Salary Negotiation

Kit Scott-Brown, managing director of InterExec, has been helping some of the most senior executives to negotiate their salaries for over thirty years. Here, he shares his knowledge and experience to guide you in your own negotiations.

If one took up a job offer in the early 1980’s, it was most likely envisaged to be a job for life, but one was equally accepting some form of servitude, in that your working life and associated rewards would be dictated by the employer.

In the 21st century, a job for life has disappeared, but most of us fail to recognize that the necessity for servitude went with it.

The sooner the Executive can get used to the idea that they are in themselves an “Individual Corporate Entity” (an ICE) the sooner it will be possible to approach salary negotiation or more specifically contract negotiation on a level footing.

The ICE has admittedly only one product, as many SMEs do, but on the other hand that product has numerous different uses, as indeed so many other products do, and what one is doing is contracting to provide some or all of those usages in exchange for a price. The price is not just financial reward but also all the other benefits that the ICE can gain out of the association.

If one works with a successful Corporate, not only is the ICE likely to gain more in terms of financial rewards and promotions, but also the mere association with the successful Corporate enhances the perceived value of the services of the ICE in negotiating their next service contract. Conversely, if one works for the Corporate for a short time only, one is less likely to be able to achieve anything to enhance that value, and one is less respected in the marketplace next time round.

Accordingly in the negotiations to sell the services of the ICE, one must have regard to financial reward, to security and to ICE value enhancement, quite apart from personal gratification in the work, and let’s not fail to assess the value of the benefit the Corporate will gain from the services of the ICE.

Let us assume therefore that one has already had regard to the benefits of association with the Corporate, the security of the role, the environment and colleagues and boss quality and that one has decided that these are strong enough to justify the amelioration of financial demands, or weak enough to necessitate a more significant financial requirement. Having hopefully had the opportunity to decide on these factors before receiving the offer, what should we do about salary negotiation? - The answer is don’t.

Until you have received the offer, at least verbally, and preferably in writing, the Corporate is still deciding whether to give it to you or not and any conditions that you introduce in terms of reward package run a danger of discouraging the Corporate from making the offer in the first instance.

Accordingly one must appear to be sensible and competent, but at the same time one is better to assume that the reward you will be offered will be appropriate to the role within that Corporate, rather than to put anything in the way of the offer being issued in the first instance.

When the offer is received verbally that is not the ideal time to negotiate either. ‘I will look forward to receiving that in writing’ is a very much more appropriate response.

Ideally it’s only when one has the offer in writing that one should negotiate, because the Corporate is only now psychologically and possibly organizationally committed to you joining them

One now needs to look at each facet of the offer, and indeed to note any facet of reward or commitment which may not be covered in the offer, in order to decide where to start on negotiation.

There is a human nature inclination to want negotiation to be completed as soon as possible. This applies both to the Corporate and to the ICE, but to maximize rewards the ICE is, in the vast majority of cases, better advised to restrain this inclination and take advantage of the Corporate’s inclination, by dealing with negotiation on a piecemeal basis.

For example, if one wanted to increase the reward package by 100% there is no good going into a first meeting and asking for a 100% increase, as that may lead to a straight ‘No’ and a closing of the negotiating door – alternatively one might have done better. It is far better to negotiate on one item at a level like 50% and assess the response received in order to decide whether to drop the demands to 25% on the next item, or increase them to 75% in the next discussion.

The balance between base salary and incentivisation, be that cash bonus or LTIP must depend upon the assessment that you have made of the prospects of the organization and the extent to which you have assessed that you are likely to be able to achieve against personal budgets as well.

The balance between short-term and long-term benefits tends more to the long-term than the short-term. The employer will consider an upfront payment of a golden hello or relocation or accommodation, to be a more important negative than long-term bonus rewards for example, and, in the normal course of events, the long-term bonus rewards will work out to be more valuable to the ICE than will the short-term benefits.

There is nothing to stop one from negotiating for short-term benefits, but one should get the long-term benefits under one’s belt before approaching the subject.

Although the offer letter may very well express the hope that this will lead to a long and mutually beneficial relationship, do not overlook that these contracts do normally come to an end within a limited timescale, so it is sensible to establish satisfactory notice and compensation payments in advance.

Do not rely upon a longer notice period in order to get a higher level of compensation, and operate the two, because a longer notice period may well be an inconvenience to you in the event. It is seldom that the Corporate will insist upon receiving the notice period, but it may very well give them the excuse to ask for a longer non-competition clause.

Finally, don’t overlook the other terms and conditions that one might easily take for granted, like the geographical location, that you’re committed to, the hours of working and travel and all other aspects that the ICE might at a later date regret not having clarified, preferably contractually, in writing, in the first instance.