If you have recently run an executive search process, you will know that it’s likely that a fair amount of time will have been spent with your first choice candidate. They will usually have been put through several interviews, one or two psychometric tests and maybe even have prepared a document or made a presentation. This will represent quite a strong level of commitment for someone who is probably quite time poor if they are currently working full time in another role.
You will already have begun a thorough process to educate that candidate about the business, what the role entails, what the challenges and objectives are and who the key people and stakeholders are. At this point both sides find themselves in a conversation with a different context to the discussions so far – an offer negotiation, which will probably have meaningful levels of financial and longevity implications at stake for both sides.
When you are negotiating with a candidate, don’t consider this to be an opportunity to establish a power base in the relationship – you should not even be seeking a win-win situation. This is your first chance to create trust and get the relationship with a key hire off on the right foot.
Here are few suggestions for employers based on our experience of helping candidates through this process to help smooth the process and ensure that negotiations do not break down.
Tips for employers – preparing for an offer negotiation:
Research what is actually negotiable
During the various stages of the discussions so far, you should have first established how their compensation is currently structured and also which areas are either important to the candidate or contentious with them. Use your headhunter to help you gather this information if you are using one.
Popular elements of an executive compensation package can include: Base Salary, Bonus, Bonus Accelerators, Long-Term-Incentive Programs, Share Options, Discounted Shares, Sign-on Bonuses, Relocation Allowances, Company car or Car Allowances, Fuel & Travel Expenses, Pension Contributions, Gift of Product, Holiday Allowance, Sabbaticals, Personal Development, Healthcare plans, Private schooling, stipends, non-exec agreements, length of notice period, non-compete terms, Company Accommodation, Wardrobe Allowances, Severance Terms, professional subscriptions and club memberships.
Know your give, takes and breakpoints
Make a list of all the elements of their current package down the side of a page, with the value of that element next to it. Add at the bottom any element you offer that they don’t already receive. On the other side of each line note your maximum or best offer for that element.
With your budget on the right hand side of the page and their number on the left you now have your negotiating range for each element of the package. Go through each of these and highlight as either a ‘give’ or a ‘take’. ‘Gives’ are those where you can increase their current position and takes are where you can’t.
Finally, make a note by each line where you believe the candidate’s break points are for each element. This is where your past research comes into play. For example, if they live in the city and were given a company car that they rarely used, you might be able to offer this as cash instead for them to hire cars or take public transport and reduce their benefits tax bill.
Another factor could be the chances of additional responsibility or career progression. We’ve negotiated a number of offers where the total compensation went down to start with, but gave the candidate better opportunities later on. Don’t under estimate the bigger picture for a candidate.
If, during the recruitment process, you become aware of a mismatch in the candidate’s expectation or current position versus your genuine maximum, make sure you raise this at that time. Be gentle in exploring the implications – ask questions to ascertain which things are deal-breakers and which aren’t.
Prepare your game-plan
Play around with the variables and construct some different versions. Look for the version that gives the maximum best situation to the candidate at an acceptable level for you then plan your steps. This means knowing what your opening offer will be and then what you will offer next for whichever element they object to.
When planning your next step it is often easier if you bundle or link items together. You will probably have elements where you have little or no flexibility – for example pension scheme contributions at your company might be less than their current company. You may be able to off-set this by increasing their base pay to allow them to make additional contributions with this cash..
Making the offer
Control Your Environment
The most successful negotiations are those with an environment and a timescale that gives the maximum chance of success. Remember – you’re not gunning for a win win, you’re aiming for a discussion that leaves the candidate feeling that they have got a great deal and motivated to deliver the maximum when they start working with you. If you make a deal that is the ‘least the company could have got away with’ you will not have the best foundation for success.
The first thing to agree is a time to discuss this with the candidate. If either of you are rushed or distracted, there is potential for misunderstanding. Tell them at the beginning of the discussion what will happen if you run out of time.
Make it clear you’re interested
After setting the context for the discussion remind the candidate of the reasons why they are receiving an offer. Candidates who feel they are wanted and that you are doing the maximum you can to build a deal that works for both sides are likely to:
Recognise that you are being creative if there are mismatches and be more flexible themselves
Settle on compromises more easily where they ‘believe’ you are at your maximum
Feel trusting of you in being open and be more open themselves in what matters to them
Lay out your offer
When presenting an offer during a negotiation, people often fall into the trap of making justifications after delivering each element. This can sound like you are not confident in that element or trying to justify it.
A better way to approach this is to start with a brief summary of the factors you considered, then deliver the offer – element by element – and then wrap up with a closing statement that does not make the offer appear like a fait accompli.
Manage objections carefully
When you receive an objection, even just a physical ‘ flinch’ – intake of breath, shake of head etc – keep it mind this is just ‘their move’ in the game of offer ‘chess’ you are playing.
Watch out for ‘exposing giveaways’ – clues to what the other person is really thinking, which may be at odds with what they are saying. For example, a sentence that starts ‘do you think you could look at …?’ tells you that this is less important than ‘thanks for your offer. I’d like to make a deal but we would need to get to xyz for it to be viable for me’
When you are making proposals you do not necessarily have to agree to something commencing right away. We have often put in place increases or accelerators that kick-in once certain objectives are met. These can be financial – bonus on profits for example. This way the additional costs become self-funding.
After getting this far and investing this much in the process, it is important for you to do what you can to make a deal rather than losing a great candidate. However, you must also know where your break point is and be prepared to walk away.
Often adrenalin or impatience can result in terms being agreed that are later regretted. One way to reduce the chance of this happening is to make sure you have at least a 2nd choice candidate and ideally a 3rd choice. This is not always possible but helps you to be more objective in decision making because you are not ‘boxed in’ with one solution.
Finally, don’t forget that candidates that get this far will almost certainly want the job and be thinking about what it will mean to them. They will be hopeful that they will be working with good people – so be mindful through the process to reinforce that you are ‘good people’ so you don’t get off to a poor start.
Andy Gooday, Managing Director, Round Peg Search