How to Negotiate Executive Compensation Packages

How to negotiate a for-profit or nonprofit executive compensation plan.

While most hiring managers prefer to think recruiting their dream executive lies entirely in their hands, this power often sits in Adam Smith’s proverbial invisible hand. As the famous economist outlined in his book, The Wealth of Nations, market forces ultimately determine how much an employee needs to be compensated, not a business’ budget or best wishes.

With the unemployment rate in the United States currently sitting at 3.9%, and that of professionals even lower, at 2.1%, businesses are at the fate of a cutthroat hiring market when it comes to determining compensation packages. For that reason, the highest grossing companies are presenting prospective candidates with pages upon pages of benefits, including everything from daycare to gym memberships.

In this competitive arena, organizations across all sectors must step up to the plate if they are to attract new hires that best suit their needs and win the executive search process.

 

Size Trumps Sector When it Comes to Hiring

Although the executive search process differs for not-for-profit and for-profit organizations, compensation strategies don't. In fact, an organization’s size and their corporate objectives remain the most important factors to consider when hiring executives.

For-Profit vs. Nonprofit Executive Compensation Packages

Small not-for-profits will generally have a hard time offering competitive salaries compared to larger, for-profit companies. Conversely, a large not-for-profit can often attract higher level executives by offering more lucrative packages than smaller corporations can afford.

Among larger organizations, providing unique programs to incentivize executives is a key component to standing out in this competitive market. Some executive compensation package examples include incentives that help employees network with club memberships, provide avenues for healthy lifestyles with high-quality wellness programs or on-campus recreational exercise options. Other package examples include profit sharing programs, funding education, and offering benefits for family members.

Smaller organizations may not be able to compete with their larger counterparts when it comes to cash compensation, but they have executive compensation advantages such as equity in the company that could provide greater returns in the future. Additionally, some executives may prefer to work in a smaller company due to its more intimate environment and lack of bureaucratic restrictions.

 

How to Negotiate Executive Compensation Packages

The best candidates have a shelf-life. Here are three keys to streamlining the negotiation process:

1. Start early

2. Manage expectations

3. Maintain transparency 

On the employer side, it’s necessary to conduct salary studies on the current market to determine a realistic executive salary for your new hire. If the budget doesn’t fit the level an organization wishes to recruit at, the role and its responsibilities may need to be scaled back to align with the market.

Candidates must be transparent about their requirements too so they don’t waste time being recruited by a company that can’t compensate them adequately. It is helpful to have a transparent liaison or a compensation consultant to help streamline the negotiation process. Doing so, will prevent both parties from making regrettable decisions based on their emotions, while simultaneously promoting pragmatism.

In making the offer, it’s important that the employer present their most attractive package first, rather than low balling and nitpicking over details such as vacation time. In putting their best foot forward, an organization will let the candidate know that they are valued. Organizations can land their top recruits and save time haggling by offering their best compensation plan from the start.

Conclusion

If an organization can afford to pay the market price for its executives, it should.

However, because humans aren’t only driven by cold market mechanisms, it ultimately comes down to whether or not a recruit feels valued by what they receive in exchange for their responsibilities, and if the position will move them towards their future objectives.

At the end of the day, finding an ideal executive compensation plan comes down to all parties being honest with themselves and others.

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