Getting The Compensation Conversation Right

Chris Moody, president and COO of Gnip, is back with a guest post in his Moody on Management series. Following are Chris’ thoughts on negotiating compensation with a prospective employee. Enjoy and comment freely!

In my last post, I provided a few tips for job candidates when interviewing at a startup.  This week I wanted to cover a simple process for hiring managers to follow when communicating with candidates about salary requirements.

There is the old saying that people spend more time planning their vacation than they spend planning their retirement.  I’ve found the same concept sometimes applies to job candidates when thinking about their compensation requirements.  As the hiring manager, you need to ensure that a candidate has fully considered their compensation needs before you make an offer.  Over the years, I’ve refined a simple and effective approach to facilitating this discussion.  I’ve used this technique countless times with great results.  The process starts with an email to the candidate:

“Dear Candidate,

From a skills and values standpoint, it seems like we are both excited about the possibility of you joining our company.  If you agree, the next step in the process from my perspective is to determine if we are aligned from a compensation standpoint.  As such, it would be helpful to get the following information from you:

- Current compensation.  Please breakout your base salary from any variable compensation if applicable.

- Your view of your current compensation as it relates to your next opportunity.  It is particularly helpful if you provide this feedback by selecting from either

a) I believe I’m fairly compensated and would anticipate making the same salary at my next opportunity

b) I’d be willing to take less for the right opportunity

c) I feel I’m currently under valued and looking for an increase of $x in order to be excited about my next opportunity.

If it works for you, I’d prefer to have this communication via email.  Over time I’ve found that putting this stuff in writing helps people think about it more before responding.

Love,

Chris”

Of course there are no right or wrong answers.  The goal here is simply to get a clear understanding of how the candidate is thinking about their future compensation by using their current compensation as a frame of reference.   Best case, the candidate’s expectations align with yours and the offer moves forward with a high probability of success.  Worst case your expectations don’t align but you now have a thoughtful starting point for negotiations if you still want to move forward with an offer.

A couple of additional points:

1) Even if the candidate has expressed salary requirements during the screening process or during your discussions, I strongly recommend you have this written conversation as the final step before you make an offer.  For example, perhaps your conversations along the way changed their perspective on salary requirements for the position.

2) The key to this approach is to do this communication in writing.  I know it can seem silly or impersonal, but it makes a huge difference in terms of requiring people to give thoughtful answers instead of answering on the spot.

Before using this approach I had more than a few occasions where candidates indicated verbally that they wanted $x, we offered $x, and then they responded with “I was thinking about it more and I really need $y to feel good about joining”.  Once you hit this situation, it puts both parties in an awkward position and it can be hard to recover.  You can avoid this potential pitfall with one simple email.

Oh, by the way, Gnip is hiring!

  • andrewhyde

    More fantastic advice from Chris.  

  • http://twitter.com/masonoise Mason Jones

    Note that this is somewhat at odds with the common advice to candidates that they should not be the first to name a number — how do you handle it when the candidate comes back and says that they’d prefer to hear from you first about the level that you feel the company is prepared to offer? Having done a lot of hiring as well as being hired, I know it’s a tricky dance sometimes.

    Personally, as a candidate I wouldn’t want to have that discussion via email, because there’s more than simply salary, and when you get into equity and other components it gets complicated quickly and the conversation can be much more efficient in person or on the phone.

    • http://twitter.com/chrismoodycom Chris Moody

      I’ll admit that I’ve never understood this “common advice”.  I believe the foundation of any successful relationship must to be based upon trust.   As a candidate, if you believe you putting out the wrong (low) number to a company first will allow them to potentially screw you, you are entering in to a relationship that is going to prove to be very unsatisfying in the long run.  How can you join a company that you don’t trust?  

      I’ll admit that my view might not be 100% represented of how the rest of the world thinks (especially some larger companies).  I believe underpaying employees because you can get away with it is a very short term strategy that will ultimately lead to failure.Compensation is a completely unique and personal decision.  As a candidate, you are far better equipped to specify your needs than for the company to try and guess your needs.   Be honest and specify your true requirements.  The company only wins if you join feeling good that you are being fairly compensated.

      • QualityCoding.info

        “How can you join a company that you don’t trust?”

        That’s a good point.

        “I believe underpaying employees because you can get away with it is a very short term strategy that will ultimately lead to failure.”

        Been there done that. Another related issue is knowing who is right for higher compensation. Sometimes cowboys are great for the short-term, but aren’t really an investment in the company’s future. During my 15 years in software, I’ve used cowboys as contractors because they can get something done quick and the code is good. But, they don’t belong in a long term position and they’ll be the first to tell you that.

