A Little Extra Compensation

Everyone likes to "win" when they negotiate.  Despite plenty of advice on working toward "win-win" scenarios, most of us feel better about ourselves if we drive hard for what we wanted, and captured the lion's share of any value on the table.

While this might work fine for most negotiations, I've found it doesn't serve a manager well when it comes to compensation of newly hired employees.  Push too hard, and you might win in the short term, but lose overall.

By design, the interview-offer-hire process is generally stacked in the employer's favor.  Employers demand to know everything they possibly can about the prospective candidate, particularly items that work to the candidate's disadvantage during the negotiation process.  This includes details of past compensation, bonuses,  incentive plans, benefits, and the like. 

Ostensibly, this information is needed to help the employer put together a "reasonable offer."  In practice, it is mostly used to temper the offer the company is about to extend, so that they don't bid any more than is absolutely necessary to get the candidate. 

The prospective employee, on the other hand, has virtually no information on the pay practices of the firm.  While they might get a general description of bonus or incentive plans, it has been my experience that the "devil is in the details" when it comes to these programs.  And the prospective employee certainly has no idea what kind of compensation is being paid to peers, superiors, or subordinates within the firm. 

Can you imagine a prospective employee demanding to know what the "other V.P's" take home in salary?  They'd be shooting themselves in the foot.  Yet having such information might put them on a more equal footing when it comes to any upcoming negotiation on salary.

Fair or not, this is the way our system works. 

It shouldn't surprise anyone to learn that when the company uncovers information unfavorable to the prospective employee (related to this compensation question), they use it.  Such information might include:  current employment status, unfavorable commutes or other logistics considerations in their current job, personal reasons to be tied to a particular geographic area, etc. .

This information is almost always used to justify reducing the offer to be made to the prospective candidate. 

Yes, it happens this way every day.  Question is:  Is it a good idea? 

In my experience, a little less aggressiveness by the company goes a long way toward building a solid relationship with the prospective employee. 

It's a lesson I learned the hard way. 

You have to expect the new employee to eventually figure out your game plan during their hire negotiation.  They are undoubtedly smart enough to realize you didn't offer them the opportunity to participate in the stock option plan because they didn't have that at their last employer.  They will eventually know you offered them thousands less in salary than their peers because they were unemployed when hired and desperate for a job.  They will become aware that their bonus percentage is lower because you could get away with only offering that amount because they were tied to the area by ill parents. 

All of these short term "savings" actions are the foundations for long term resentments.

Penny wise, pound foolish. 

In possibly the most egregious example I ever experienced, I hired a manager who was suffering with a terribly long commute while working for his current employer.  I diligently dug into his salary history, and realized I could certainly hire him for twenty thousand less a year than his predecessor had been paid, and ten thousand less than he was earning in his current job, just so he could get rid of his horrible commute.  

I jumped at the chance, feeling particularly clever for getting such a great bargain for the company. 

Unfortunately, it only took a few weeks before things started to unravel. 

The employee forged a form we used to process raises, giving himself a ten grand increase in pay.  While he never admitted to doing this, a short time before the fraudulent document appeared a peer overheard him say that he, "...didn't think he'd negotiated very well."

Of course, he was fired in short order. 

Some might say that I dodged a bullet with this hire, a conclusion which certainly has some truth behind it.

But I also learned that I was at least partially responsible for the situation.  After all, I created the potential for huge resentment on the part of the new hire by aggressively pushing down his pay.  When I looked at others where I had achieved similar "bargains," most of those deals had ultimately resulted in employee problems of some sort such as:  latent anger, refusal to accept added responsibilities, or the need for later "economic adjustment" raises to stop them from quitting (although no other outright thefts). 

From that day forward, I tried to handle my hires a little differently, following three basic rules: 

  1. Price the position, not the candidate.
  2. Assume the candidate will eventually become aware of how they compare to others. 
  3. Be willing to spend a little more to buy long term good will.

While following these rules means you spend a little more upfront in some cases, the positive attitudes and motivations inspired by doing so pay dividends by reducing the chances of long term resentments, early defections, or even outright dishonesty.  19.1

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Need help finding your way through a morass of politics in the workplace?  Navigating Corporate Politics can help.

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My novels are based on extensions of my 27 years of personal experience as a senior manager in public corporations.  Most were inspired by real events.