NEGOTIATING A JOB OFFER
How many times have you heard on the street, “It costs too much”? This refrain usually pertains to the cost of goods and services. Sometimes it signals the beginning of the bargaining process. Take the street vendor in a big city like Chicago, Los Angeles, London, or New Delhi selling knock-off products like Ralph Lauren-labeled clothing or Coach-labeled purses or wallets. You don’t pay the asking price. You negotiate.
The process is much the same when talking with a hiring manager or human resources director about a job offer. Many let-go candidates leave money on the table because they do not realize that the compensation part of a job offer is negotiable, except for government jobs that have a grade level and a corresponding compensation level. Moreover, let-go candidates are under pressure to bring home another paycheck and are inclined to accept whatever the first offer might be.
THE PROCESS FOR NEGOTIATING BASE SALARY AND BONUS
Think of the employer’s office as a street vendor’s stand where everything is negotiable: base salary, bonus, and possibly benefits. When you walk into the employer’s office, whether it’s a formal corporate office or a contractor’s trailer at a commercial building site, imagine you are back on the street bargaining with a vendor of knock-off products. Here’s what can happen.
BASE SALARY
The employer’s HR person makes a base salary offer for a sales director’s position. The human resources director says, “Tom, we are thrilled at the prospect of your joining us. I know you will be happy here. We’d like to make you an offer that consists of three parts: base salary, bonus, and benefits. Your starting base salary will be $120,000. Your bonus is 25 percent of base salary for exceeding your revenue goal by more than 10 percent. Your benefits include term life insurance equal to your base salary, three weeks of paid vacation, shared-cost medical and dental insurance for you and your family, long-term disability insurance, and a contributory IRA plan that becomes effective after ninety days. It’s a generous offer, Tom. Here it is in writing. Could you let us know tomorrow when you can start?” You thank the human resources director and tell her you will come back tomorrow at ten after reviewing the offer.
Knowing the offer is low, you begin to compose a counteroffer. You have done your homework and know that comparable jobs in the area pay more than what was offered. In your last job, you had been making $140,000 base, plus a 10 percent bonus for meeting revenue goals, and benefits comparable to those in your new offer. Your research confirms that your evaluation is valid.
You really like the new job, the company, and its culture. This is a good place to be, and you decide to work out a compromise. You decide that you will try to negotiate a minimum base of $130,000, all factors considered, including the fact that you have been laid off and the missing paycheck is beginning to take its toll on your pocketbook. You are okay with the bonus and benefits. However, you would like to take an online course for PMP certification, the cost of which is $3,000.
You arrive at the office at ten and sit down with the HR director. Here is how you might present a counteroffer:
I am flattered that you made me an offer to join the company. However, I have some thoughts about the base salary and one of the benefits. Based on my research for comparable jobs and considering my experience, I believe that a $150,000 base would be equitable. I’m okay with the bonus. Also, I would like to continue my professional development by taking an online course for PMP certification, which would benefit the company. The cost is $3,000, and I would appreciate your including that in my compensation package.
The HR director can do one of three things: reject your counteroffer entirely, offer a compromise on your proposed base and the tuition, or concede entirely on your proposed base and tuition request. You must be prepared ahead of time for all subsequent counteroffers. Before you go into the office to negotiate, have a number in mind for the base you would accept, and a compromise on the tuition. If the HR director counters with a base of $125,000 and $2,000 on the tuition, you must be prepared to accept, counteroffer, or decline.
Does it really happen that way? You bet. Just a week before writing this, I presented a candidate to one of my clients for a director-level job that carried a base of $120,000, a $5,000 sign-on bonus, and $10,000 for relocation expenses. The candidate counteroffered, and the company hiring manager came back with this final package: $125,000 base, a $10,000 sign-on bonus, and $15,000 for relocation expenses. He had offered the max that the company salary structure would allow. The result? The candidate said, “No, thank you,” and accepted a job from another company offering a $150,000 base.
BONUS
Like base salary, a bonus can be negotiated. In fact, companies could be more flexible on bonus than on base salary. In some companies, certain workers receive a fixed bonus based on total company performance; in other companies, the bonus is based on individual or departmental performance. An exception is a bonus, or a commission as it is frequently called, for workers in sales.
