Executive Compensation: When and How to Negotiate

by Salary.com Staff - Original publish date: January 18, 2012

To negotiate your pay package, you first need to identify the right opportunity. It is true that any time will work, but there are some natural "money moments" that are perhaps more logical for negotiating a pay package. One obvious opportunity is when you are interviewing for a new job. In fact, for an executive not to negotiate at that moment would be considered foolish. If you're not interviewing for a new job, the obvious moments are fewer but they still exist. Performance review time is a good time, as are the end of a significant project, and promotion or change-of-role events.

Start early. At any level, but particularly at the executive level, the negotiations, decision-making, and budgeting processes all take time. If you start too late, you may find yourself being told, "We'd love to, but the raises for this year have already been budgeted."

After you identify when to talk, you need to know what to say. Here is a brief outline of some steps to help think through the process.

  1. Know your job's market value. Do some research to know the going rate for people performing a similar job within your organization and at other, similar organizations. This is always the best starting point for common understanding.
  2. Know what extras are normally included. When you are doing your research for what the job typically pays, also pay attention to how it pays. Look for mix of pay among base pay, cash incentives, stock incentives, benefits, and perquisites. Identify the types of noncash awards you see others getting.
  3. Know what makes you special. Although this sounds corny, this is where your leverage will come from. Look for the types of things you can do, or things you know that are superior to the performance of the typical person doing your job. If they are valuable to your employer, some of that value will transfer to you. To facilitate that transfer, try to have some idea of the tangible value of those things to your organization.
  4. Put it all together in your "dream deal." Establish how much you and your skills are worth to the employer vis-a-vis your specific skill set. Also identify the components of pay that are most important to you. Keep in mind that your employer will have some idea of what is and isn't acceptable. You'll have to respect their limitations, but sometimes you can get one or two rules bent if they're important to you.
  5. Determine the starting point for your discussion. This is sometimes the most difficult part. You want to approach the subject of salary increases in a way that is strong without being confrontational. You also want to be sure you know your bottom line set of acceptable terms, but you may not want to blurt that out in your opening salvo.
  6. Come to agreement on the facts. The facts here are those specifically about you and your performance, as well as those about the market standards for the job. Once you and your boss (or the board, in some cases) come to agreement on the standards used, you are on a level playing field to begin the process of drawing the lines between your performance, skills, and rewards with the corresponding market standards for the job. This is the moment most people think the actual negotiation begins - but in reality, it began in step 1.

Remember, of course, the negotiation process is continual. You should always be aware of your performance; you're always being evaluated.

Some final words
When you are negotiating for your pay package, be sure to explain your reason for asking for specific things or amounts. It is not reasonable simply to say, "I want it." You should have a clear and convincing business reason for asking for something. Identify the reasons something is supportive of the business's agenda, or why it is clearly a competitive issue.

Similarly, because you are negotiating, remember you don't hold all the cards. You are likely to make more headway if you consider things in terms of tradeoffs and exchanges. This way you are negotiating the classic "win-win" solution that leaves everyone feeling they have accomplished something positive.