance, you probably took several driving lessons prior to it. This is no different. It’s another test for which you must prepare. Part of that preparation involves your clearly understanding your own needs and priorities, because when asking for more, you cannot act like Colombo by saying, “Oh, yes, just one more thing I have to ask you.” Put all of your requests on the table at once, with the hope that you’ll get most of them.

Remember that negotiations in general are give-and-take. An ultimatum presented by either side can end the negotiation instantly. Sometimes a job offer negotiation can be lengthy, and as the candidate, you must have patience because what you want is to get the right job as part of your career path and not just to win in the game of negotiation. Practice makes perfect.

Negotiate the job offer to win

Photo credit to Pat Pitchaya

You wanted this job so bad, and finally the offer arrived. The adrenaline is flowing freely, and you feel like sharing the good news with the entire world—certainly with those who contributed to your win. But is this job a really good deal? Could you have gotten a better deal if you only knew how?

The majority of people simply melt once they get a coveted job offer. They’re so grateful and they feel so saved that they think that by crossing the finish line, their goal has been attained. However, that is not the case. A job offer is a significant milestone indeed, but negotiating your best deal right now is the only time you can do it. You’re now in the falling-in-love period—like when you were in your teens and falling in love and your love interest could do no wrong and was simply perfect. Well, once the company you’ve applied to goes through the arduous and protracted hiring process and decided on you as the winner, they want to move on. At this point, they don’t want to go back to square one and start the process all over. That’s the time to negotiate.

Compensation negotiation is a six-step process. First, identify what’s important for you—for example, size of company, reputation, challenge, work-life balance, and your future manager. Second, carefully examine the offer by talking to as many people as you can who can provide relevant information about your areas of interest concerning the company and the job. Third, compare the offer with your priorities by writing down your thoughts. Consider the pluses and minuses, and prioritize them. Then do the same by writing down your feelings and emotions about taking this job.

Fourth, you must perform your due diligence by defining your dealing points and your deal-breaking points. Be truthful to yourself, but stay flexible. Remember that it’s not the money that you make but the money you keep. So review in detail the package of company-paid benefits. I can think of at least 20 different items in such a package—from medical coverage to tuition reimbursement.

Fifth, negotiate your best deal. Most companies expect you to do that. Show an unusual level of excitement about the opportunity, but register disappointment with the compensation. As a career coach, I train clients by practicing mock negotiations together with them. Initially, during such mock negotiations, many people feel awkward, but after we do this a few times, they learn this new skill.

The sixth and final step is to make the decision. Consult with your spouse, advisers, and career coach. If you’re a high-level executive, you may want to consult with a lawyer and a financial adviser as well.

A job offer should be executed in writing and with the parties signing it. At some small companies, the process is much simpler, and if there’s no written document to sign, it still behooves you to summarize your understanding of the compensation and document it via e-mail.

Why Don’t You Understand Your Compensation?

Indeed, most people don’t understand their compensation. That’s amazing, since after all, compensation is the main purpose for having a job. Don’t misunderstand me: most people know their salary, but salary is only a part of total compensation. There’s a lot more that you should know about this subject so that when you’re in the compensation negotiation stage of your interview, you’ll be equipped with the ammo necessary to win. There are two major parts to compensation: the money you make (income) and the money you save (assets). The two parts are analogous to a checking account and a savings account, respectively, at the bank.

The Money You Make

The money you make typically falls into a range based on historical data. But how does your potential employer determine what you should be paid?

In large companies, the process is complex and involved, and certain people in the human resources department work full-time—and exclusively—on determinations of pay ranges. They gather information from a wide variety of external and internal sources to ensure that the company stays competitive. The overall, company-wide compensation policy is determined by a compensation committee, which is a team made up of members of the board of directors.
In small companies, of which there are about 7 million with 25 employees or fewer in the United States, compensation packages are derived simplistically and by whatever the market bears.

In both cases, though, whether a large or small company, two components make up the bottom line: (1) market pricing, or the going rate, and (2) job content evaluation, which is a correlation with other, similar, internal jobs. On top of salary there might be other sources of income in the form of bonuses such as cash payouts, profit sharing, commissions, stock purchases, and stock options. Job candidates are advised to research compensation via a variety of Web-based sources before negotiations start. If relocation is involved, it’s always advisable to think of the cliché “It’s not the money you make but the money you keep.” The cost of living varies widely of course in different parts of the country.

The Money You Save

By means of tax-sheltered plans, many employers encourage their employees to save a portion of their income for retirement. Some employers contribute to such savings by matching employees’ contributions at various percentage ratios. Tax-sheltered plans fall into two categories: before-tax (pretax) savings and after-tax (posttax) savings, as defined by the Internal Revenue Code. For example, the 401(k), which went into effect on January 1, 1980, is a before-tax plan. Some employers also give employees the option to contribute very favorably with after-tax dollars. In that case, too, employers sometimes contribute, and employees become vested, which means that an employee is entitled to the employer’s contribution at a progressive rate within a stipulated period of time. In some cases, vesting could begin immediately. Delayed full vesting has the purpose of incentivizing employees to stay with the company.

In addition, both an executive and a rank-and-file employee may be offered a deferred compensation plan, a stock bonus plan, a stock options plan, a stock purchase plan, and/or an employee stock ownership plan.

Additional Types of Compensation

Beyond the benefit that employees see in their paychecks, employers offer additional benefits. Some of them are mandated by federal or state laws, and others involve voluntary participation. In either case, employees may or may not have to contribute. Examples are workers’ compensation, disability income, unemployment insurance, and accident insurance. There are many others. And some employers offer a variety of insurance plans at reduced premium rates. Some such plans are medical insurance, dependent care plans, long-term-care plans, life insurance, and accidental death insurance. At times an employer might pay for an employee’s relocation and offer other kinds of perquisites.

The best thing a candidate can do in order to achieve a successful compensation negotiation is to learn about this complex subject, perform due diligence, and above all, acquire the skills of the art of compensation negotiation. Working on this subject with a career coach and role playing in mock negotiations most often make up severalfold for the fee paid for such coaching.