Executives may feel they're at a disadvantage when negotiating the details of
a pay package with a new employer. But you can level the playing ground by
knowing your priorities and a few facts.
Take Steven McAllister, who recently negotiated a new job as director of
sales development for Autodesk Inc., a San Rafael, Calif., software company. He
focused on his base salary during the discussions in September, "because so many
things are based on your salary, such as the size of your life insurance or your
long-term disability payments," he says.
Craig Scott, director of capital markets for Cano Petroleum, an oil-and-gas
production company in Fort Worth, Texas, concentrated on the size of his
stock-option package when he negotiated the pay for his job in July. If he feels
that the company's stock might be a hard sell, he requests more options than if
he thinks it will be a high-flier.
High-level executives often ask financial experts or lawyers to help secure
their next pay deal and work out the details. If you're a typical executive, you
won't have this advantage. But by knowing your negotiating priorities, the
value of your current pay package versus the new employer's offer, and the
going rate of pay for the job, you can bargain effectively for yourself. Start
with these three steps:
1. Determine what's most important. What are your deal-breakers?
Before you begin discussions, be clear about areas where you won't budge. Mr.
McAllister, who had been a vice president and general manager for Gateway Inc.,
wanted Autodesk to agree to a higher salary than it first offered before he
accepted his position. Ultimately, the company offered him a salary that
exceeded his minimum requirement.
Mr. Scott says he wanted the minimum potential value of his option grant at
Cano Petroleum to be $1 million in the first year or two. He also asked for the
option-exercise price to be set at the price the stock was currently trading
when he received the grant.
"My job is to make the stock go up," he says. If the exercise price is set
below the current market price, "it's a freebie," he adds.
2. Know what you earn and how your offer compares to other executives' pay.
Many executives don't know what they're making, say compensation consultants.
"Typically, the higher they are up the food chain, the less they know what their
compensation is," says Paul Dorf, managing director of Compensation Resources
Inc., a consulting firm based in Saddle River, N.J.
Bone up by writing down the value of your annual salary and any cash bonuses
you're due to receive. Know when your next salary increase is due and what you'd
make after receiving it. Salary increases for executives are expected to average
3.8% in 2006, reports Mercer Human Resource Consulting.
Find out what other executives in your function and industry are earning.
Many Web sites, including this one, provide data on cash pay in various
functions and industries. Start by reviewing the CareerJournal.com
salary tables
or the
SalaryExpert
look-up tool.
Place a value on each item in your benefits package, such as your medical,
dental and other insurance plans, company match of a 401(k) plan and accrued
vacation time. If you receive a company car, country-club membership or other
perk, "put a value on it," says Alan Johnson, managing director of Johnson
Associates Inc., a New York compensation-consulting firm.
According to consulting firm Watson Wyatt, the average value of a
company-owned car ranged from $5,444 for professionals to $11,271 for chief
executive officers in 2005. The average annual cost of financial counseling was
$2,705 for a senior manager and $6,060 for a CEO, the company reports.
Value any stock options you have with your current employer. For pre-public
companies, this usually isn't possible. The best you can do is determine the
current value based on the exercise price and your best guess of a company's
future prospects, says Mark Edwards, chairman of Compensia, a compensation
consulting firm in San Jose, Calif. For public companies, using an online
stock-option calculator can help you to figure this amount.
3. Understand a new employer's long-term incentives and the size of probable
payouts. Employers are moving away from stock options as incentives due to
new accounting rules. A long-term incentive package for executives now might
include stock options, restricted stock grants (shares that vest after a certain
period of time) or another type of stock grant based on performance, says Mr.
Edwards.
"The mix of pay on the equity side is changing rapidly," he says.
Since long-term incentives are typically linked to company performance,
knowing a company's past history of incentive payouts can help you calculate the
potential value of any long-term incentives you're offered, says Steve Van
Putten, a Boston-based executive-compensation practice leader for Watson Wyatt.
"Ask what a company's history of payouts is relative to the target goals in
its long-term performance programs," he says. "If the plan funded at 75% of
target for the past three years, then you should discount your incentive
opportunity by 25%."
