How to Negotiate Compensation

Sometimes you just don’t have enough money in the budget to attract a top person. The following compensation negotiation techniques will allow you stretch your budget 10% to 15% without paying extra. But be careful using them. They’re for professionals only. Without practice, you might wind up paying more or losing a good person for dumb reasons.

Long Term vs. Short Term

This technique is about reframing the decision so that it is about job growth rather than compensation. When a candidate says the offer isn’t big enough, start with this:

Are you making a long-term decision using short-term information? Compensation shouldn’t be evaluated by itself. When we put offers together, we try to shoot for an overall increase of 30% to meet a person’s short- and long-term career growth targets. The bulk of this increase, however, is not in compensation; it’s in job stretch and long-term growth. As we discussed during the interviewing process, this job offers at least a 15% stretch in the job, plus long-term growth of 5% to 8%. Coupled with our cash comp increase of 8%, this is a very attractive offer. Let’s review the job stretch piece just so you feel comfortable with this.

(Now compare the person’s current position with the new offer opportunity in terms of types of work, chances to learn, dealing with different types of people, bigger scope to the job, bigger budget, more complexity, and bigger team.)

Collectively, doesn’t this seem like at least a 15% job stretch? Now let’s talk about the job growth aspects of the job. (Focus on the importance of the job in terms of company prospects and the quality of the hiring manager in pushing people to maximize their skills, learning and promotional opportunities.) When viewed this way, it seems to me that the job offers a significant increase when compensation, job stretch and job growth are evaluated collectively.

If that doesn’t work, it’s time to push a little bit. Try this next technique.

Put the Offer in the Parking Lot

The following technique is about encouraging the candidate to consider the job by itself:

Let’s forget the compensation for a moment. Is this a job you want? If the job itself doesn’t make long-term career sense, then I would suggest stopping now, regardless of any potential offer. If your decision to accept an offer for this job — or any job, for that matter — requires an unusual comp increase, I think you’re overvaluing compensation versus opportunity. In the long run, this is always a bad trade-off. (Now get into a more detailed discussion about why the job offers a great career move.)

Sometimes this idea backfires and the candidate uses the bigger job idea as a lever to get more money. Here’s what to do then. “If this is a bigger job, I need more money.” The key now is to create competition and use salary as a career management tool:

If we go to a higher salary range, we’d need to open up the position to more experienced people. This has to do with the old potential versus performance argument. In some ways, there is a bit of a risk in giving you a bigger job before you’ve proven yourself. Managers always want candidates with more experience. Candidates always want a bigger job. There is always a balance here. So if we pay you more than your level of experience would suggest, managers want to see more people to compare. In many ways, maximizing job stretch with a fair comp package is the ideal situation for a candidate. This allows you to demonstrate your worth without the attendant risk. If you pull it off, this allows you to get the equivalent of two to three years experience in one year. In the long run, this is a better career management strategy than looking for maximum salary increases. The only way you’ll get this is by being exceptional while doing similar work. This tends to minimize upside growth for the sake of compensation. Instead, look for maximum growth opportunities. Then prove yourself. This is how people always get ahead. This seems like a better long run career strategy. What are your thoughts about this?

Don’t Break the Budget

This technique is about convincing the candidate that increased salary is not worth the cost. If the person really pushes for more money, try this:

You know, I might be able to get you a little bit more money, but I don’t think this is a good idea. Here’s why. We’ve already approved the comp package. If we have to go back through the approval process, for one thing there’s no guarantee we’ll get it approved. Even if we pushed it and did get the offer increased, it will create some ill will internally. In the long run, this could add extra pressure on you, since there will higher expectations for you to succeed. There will be little slack, and you won’t be given the typical honeymoon breaks. I don’t think you need the extra pressure. This is a big job, and if you perform well you’ll have a chance to get a big increase next year. As a strategy, I’d suggest you look at this offer and job on a three-year time horizon. This means you need to consider the opportunity to grow in the current job, the possibility of a promotion, and our company’s overall growth prospects. These are the criteria you need to maximize three-year compensation, not by pushing for a maximum offer to start. We have a track record of pushing people as rapidly as they’re capable of being pushed. Strong compensation increases always follows this type of personal growth. When compensation growth leads performance, problems always arise. Does this make sense? Why not think about it, and get back to me.

