Negotiating Raises & Better Employment Terms

Negotiating raises and changes to your executive compensation, you have several distinct goals. 

1. Secure your basic financial needs. 
2. Secure a valuable equity stake in the company. 
3. Negotiate your terms for equity. 
4. Create incentives for yourself that align with the growth of the company and your role.

As you work towards these goals, you want to strengthen your position within the company. C-suite negotiations are an opportunity to demonstrate your abilities as an executive. Prove that you can navigate complex situations that impact yourself and the company. 

Let’s take a look at each of these goals individually. 

1. Secure Your Basic Financial Needs

This goal requires an evaluation of your personal and familial financial needs. Then, you want to balance it with your position and the ability of your employer to meet those needs. Your basic financial needs include: 

• Base salary
• Key benefits that impact your family 
• Medical and dental benefits
• Disability insurance 
• Pension benefits 

Your employer looks at what the company can afford in their financial positions. Then, they see how your needs fit into the company’s compensation structure. 

Negotiating raises may involve a balance of special executive benefits to meet these needs. Additionally, it can involve a minimum bonus that reconciles your base salary needs with the salary structure of the company. 

2. Secure a Valuable Equity Stake in the Company

In the world of executive compensation, the majority of executives are not content with a salary and bonus. Instead, they expect their compensation package to include equity or an equity-equivalent component. Often, this proves to be the most valuable aspect of the package. 

That plays out for two reasons. 

1. The equity component offers the potential for exponential growth. When the value of the company rises, the value of the equity may exceed your salary and bonus. 
2. The equity component offers the potential for long-term capital gains. These gains have a marginal tax rate compared to income. Moreover, they have the potential to escape the taxation of payroll. 

With the right guidance, your equity stake can become the most valuable aspect of your executive compensation package. That’s why negotiating raises often include adjustments to these special terms.

3. Negotiate Your Terms for Equity

When you secure a strong equity position within your compensation package, you have the potential to dramatically increase the value. Moreover, it impacts the amount you take home after taxes. 

Between non-qualified options, restricted stock, ISOs, RSUs, and performance shares, there are many options for equity structure. Each option includes important terms on acceleration, clawbacks, drag along, exercise, parachute provisions, tag along, valuation, and other key terms. 

Let’s look at an example: 

With most options, the contract requires that you exercise within 90 days of termination. However, non-qualified options do not have this provision, allowing discretion. So, it’s important to negotiate that discretion so that you have a flexible period to exercise. 

If you turn those 90 days into 3-5 years, you have much more flexibility. This is useful if the company seems underwater at the time of your termination. 

4. Create Incentives for Yourself that Align with the Growth of the Company and Your Role

Win-win incentives are good for everyone when negotiating raises and terms. As you negotiate equity, you want the owner of the company to see that a meaningful stake in the company further aligns you to the interests of the owner. 

Executive equity creates a win-win in a few ways. 

1. The executive directly benefits from an increase in the value of the company. 
2. Often, loyalty and vesting intertwine to benefit the company. 
3. Vesting also ties to milestones and growth. 

These incentives work into the bonus aspect of your compensation package as well. You want the incentives to be reasonable and achievable. Moreover, you need to have input. 

Set annual incentives at the beginning of the year. Targets are clearer, and you can align your incentives with them. With proper thought and insight, equity, bonus, and performance incentives help to align your goals with the company goals. 

Demonstrate Your Skills While Negotiating Raises

If you can’t fight for yourself, people won’t believe you’ll fight for the company. The details of compensation packages vary widely between individuals. There are many possibilities depending on each situation. 

A hardball negotiator might drive a tough bargain, pushing the company against a wall. While this is good for the individual, it fosters bad feelings. This is rarely a good sign. 

On the other hand, a hard bargain based on justification and evidence helps. Additionally, you can listen and respond to the position of the company and work on compromises. This allows each side to reach a certain level of satisfaction. Then, there’s a good reason for them to keep you and believe you will fight for the company. 

In negotiating raises, you want to demonstrate several things: 

• You understand the substance of the situation. 
• They cannot push you around. 
• You know how to compromise and preserve respect. 

When you take a chance on a new position or a new company, sacrificing higher pay for something you believe in, let them know. Turn the negative into a positive so that they understand your position. Show them that you may make certain concessions to join the team so long as there is balance. 

Often the stake you place in the ground during negotiations isn’t permanent. Once you prove yourself, you can revisit and adjust during renegotiations. 

How Counsel Can Help You Reach Your Goals

Negotiating raises requires planning and skill. Guidance from experienced counsel is always a benefit. A skilled executive employment attorney offers you a sounding board for your strategy as well as a source of valuable advice. Additionally, experienced counsel can provide validation for your position and a buffer that insulates you from any hard feelings after the fact. 

If you have questions about executive negotiations or require assistance, contact attorney Clayton Craighead at 832-345-3000.