The Compensation Hangover

The Compensation Hangover

The hiring marketplace went gangbusters in the past few years with highly paid executives demanding significantly more compensation to change companies.  As the economy continued to grow through the pandemic, great talent was in demand and top candidates had control.

The tides have now shifted, and we are seeing less movement in the executive suite but still a high demand for outstanding talent.  As managing costs becomes a top priority for CEOs, many are challenged with meeting the inflated compensation requirements that are a hangover from the last few booming years.  Both companies and candidates need to recognize that it is time to right set executive compensation which means devising packages that work for both parties.  

Below are some thoughts on how to get there:

  • Both parties need to give:  A great negotiation is when both parties give something up.  If one side has all the power, the result to the other party is a feeling of being taken advantage of.  Both candidate and company need to come into the compensation conversation with an open mind and a willingness to give so that both parties feel the value.
  • Aim to discuss compensation, not negotiate it:  Everyone needs to get comfortable discussing money.  It is a very important part of our lives and the compensation we make through our work gives us the opportunity to live the lives we want.  There is no reason to shy away from a discussion on money and it should never be met with apprehension.  A healthy discussion with the hiring manager and candidate on compensation, early in the recruiting process, will ensure there are no surprises or upsets when you move to a final offer.
  • Understand the marketplace:  Every search needs to begin with an understanding of the marketplace.  This means going far beyond published data that is typically six months to a year old. Launching your search by meeting and speaking with 3-5 executives that fit your criteria, and using real-time data to understand what you will need to pay for a great hire, will enable you to scope the role accordingly and get CEO or board buy in early.
  • Learn what matters most:  Typically, there are several pieces that make up executive compensation which can include base salary, bonus, equity, LTIP, signing bonus, benefits and more.  When heading into a final compensation discussion, it is critical for hiring leaders to understand what matters most to their candidate before updating their offer.  On the candidate side, before putting forward your asks, it is important to take the time to rank what you care most about and be willing to leave the rest behind.
  • Money never wins:  Money is very important and deeply matters to both company and candidate but compensation should be thought of holistically.  As an executive leader, you are already in an earning bracket that gives you a lifestyle.  Consider the cash compensation you need to maintain that lifestyle and recognize that anything above that is gravy.  Respect the company needs to pay executives equally and work to fall within their brackets if you want the position.  Play the long-game by leveraging the upside of bonus’, stock incentives, and other non-cash-based benefits which can often bring you greater wealth and happiness.
  • One back-and-forth and that’s it.  Going back to what matters most, if you know this, there should be only one more exchange to “sharpen the pencil” after the initial offer.  Anything beyond one refinement of the offer creates tension and doesn’t launch the working relationship in the right way.  

Every search starts with a defined compensation band and oftentimes an outstanding candidate comes along and demands more.  It is OK and sometimes smart to meet a candidate’s needs but know that there are several creative ways to get to those needs.  Money is never the end all and overpaying on cash can result in a loss for all.