Workers in sales receive a commission based on attaining revenue goals. For example, an outside full-time sales representative selling into the school market for John Wiley Publishing Company might receive 5 percent on all sales after reaching an established revenue quota of $2,000,000. If the sales rep delivers $2,800,000 ($800,000 over the revenue goal), the commission would be $40,000. If the sales representative’s base salary was $60,000, the total income from base salary and commission would be $100,000, plus the value of the benefits, usually 30 percent of base, making the total package $118,000.
There are as many bonus and commission plans as there are companies. In small- to medium-sized companies, the bonus or commission plans are frequently negotiable. Large companies are usually not open to negotiation. The bottom line is this: always try to negotiate a higher bonus or commission. If the offer says the bonus or commission plan is 5 percent, ask for 8 percent. If the employer says no, ask for 6 percent. There is nothing to lose by asking. Your potential employer will probably appreciate that financial reward is an incentive for you, as it should be.
Everything monetary in a job offer is negotiable. In all of my experience in the staffing industry, I have never experienced a situation where the company did not have some flexibility on the money part of an offer.
BENEFITS PACKAGES
Traditional company benefits include medical and dental insurance, term life insurance, disability insurance, retirement plans such as an IRA (Individual Retirement Account), paid vacations, paid sick days, paid holidays, paid family leave, professional development education costs, tuition assistance for children, and unemployment compensation insurance.
Candidates often forget that benefits add to their compensation and to company expenses, as well. Benefits are not “free.” The entire benefits package must be monetized and added to the base salary in order to determine the true value of the offer. The current accepted price of all benefits to the employee averages 30 percent of base salary. For example, assume the base salary is $100,000. Add 30 percent for benefits, and your job is really worth $130,000. And if there is a stock option benefit and a company contributory IRA plan, you must include those items to arrive at your true compensation.
WHICH BENEFITS ARE NEGOTIABLE?
A retirement program such as a company-sponsored IRA or Roth IRA will most likely become effective after you work with the company six to twelve months and cannot be negotiated. Paid holidays, paid sick leave, family leave, life insurance, disability insurance, and medical/dental insurance will not be negotiable. If they were, the company conceivably could have a different plan for each employee. However, vacation time is sometimes negotiable, or it can be used as a trade-off for other benefits.
Your most important benefits are medical insurance and disability insurance, because one never knows when illness or an accident will strike. Medical and long-term disability insurance benefits are almost as important as base salary. Of course, these benefits have even greater importance if you are married and have children.
HEALTHCARE
Prior to March 23, 2010, when the Affordable Care Act (Obamacare) became effective, a company would say, “Here is our medical and hospital plan. The plan is through Aetna, and your benefits and costs are contained in this booklet.” That is no longer the case. Multiple rules and regulations have been imposed on companies depending on their legal status, revenue, number of employees, and other factors. It’s no longer one size fits all.
ACA has become a highly politicized piece of legislation, and as such there will be revisions going forward. A prudent thing to do now, however, would be to go online and research this important topic yourself because new information is becoming available every day through a number of different sources. Review the official website at www.healthcare.gov. Also, Google “Obamacare” and “Affordable Care Act,” and you will find a number of sites providing valuable information.
Healthcare benefits are a matter for serious discussion with potential employers, so do not hesitate to ask for explanations about your options. The human resources director will be familiar with the provisions and will share them with you. Healthcare benefits, which include medical, dental, and eye-care insurance, will not be negotiable.
PROFIT SHARING
Some companies offer profit sharing in addition to, or in lieu of, a bonus plan. The higher the company profits in any given fiscal year, the higher the profit sharing for each employee. Some companies have a profit-sharing program based on total company revenue. If you do not see “profit sharing” in the job offer, always ask if you might be eligible to participate in the program. Most companies have a profit-sharing plan for their key executives but might offer it as an incentive for midcareer workers who are applying for a management position. Some companies, like Starbucks or Texas Instruments, offer profit sharing for all employees regardless of rank.