The Softball Close

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Now it’s time to push back when a candidate demands more comp:

Are you saying you won’t accept an offer at the compensation range we discussed? My opinion is that the offer is very fair for a number of reasons. (Give at least two of the following examples:)

  1. This is a competitive offer coupled with high growth opportunity.
  2. Significant job stretch offers you a chance to demonstrate what you’re capable of accomplishing.
  3. You’re the leading candidate from a compensation versus potential and experience perspective. More comp for you would cause us to reappraise this balance.
  4. When you look at the job stretch and future compensation increases and the total benefit package, our offer is extremely competitive. You shouldn’t look at straight comp as the total value of our offer.

I don’t think we’ll be able to increase the offer as discussed. So let me ask you ó should we just walk away from this? I don’t want to formalize our offer if I know ahead of time you’ll reject it.

Most candidates will yield. If they won’t budge, here’s your last chance.

The Hardball Close

This is the close you’ve been working up to. Getting into a compensation discussion is a good thing, not a bad thing. You want to always be a little light on your initial offer discussions. This way, you can get into the types of discussions described above. Towards the end, you’ll know exactly what the candidate’s tipping point is. This represents a fair and reasonable offer in comparison to the upside career growth potential, and an offer a candidate will accept and feel good about it. Feeling good about it is important. Buyer’s remorse always sets in when a candidate accepts an offer and feels he or she left something on the table or can’t trade this off with a bigger job.

So you’re telling me you’ll take an offer at $— thousand. Is this correct? Now I’m not sure we can get to that level, but if we could, are you willing to give me your personal 100% commitment that you’ll accept it? I’ll need to push HR, compensation, and everyone else to get this approved, but I don’t want to do this unless I can tell them that you’re ready to absolutely accept the offer without any qualifications. This means you won’t accept a counteroffer, you’ll terminate all conversations with all other companies, and you’ll officially sign the offer letter when you receive it. If this is what you’re saying, I’ll do my best to get the offer approved at this level. You might want to think about this and what it means. I don’t want to put myself out there to get this approved without your personal commitment that you’ll accept it.

Note: I wouldn’t use this close unless you’re 100% sure you can get the increase offer approved. I often use this technique when I already have the offer approved at the higher level. But I don’t formally give it to the candidate until he or she is absolutely ready to accept it. This approach minimizes counteroffers and competitive offers. As part of this closing process, I always make sure the candidate tells his or her current employer that a signed agreement is in place and accepting another offer would be unethical. I also verify that all conversations with other companies are stopped immediately after the formal offer is extended. If the candidate is unwilling to officially accept the offer by the next morning, I retract it.

In fact, I’ll only leave it open until the next day. This will be more than enough time — if the candidate is serious about accepting your offer. If you want to hire more top performers, how you handle the end-game and close the offer is a critical part of the recruiting process. You can’t afford to drop the ball now. These techniques will allow you to recruit and close top performers from entry-level personnel to senior executives. Send me any other good ideas you have on this topic (lou@adlerconcepts.com). I’m always trying to become a better recruiter.

Lou Adler is the CEO and founder of The Adler Group – a training and search firm helping companies implement Performance-based Hiring℠. Adler is the author of the Amazon top-10 best-seller, Hire With Your Head (John Wiley & Sons, 3rd Edition, 2007). His most recent book has just been published, The Essential Guide for Hiring & Getting Hired (Workbench, 2013). He is also the author of the award-winning Nightingale-Conant audio program, Talent Rules! Using Performance-based Hiring to Build Great Teams (2007).

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1 Comment on “How to Negotiate Compensation

  1. Great article. Negotiations are my favorite part of recruitment! When candidates negotiate, they are serious, usually well-informed of their worth, and I know they will bring some fire and passion to the job.

    In healthcare recruiting, we often have more than one position in a given skill set to fill. (Nurses or Physical Therapists, for example). So, we often have several candidates at a time to negotiate with, and it is not a matter of having these types of openings put to bed. Candidates are aware of this, and so nearly always up the ante, even when they have agreed to your ranges in the screening stage.

    One technique I use is to use the other candidates in the mix to my advantage. After reminding the negotiator of what we discussed and that our offer is very competitive and why, I explain that ‘other candidates we are currently in negotiation with don’t share the same expectations as you have today. Can you tell me why we should consider raising the bar so high in your situation?’

    Usually their answer comes down to personal need (relocation issues, or simply personal finance issues that could be solved if they realized their ‘dream paycheck’). This gives me a little more leverage in the negotiations, and further defines their ‘make-or-break-the-deal’ motivation. Once you get to that, you can usually find a way to make everyone happy.

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