Ok, you’re sold. You’ve been out to dinner and a show with your top candidate and their spouse. Your entire team has interviewed them and given you a resounding, “thumbs-up”. References are complete. Your Industrial Psychologist said “great fit”. Now’s the time to develop and negotiate an offer – right? Well, no not really….
The time to have started this process was during the very first interview. By subtly approaching the offer stage early on, the critical “stumbling block” or even “deal-killing” issues could have been identified and some thought directed at how to address them before a formal offer is made.
Successful offers are those which account for the needs of the individual as well as those of the company. When deals are struck which turn out to be one sided and favor either the company or the candidate, the relationship is often short lived. The lesson here? You can squeeze a candidate or a candidate can squeeze you for every last nickel, but the residual effect of a win-lose proposition is a relationship which is unlikely to hold together.
Preparing the offer
To develop and negotiate wining offers follow these basic rules:
- Know in general terms what it will take to complete the deal before you enter into formal negotiations. Don’t wait until you extend a formal offer to find out that you weren’t even close.
- Know the candidate’s primary motivation for wanting to join your company and play off it.
- Understand the outcomes you need this person to produce then structure the package to reinforce those deliverables.
- Consider the needs of the individual as well as your company’s.
- Ensure the offer is competitive with the outside market and equitable internally.
- Make sure the candidate fully understands all the features of your company’s compensation program. We sometimes find that a company has a better overall program than either the hiring executive or the candidate realizes.
- Be creative as needed. Such things as signing bonuses and extra stock options can push a candidate over the edge in your favor while not creating undue disruption within your organization.
Talk about your expectations throughout the interview cycle. Then listen. Be particularly sensitive to comments like: “my wife/husband will not relocate”; “we have a child in high school”; “my non-compete hasn’t expired”; “I have a large bonus that won’t be paid for six months”; “my stock options are only partially vested”. These are red flags which should be explored immediately to determine their true impact.
Also watch for comments like: “we’re a two income family” or “my daughter has two horses”. These are not deal stoppers. They’re bargaining chips the candidate hopes to cash in during negotiations.
And yes I have actually seen to the relocation of a horse, placed a CEO’s spouse into a new job, arranged storage for a collection of 500 bottles of wine, and purchased a classic 1966 Gibson ES-335 electric hollow-body guitar – all in the interest of closing the deal. I must confess that the costs to my clients in all cases were less than the costs associated with bridging the candidate’s insurance policy in between employers – but more importantly it went a long way to prove to the candidate that we were listening and really did care about their needs.
Take it as a good sign, they’re already calculating how to do a deal if the interviews conclude favorably. Your ESP should be doing this in tandem with the interview process. And if your ESP hasn’t provided you with this type of discovery – FIRE them. Or at the very least drill down and find out why they didn’t know this up front.
Developing the Pay Package
Once the groundwork has been done to define the issues and decision points in a candidate’s mind, and your company’s compensation parameters are understood, a pay package can be developed.
The Five Elements of Compensation
In every executive compensation package there are five basic elements to consider:
- Base compensation;
- Perquisites; and
Within these elements there are countless variations; however, to help structure your thinking regarding the way a compensation program should be developed, these are the only major elements you need to consider.
Factors to Consider in Compensation Plan Development
- The importance to your company of getting the “right” person in the job;
- The candidate’s current compensation package;
- Market rates for comparable positions;
- Rates of pay for peer level executives in your company;
- Your company’s compensation policies;
- Other factors which will influence the candidate’s decision (e.g., future professional growth opportunities, degree of risk in your company, future reward potential such as bonuses or equity appreciation, amount of dislocation in the candidate’s life, the candidate’s need for the job and strength of interest in joining your company, the amount of risk you are taking in hiring that candidate, etc.); and lastly,
- Particular wants or desires on your part or the candidate’s part to which no logic or objectivity can be attached; these are needs that you have or the candidate has and no deal will be done without addressing those requirements.
Putting the Package Together
The offer developed for the candidate combines the elements discussed above and your good judgment on what specific items to put in the offer. Ideally, the goal is to make the package a win-win.
One piece of advice: put aside rigid thinking on compensation for the really strong candidate as the leverage gained from the extra dollars spent to attract a top performer can be huge. In compensation plan development reason should prevail, but don’t be “penny wise and pound foolish.”
Presenting the Offer
Making a major life decision like this is very difficult for the candidate, particularly if it requires relocation. Several times during the offer stage the candidate may even renege and get cold feet and unfortunately it is sometimes easier for someone to make a non-decision and stay where they are. In this situation, it is critical that the ESP and Search Chair continue to keep the candidate focused on their priorities and the opportunity at hand.
The more delicate issues regarding compensation and the actual compensation negotiation itself should be handled by your ESP – especially if you are expecting issues around base salary and/or power sharing within the defined role. The ESP is there to help negotiate terms of agreement, which are satisfactory to both you and your chosen candidate. They also need to insure your second choice is also kept enthusiastic should closing your first choice prove impractical.
The development of a winning offer requires consideration of multiple factors, some of which are obvious, while others are subtle. The single most important factor is your continued involvement with the candidate at each step of the process until they have resigned and are safely on-board your company.