STOCK OPTIONS
Another benefit in publicly traded companies is the stock option plan. This benefit permits workers to purchase shares of company stock below market price. The number of shares an employee receives is directly proportionate to rank and length of time with the company. Presidents get more that vice presidents, who get more than directors, who get more than managers, and so on.
Companies offering attractive stock option plans usually have a workforce that is stable and long-lasting. I have noted that companies offering stock purchase plans retain workers for longer periods. For example, Apple provides a discounted stock purchase plan for its workers, which has created many millionaires. I know Apple employees who joined the company in 1980 and are still there, primarily because of the stock purchase plan.
Negotiating stock option plans is easier with a smaller company than it is with an established company like Google or Apple. The risk of continued long-term employment with a start-up or small company is greater than that with an established company. For this reason, such small companies are more amenable to offering generous stock options to compensate workers for the added risk.
TUITION FOR PROFESSIONAL DEVELOPMENT
Going forward, every worker will need to update their skills through professional development courses. They may be certification courses, MA degrees, or even MBAs. Companies are usually open to including tuition reimbursement for such professional development because they benefit from your added knowledge and skills. Always ask for this benefit.
WHAT IS YOUR JOB REALLY WORTH?
Salary fluctuates with the economic cycle, workforce demand for a particular skill, and geography. For example, in a very robust economy where annual GDP growth is near 4 percent, compensation in a high-demand field, like information technology, will be higher than it would be when the country is in a steep recession.
One cannot reliably predict what a particular job will be worth in the future because of these variables, but there are many resources, both print and digital, for midcareer workers to use as a guide. On the print side, the most valuable resource is the Occupational Outlook Handbook, which lists average salaries for jobs in a particular industry.
Periodically, conduct online searches for salary information because numbers change and new sources of information are always emerging. Review the following sites, remembering that the numbers you find are estimates, not firm and final data:
SOURCES FOR DETERMINING COMPENSATION
PayScale, www.PayScale.com.
Bureau of Labor Statistics, www.bls.gov.
JobStar, www.JobStar.org.
CareerBuilder, www.careerbuilder.com/jobssalary-comparison.
Occupational Outlook Handbook, www.bls.gov/oco.
SIX-FIGURE BASE SALARY JOBS
To put the compensation factor in context for midcareer workers who are negotiating job offers, I studied numbers released by the Bureau of Labor Statistics and confirmed by the Wall Street Journal. Here are the top twelve jobs paying six-figure base salaries:
MEDIAN ANNUAL WAGES FOR OCCUPATIONS WITH SIX-FIGURE BASE SALARIES
1. Physicians and Surgeons: $187,200
2. Chief Executive Officers: $175,110
3. Dentists: $158,310
4. Nurse Anesthetists: $157,140
5. Architectural and Engineering Managers: $132,800
6. Computer and Information Systems Managers: $131,600
7. Petroleum Engineers: $129,990
8. Pharmacists: $121,500
9. Natural Sciences Managers: $120,160
10. Podiatrists: $119,340
11. Marketing and Sales Managers: $119,280
12. Financial Managers: $117,000
Remember that these are median income numbers, which means that half are below and half are above the median income number stated.
Only twenty-seven occupations pay six-figure incomes. Management, healthcare, and engineering jobs account for twenty-two of the twenty-seven highest-paying occupations. Variables that still come into play are geography, total company revenue, education, and number of years of experience.
COMPANY COMPENSATION PARAMETERS
When negotiating base salary, bonus, and benefits, it is important to remember that the company must work within established parameters in order to keep peace in its workforce and maintain profitability. For example, assume that a company has a staff of twenty customer service representatives working from offices in Scottsdale, Arizona, all making a base salary in the $45,000 to $55,000 range depending upon length of service, experience, expertise, and education level. In that situation, it would be impossible to negotiate beyond $55,000. There would be a breakdown of trust if a customer service rep with two years of experience and making $40,000 learns that a new employee is making more. How will you learn the salary range for a particular position? Ask the director of human resources or the hiring authority with whom you are negotiating.
Basic Rules for Negotiating Base Salary, Bonus, and Benefits
Be reasonable. Be friendly. Be understanding.
