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Salary Negotiation - Negotiating Performance Based Compensation Packages

by Kathy Sweeney, NCRW, CPRW, CEIC, CCM

When you sit down to negotiate compensation - either at a current employer or a new one - don't be surprised to hear that your future pay package will be pegged less on what position you hold and more on how well you perform your job. Incentive-based pay is becoming popular among employers as they seek new ways to enhance bottom-line profitability and better productivity from employees.

To competently negotiate an incentive package, keep these ideas in mind:

1. Simplicity and clarity are essential. The less complicated the formula and parameters, the easier understood by all parties.

2. Negotiate like a PRO. Before you start negotiating the terms, get all the information possible about the position. Talk to other coworkers to gauge the situation (don't tell them your package). Focus on total compensation, not just the money issues. Most importantly, be friendly and grateful that you have an opportunity to work for the company. Humility and professionalism will help your wishes come true.

3. Set minimum and maximum compensation limits. Sometimes spelling out "worst case and best case" scenarios does much to dissuade hurt feelings on either side in the future. Knowing the minimum helps you to gauge your own economic situation; can you "afford" taking the job? On the other hand, you need to evaluate if the maximum limit is realistic, or just wishful thinking.

4. Consider informal resolution steps. By their nature, performance-based plans lead to more disagreements than do base salaries. To prevent the many horrors of litigation, suggest that disputes be handled by a disinterested third party such as a minister, a mediation company or an alternative dispute resolution organization. You should find out the procedures before accepting the offer.

5. Beware of the median vs. average trap. Many incentive compensation formulas stipulate using a "median" or "average" figure. These are very different! A median is a middle number in a sequence, while an average is the sum of the numbers divided by the quantities of the numbers added. In the sequence of numbers 1, 1, 1, 7, 10, the median is one, while four is the average. The difference between earning $100,000 and $400,000 is quite considerable!

6. Insist on awards which are prorated. In case you leave earlier in the year, this will guarantee you receive the compensation you are due. This applies to other compensations that are in the pipeline, such as commission on sales the company has not collected yet.

7. Always ask for the agreement in writing. It seems obvious, but get all of the facts in writing. Memories fade, and bosses leave for better positions. Sometimes oral agreements and good faith are scarce.

8. Seek win-win. Incentive compensation is at heart a win-win proposition, so always make sure that's how it is structured. An example of a win-win proposal is offering to take part of your compensation in company stock. By offering to accept such an arrangement, you'll show an employer that you are willing to shoulder the risks and share in the rewards.

Being a skilled negotiator will payoff in the long run; you will be paid for your efforts and the employer will gain a more productive employee who contributes to the bottom line profitability of the business. Starting right, knowing you have obtained the best package, will yield many years of rewarding employment.

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