Compensation negotiations - making a smooth move

Over the years, salary packages in India have been simplified and the menu of a myriad types of allowance and reimbursements (driver, petrol, car repairs, telephone, electricity, entertainment, etc.) have now been done away with and a lump-sum Base pay package is now set which can be split into just a few allowance heads.

However, compensation packages especially at senior management levels have become more complicated and the new jargon includes terms such as ESOPs, RSUs, LTIPs, Deferred Bonus, Sign-on Bonus, Sweat Equity, etc.

I recall spending a couple of days facilitating the closure of a CEO level search assignment and the entire two days were spent first getting a thorough understanding of his complex compensation package, then trying to fit this package into the new employer’s compensation structure and then going to and fro between my candidate and his future employer to reach a meeting ground on the compensation offer. Thank God for my analytical mind and eye for detail – otherwise, it could have been “I don’t” instead of “I do” by either the “bride” or the “groom” right at the hiring altar

I have also encountered situations where the compensation discussions ended up being hard bargaining sessions, like buying vegetables or fish from a roadside vendor. And when both sides took a tough stance, egos came into play and either the candidate had to swallow a lot of self-generated pride and felt he was making a big compromise to accept the offer or the hiring manager felt that he was over-paying to close the hire. Therefore, either the candidate loses a lot of the excitement about the job move or the hiring manager gets worried that he could face uncomfortable questions from the new hire’s peers when they found out that the new hire is being paid much more than them

It is my view that the closure of hires should rarely stumble at the final stage and I recommend that if one adheres to the following steps, compensation negotiations can be concluded in a relatively smooth manner:

Share the complete picture upfront: 

When you are asked to provide your compensation details to your prospective employer (perhaps after the first interview), ensure that all components of your present compensation package are listed:

• Base salary package including all allowances
• Retirement benefits including gratuity and pension fund contributions
• Non-cash perquisites like insurance coverage (medical, life and accident), club memberships, etc
• Bonus – your actual bonus for the previous year and target bonus for the current year
• Stock Option / Restricted Share plans and LTIPs – ideally include vesting details and an evaluation of the current “in the money” value of the unvested options / shares

When your prospective employer has a comprehensive picture of your compensation package, they can take a call whether your package is in the ball-park of what they could potentially offer or not. There is a possibility that you may be dropped from consideration if you are earning much more that what they could offer. However, it is my view that it is better to run the risk of being dropped from consideration at this stage rather than investing the time of going through umpteen rounds of interviews and then facing the disappointment of getting an offer that is below what you are currently earning.

Benchmark your compensation:

I recommend that when you get to an advanced stage of the selection process you should try to collate information on the compensation structure of your prospective employer and the ball-park compensation packages that some of your future peers could be earning there.  Apart from the base pay, you should also find out information on the performance bonus structure and whether the company offers stock options, LTIPs, etc. You could obtain this information by making some discreet enquiries with trusted friends who may be currently employed at the prospective employer or who worked there recently. If don’t have such trusted friends, find one who can get you this information anonymously. A seasoned headhunter may also be able to give you this guidance. If you are moving to a new industry, I suggest you should also get some data on where the prospective employer benchmarks its compensation vis-a-vis its competitors

Set your expectations: 

Once you have the benchmarking information, you should then set your expectations of the compensation offer at two levels – the minimum that you would accept (anything lower and you would walk away) and the level at which you would be reasonably happy (expected level). However, I suggest that you should keep this information to yourself and not share this even with the headhunter involved in the hire.

Let the new employer make the first move: 

Most prospective employers will ask the candidate to state his expectations of the offer. However, my advice is that you should never state your expectations and duck the question by saying that you don’t know the compensation structure of the potential employer and request them to give you an offer instead. If you state your expectations first, then that becomes the ceiling for the compensation offer and you may be either pitching too high or too low. On the other hand, if the prospective employer makes the offer, then that becomes the floor and you can try to increase the offer if it is within the ball-park of your expectations.

I suggest that if the offer is below your minimum expectation, first re-examine that your minimum expectation is set correctly and then have one more discussion with your prospective employer to ensure that you haven’t missed out any component or mis-evaluated anything. If the offer is still below your minimum expectation, you could politely decline the offer. If it is between your minimum and expected level, then look for ways to communicate your expectations without making it sound like a hard bargain. Of course, if it is well above your expected level, be magnanimous and accept it graciously, but also make sure that you have evaluated all the key components correctly.

Use intermediaries where available: 

An intermediary can be very helpful to soften any negotiation involving money. Therefore, I suggest that the headhunter who brought the opportunity to you (if there is one) could be actively involved in the compensation negotiations. Sometimes, someone from the Talent Acquisition team in the HR department plays this role, to reach a compromise solution between the hiring manager and the finalist candidate. There is one caveat about using such intermediaries that one should keep in mind – the headhunter earns a fee for closing the search assignment and therefore, he is not necessarily fully on your side and may nudge you to accept a lower offer just to close the assignment. Similarly, the Talent Acquisition team would also like to complete the hire and move on to the next position to be filled. Therefore, use such intermediaries cautiously

Clarify all the personal related HR policies: 

I believe that just before you accept the offer, you should also clarify all the personal related HR policies – travel rules, leave, etc – if you haven’t done so already. For example, if your new job involves a lot of international travel and you have been entitled to business class travel for all long-distance flights in your present job, it could be important to clarify that your new employer has a similar travel policy.

 As always, would love to receive your feedback and comments on my blog. Feel free to share this on LinkedIn, Facebook or Twitter or pass it on to anyone who may find this blog useful

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