Do not be greedy.
EVALUATING THE SMALL-PRINT CLAUSES IN A JOB OFFER
Frequently job offers contain a number of clauses that are overlooked because they are written in small print and in legal jargon. They just don’t seem that important. However, it is critically important that you read and understand the small-print provisions. They could affect your employment status, both short and long term. Here are the most frequent small-print provisions found in a job offer:
TERMINATION-AT-WILL CLAUSE
Many job offers contain this provision. It means that the company, for no reason whatsoever, can terminate your employment. It can happen any day of the week when your boss or the human resources manager calls you into the office and says this is your last day working there. The real reason why you are being sacked could be that you did not perform up to expectations, and the most expeditious way to terminate your employment is to use business-speak, euphemisms like “downsizing,” “rightsizing,” or “reorganizing.” Your job is not an entitlement, and in addition, you have no statutory right to your job.
Provisions of the termination-at-will clause will vary by state. Research the issue by Googling “Termination at will” and adding the state in which your company is located. If you want to be absolutely sure about how this provision will affect you, consult an attorney.
You can refuse to sign a job offer containing this clause, but your candidacy could be rejected because of it. I advise you to sign the offer agreeing to this clause and move on.
NON-COMPETE CLAUSE
This clause means that you agree not to take a job with an employer that would be in competition with your company after you leave the company voluntarily or after being fired or laid off. Like the termination-at-will clause, state law governs the non-compete provision. Some states, like California, prohibit employers from using the non-compete clause in employment agreements.
Usually, this provision is time-sensitive. Read the clause carefully. The non-compete time period could be limited to one year after separation from the company, or it could be forever. There is a geographical component to this clause, as well. For example, the clause may prohibit you from working for a competitor located within a three-mile radius of your employer, or throughout the United States.
There is a disconcerting trend for employers to include stringent non-compete clauses and to increase strict enforcement by filing lawsuits against former employees who violate the agreement. Unfortunately, courts in a number of jurisdictions have ruled in favor of the company, resulting in a severe fine against the employee. A recent article in the New York Times cited research about this controversial employment clause. The most disturbing news is that employers using the non-compete have expanded its scope to prohibit an employee from taking a job with another company working in the same or a related industry, or an employer whose operating procedures and infrastructure are similar. This means that if a worker is employed as an editorial director for a publishing company located in New York City, that worker is prohibited from taking a similar job with another publisher located anywhere in the United States for a stipulated number of years . . . or forever! Opponents of the non-compete argue that an employer has no right to control a worker’s career and income, and we agree. The Times research cited a number of instances where an employee left the company for another job because it offered an increase in compensation and a move up the corporate hierarchy only to be served with a lawsuit to enforce a non-compete agreement. What such unscrupulous employers attempt to do is freeze workers into one job with one company during their entire working life.
If a job offer includes a non-compete clause that prohibits you from ever moving on, do not sign it. If the employer will not negotiate this out of the offer, walk away from that company. However, if the job, the company, and compensation are in sync with your plans and you really do want the job, consult an attorney for advice.
There is an entire body of law governing the non-compete agreement. Google “Non-compete agreement” and add your state for current legislation.
DRUG AND ALCOHOL TESTING CLAUSE
There is a growing trend for companies to require a drug and alcohol screening as a condition of employment. Employers outsource these preemployment tests. The potential employer always pays the bill for these screenings.
Refusing to submit to the preemployment drug or alcohol screening will jeopardize your chances of employment. If you have nothing to hide, agree to the screening. However, what about Alaska, California, Colorado, Maine, Massachusetts, Nevada, Oregon, Washington, and the District of Columbia, where recreational use of marijuana is legal? Employers in these states still require the preemployment screening and do not permit or condone use of federally defined illegal drugs and alcohol while on the job. If you live in one of these states, do not assume that employers permit the use of controlled substances. If you test positive for marijuana or any other controlled substance, you will not be hired.
Employers are very serious about this. For example, a sign written in bold letters on the entrance door of every Home Depot store in every state reads:
NOTICE
WE WILL TEST ALL APPLICANTS FOR ILLEGAL DRUG USE.
