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Oct 26 2009
Getting the correct provisions into the contract depends upon how successful you are in your negotiations. This article sets forth several techniques that can be employed to obtain the best deal possible.
First, you cannot begin your negotiation sessions until you fully understand what your, and your potential employer’s, goals are. You should set down on paper, in order of importance, what you want out of the new position, both from a compensation perspective and from a career standpoint. For example, do you plan to be at the new company for the long haul or are you using it merely as a stepping stone to bigger and better things? If the former, you may want to stress long-term compensation, such as equity participation in the employer, as well as current salary and bonus. Conversely, if you only expect to be with the company for a short period of time, then current compensation (including annual bonus) may be more important.
At the same time that you are analyzing your goals, do your best to determine the goals and interests of the potential employer. In doing so, you may find that there are situations where imaginative bargaining could lead to mutually beneficial solutions. For example, through subtle questioning you may find that the potential employer currently is short of cash, but has significant potential for growth. Thus, you can steer the negotiations to provide you with substantial equity participation, more than you would have known to ask for had you not known of the company’s financial condition and prospects.
Second, you must evaluate your leverage against that of the potential employer. How badly does each party want to do the deal? For example, how much do you need the job? Are you reasonably secure or insecure in your current position? Similarly, what is the potential employer’s fall-back position? Do they have anyone waiting in the wings who is as qualified as you? How badly do they need to fill this position and how quickly must this be done? Deriving answers to all of these questions will give you a fair idea of the relative leverage between the parties and, accordingly, will tell you how “tough” you can be in your negotiations.
Third, when you make your compensation desires known to the other side, you must be able to thread the needle between selling yourself short on the one hand and making exorbitant demands on the other, which could cast a pall over, if not outright kill, ongoing negotiations. To do this effectively, you must do your homework. What are your comparables (i.e., what are your colleagues in similar positions in similarly sized companies earning in terms of salary, incentives and benefits, etc.)? This information can be derived through careful research, often using compensation tools found on the internet, by hiring a compensation expert or by relying on experienced counsel.
Fourth, and most important, is the strategy you employ in the actual negotiation process. You do not want to appear too eager by making quick offers and concessions. Although it sometimes can be useful to make the first offer (as it would be setting expectations on your playing field) in most cases dealing with employment contracts it is the potential employer who makes the first move, at least with respect to salary issues. This would allow you to “bracket” your eventual compensation through your counter offer. For example, if at some point you are offered $400,000 per year in salary, and you would like to settle somewhere in the $500,000 range (assuming that this desire is backed up by useful comparables), you would then counter in the $600,000 range, with the expectations that you and the other party would meet somewhere in the middle, your classic “split the difference” approach which often will work in end-stage negotiations. However, it is very important that you not make any concessions to quickly. Early concessions are usually larger than those made at the end of the negotiation process.
Regardless of whether you are experienced in the negotiation techniques described above, it is very important that you consider utilizing an attorney to handle the process for you. First, use of an experienced attorney will give you a degree of credibility in your negotiations that you otherwise may not have. Second, the attorney can be your “bad cop,” making demands on your behalf while you stay above the fray and whom you can disavow if negotiations take a turn for the worse. Third, your attorney will have knowledge of many important legal issues of which you simply may not be aware. Lastly, as mentioned above, your attorney (again, if experienced) will be aware of the standards of the industry, which will prevent you from making unreasonable demands on one hand and from underselling yourself on the other.