Your Executive Compensation

If you're working and being paid at this time of the beginning of the 21st century, more than ever before chances are good that your executive compensation package is:
(a) more negotiable than you think,
(b) dependent upon your performance, and
(c) a potential source of dispute.

A. Great Negotiability: In any "buy/sell" transaction, in order to strike a good bargain it's essential that the seller know and understand the buyer, and the buyer's objectives. Negotiating a new job is a "buy/sell" transaction, in which you, your services and your loyalty are for sale (or to be more precise, for lease). To corporate management, executive compensation represents a capital investment in human resource infrastructure. The investment must be sufficient to attract you, motivate you and keep you. But no more than is necessary, for overcompensation is not an efficient use of resources.

It is our experience that, far more often than most would believe, executives undervalue themselves in their negotiations, and have far greater negotiability than they exercise. That is, they err on the side of caution regarding how "broad," or inclusive, a compensation package they request, and how "deep," or how high, their requests should be.

What is it on your resume that the buyer is really seeking? Your special knowledge? Your skills? Your contacts? Your efforts? How badly does the buyer need you? What is the buyer's view of "value?" How far can or will the buyer go in payment? What constraints limit the buyer's price?

This greater negotiability is reflected, as well, in the increasing use of "equity participation" plans in which it is recognized that, for the right people, it's sometimes necessary to offer a piece of the company.

B. More Performance-Based Compensation: As we assist executives in devising and revising their overall compensation packages, we see less and less attention paid by employers and employees alike, to base salary and annual increases, and more and more to the complexities of incentive compensation, equity participation and deferred compensation, and with good reason.

C. More Frequent Compensation Disputes: At the same time, there has been a very significant increase in compensation disputes, especially over bonus, or incentive compensation. In plans we call "discretionary," quite often the expectation of employees (and even promises of employers) far outweigh the dollars eventually handed over. In plans calling for "fixed-sum bonuses," we often find unknown or misunderstood conditions attached. In "formula-based" plans, based on arithmetic or algebraic formulas, miscalculation is common. And "miscalculation of words," or their meanings, is common, as well.

It's a tough world out there, and it's not going to get any easier. Executives owe it to themselves — and their loved ones — to prepare to prevail in bonus matters.