IF YOU USE DRUGS, DON’T BOTHER TO APPLY!
Federal law controls the use of recreational marijuana and other controlled substances, not state law, even though some states passed legislation permitting it. There is pending federal and state legislation on this. Don’t test the waters. Agree to the drug provision, or you will not be hired.
THE CREDIT-CHECK CLAUSE
The credit-check clause could be in the job offer for a number of reasons, the foremost of which is that employers do not want to deal with wage garnishment requirements. In addition, an employer may believe there is something lacking in a candidate’s sense of responsibility if they have a history of unresolved debt or bankruptcy. If you have any long-term debt or substantial credit-card debt, try to resolve these issues while in the search process. Do not object to the credit-check clause. It could cost you a job. Just sign it and report to work.
THE STARTING-DATE CLAUSE
A job offer will contain a start date. For example, assume you received the job offer on December 5 and it contains a start date of December 10. It sounds so official that you could be afraid of rejection if you do not agree to report on December 10 . . . even though you had a prepaid trip scheduled to see your ill mother halfway across the country. Do not fear the start-date clause. All employers consider this a negotiable item.
THE RELOCATION CLAUSE
If a company offers you a job based in another location, the job offer may contain a relocation clause. The terms vary widely from company to company, but usually they state how much the company will pay to relocate you, your dependents, your spouse or partner, and your household goods. There is much flexibility here, and companies are willing to negotiate the terms of relocation. Relocation is a highly negotiable item, and most companies will permit working remotely, even if the job is a presidency or vice presidency.
HOW TO REJECT A JOB OFFER
There is no rule that says you must accept a job offer, even if you have been laid off or fired. Some employers believe they can pick up a midcareer, laid-off worker “on the cheap” and will make a ridiculous offer. When that happens, reject the offer, because there are always other employers who will treat you fairly. How do you reject an offer? There are two ways to reject an offer after negotiations reach an impasse;
1. Tell the hiring manager that the job sucks and that you would be dumb to accept it.
2. Thank the hiring manager for considering your candidacy and wish him success finding an alternate candidate. Close the conversation by telling him that your rejection is nothing personal; it just does not provide what you need at this time.
The downside of using the first method is that you have severed the possibility of ever being considered for a future job opportunity at that company. In addition, the person on the other end of your message could move on to another company, and guess what. You will find no job opportunities at his new company.
The second method is the route to select when declining a job offer. It says that you have a sense of business etiquette, maturity, and good judgment. Your candidacy for another job opportunity will remain alive if you use the second method.
MOVING FORWARD
The cost for most products and services we purchase is negotiable. The same is true for base salary, bonus, and certain benefits found in job offers. American workers tend to believe that what is stated in a job offer is firm and final and never think to negotiate a better deal. Just the opposite is true.
Dr. Chester Karrass, author of four books on negotiating, tells how you can negotiate a job offer in his book In Business As in Life, You Don’t Get What You Deserve, You Get What You Negotiate. Make time to read this book and two others by Karrass, titled Give and Take and The Negotiating Game. These are classics, and Dr. Karrass will tell you what can be negotiated, how much can be negotiated, and how it is done.
Another step in the career-rebuilding process is to determine where you would like to work. There are options like working in a large multinational corporation or a small neighborhood business. As an alternative, you could start your own business or purchase a franchise. All are viable options, and we’ll explore them in Part III, “Finding Your Spot in the Workplace.” It’s coming up next.
CHAPTER TAKEAWAYS
• The base salary part of the job offer is always negotiable.
• Drug and alcohol screenings are not negotiable.
• Make negotiations a friendly event.
• Be reasonable, not greedy.
• Decline a job offer politely.
• Do not sign a job agreement if it contains a highly restrictive non-compete clause. Walk away from the job or consult an attorney for advice.
PRINT AND DIGITAL RESOURCES
Carnegie, Dale, and Associates. How to Win Friends and Influence People. Simon & Schuster, 2012.
Karrass, Chester. In Business As in Life, You Don’t Get What You Deserve, You Get What You Negotiate. Stanford St. Press, 1996.
The official United States healthcare site is www.healthcare.gov.