say your resume is current, and you are beginning to speak to a
few companies about a potential move. Here are some things to think
about regarding your bonuses as you consider offers.
mix varies by industry
Let's say you are contemplating joining a company in a different
industry, although you intend to continue doing what you're doing
now. The company you are joining is offering a much larger bonus
than you are currently earning, but is ruling out that larger salary
you were hoping for. That is, it has a different pay mix.
Pay mix varies from industry to industry.
industries pay comparably smaller salaries than others, but may
emphasize bonuses to a much greater extent. The reason is that incentive
pay is intended to reward those who directly affect the top line
(revenues) or the bottom line (profit). Some industries rely heavily
on the contributions of individuals to revenue- or profit-generating
banking is a well-known, extreme example. In fiscal year 2000, the
CEO of Goldman Sachs - a large and profitable investment bank -
earned a base salary of $600,000 and a bonus of more than $14 million.
This industry customarily pays millions in bonuses to employees
several rungs below the CEO. Investment banking, even in the age
of stock options, is still known to be one of the best-paying industries
manufacturing companies, on the other hand, do not pay large bonuses.
Instead, employee compensation is largely in salary; bonuses make
up a small portion of total pay. For example, in fiscal year 2000,
the CEO of Dupont made more than $1 million in base pay and $1.7
million in bonus. The more traditional and older the industry, the
more likely it is that bonuses will be small relative to salaries.
Steel, paper, and oil are examples. Newer and often riskier industries
are likely to pay larger bonuses. Among these include high-technology
companies and professional services companies engaged in activities
such as consulting, advertising, and investment banking. In the
middle are consumer goods and pharmaceutical companies.
way bonuses are presented also differs from industry to industry.
In most industries, they are presented as a target bonus with an
upside equal to some multiple of the target (often 150 to 200 percent).
In professional services companies, the maximum is presented. In
this case, bonuses are usually adjusted downward, not upward. In
investment banking, the likely bonus payout is presented with the
understanding that there is unlimited upside.
leave money on the table
Sign-on bonuses are given to employees to establish goodwill and
to buy out any compensation left on the table from a previous employer.
joining a new employer, be sure to account for every kind of compensation
program in which you participate. Your sign-on bonus should pay
for the loss of your unpaid bonus; any kind of profit-sharing bonuses
or defined contribution (for example, a 401(k) match or an Employee
Stock Options Program (ESOP)) made to your retirement account that
is expected to be paid within two to three months; and unvested
stock options that are in the money. Senior-level people may also
include the value of supplemental benefits such as nonqualified
deferred compensation and certain perks.
value of your unpaid bonuses and defined contributions should be
based on what you expect to earn. Unvested in-the-money stock options
should be valued based on what you would get from them if they could
be exercised now. The resulting total provides a starting point
for what your signing bonus should look like.
those stock options that won't vest for at least another year, calculate
their current exercise value and think about how much you want to
be paid for walking away from it. But remember, your new company
can justify saying no because you will be earning options on your
new company instead.
Let's say you are considering a job offer that makes you eligible
for the company's annual incentive plan. Before saying yes or no,
make sure you understand the annual incentive plan targets, including
both company goals and individual objectives.
should also think about how you will meet the expectations laid
out in the bonus plan and what resources you will need for meeting
them. Without the resources to achieve your bonus target, you may
be setting yourself up for frustration or even failure. Think twice
before accepting a job offer that makes you accountable without
creating the conditions for success.
you are convinced that an offer is a good opportunity, negotiate
not only for the resources but also for a guaranteed minimum of
at least half your target bonus. If no objectives are given to you,
again, ask for a guaranteed minimum.
the bonus season
Ask how your eligibility for the bonus plan is affected by your
start date. For example, some companies won't pay a bonus if you
start working in the last three months of the fiscal year.
Dwight Ueda, Salary.com Contributor