  • Carl

    This is another twist on “comp package poker.”  It’s really no diff than any other negotiation, but the result is you both want the employee to join or else you wouldn’t be in the situation (both winning).  (Of course it could also be “upstream” in the hiring/screening process…which makes it even tougher to get facts or a candidate’s fit against the open req and budget or salary range.)  In this market, it’s difficult to get to, “Pay me a fair wage and I’ll work/code far beyond the avg FT’er!” Or, “I want to be part of something big; make it up in participation/bene’s!”  Chris, would love to know the stat’s and effectiveness of this approach…paint a pic of what the scatter would look like: 100 candidates (statistically significant)., Then, where in process do you add this requirements request (screening call,1st interview, 2nd, tacit offer to move to comp negotiation, etc.)?  How many choose to ante into the game vs. politely decline and say, “Tell ya what…why don’t you make me an offer in the middle and we’ll go from there?”  What percentage choose each of the opp’s A, B, or C?  Of those, how many are hired?  Do you consistently end up at the upper end of the position salary banding for A, B, or C?  Lower?  Or right about where you’d hope, with both understanding you need some headroom for the employee to grow in the position?  Tanks.

    • http://twitter.com/chrismoodycom Chris Moody

      Carl, great questions. I’ve hired over a hundred people using this approach and I don’t recall a single person pushing back on providing this information.  I believe the reason people don’t push back is because we have the compensation conversation late in the process.   Trust and mutual interest/excitement are well established at this point.  Both parties are fairly committed to trying to make it work.  

      Although I don’t have hard stats, I can tell you that the vast majority of these conversations end up with the candidate being hired.  In my experience, it is much harder to find the right fit based upon opportunity, skills, experience, and values than it is to find a fit for comp.   That said,  As and Bs almost always work out.  Cs sometimes don’t work out IF the primary motivation for changing jobs is purely to make more money.  Someone who is fundamentally happy in their current role, but just wants to make more money may not be the best candidate.  There are risks associated with changing jobs.  In the end, the delta on salary may not be worth the downside of leaving a job where they are happy.
       

      • Securities Guy

        Your comment that this conversation doesn’t occur until late in the process brings to mind the advice to job candidates that they shouldn’t raise the issue of compensation during an initial interview.

        This advice has never made sense to me. Why would either party want to waste critical resources determining if there is a good fit from a skills / personality perspective if there’s absolutely no chance of mutual agreement on compensation? At the very least, a discussion of feasible salary ranges (on both sides) early on could serve to avoid wasting either party’s time.

        • http://twitter.com/chrismoodycom Chris Moody

          My argument is that a candidate’s requirements may change as they learn more during the interviewing process so you need to validate requirements at the end.  

          Perhaps the role is bigger (more challenging) than the candidate originally thought so their compensation expectations have risen.  It is not uncommon for a candidate’s excitement to grow during the interview process and they might decide they are willing to take less in order to get their “dream job”.

          I’m certainly not opposed to having early screening on compensation by either party.  I’m only suggesting you should confirm requirements at the end of the process, and you should do that confirmation in writing.

  • Scott

    I like the idea of posing questions to prompt a thoughtful discussion. As a candidate, is it smart to disclose my compensation position and approach without receiving similar information about the employer’s position? Would it be appropriate to disclose in this same email the salary ranges of people in the company in similar positions, the anticipated compensation range for the position, and whether the company would be willing to pay above the range for someone who is an extraordinary fit for the job?  If so, I think that’s a fairer email to send, as it lessens the sense that the employee is being asked to put all of his/her cards on the table without any commitment from the employer to do the same. I suppose a different approach would be to emphasize in your email that they aren’t required to provide this information at the outset, but are welcome to discuss it at another time or after receiving an offer. 

  • QualityCoding.info

    A couple things:

    “Over time I’ve found that putting this stuff in writing helps people think about it more before responding.”

    Now if we could just get everyone to realize that putting things in writing helps! Lets take just one example, say… Oh I don’t know… Maybe software requirements and designs?!

    Also, it’s nice to see that you feel it best to take extra time on salary when hiring. Many times when people are going to need to relocate they don’t give enough thought to salary requirements.

    Good luck with your hiring. If you would like to outsource any programming services… Well I guess you can figure out the rest…

  • Frank Miller

    I’ll play devil’s advocate from the candidate’s point of view.

    The point you’re addressing here is who makes the first assertion in the negotiation.  In my opinion, the smaller the company, the more appropriate it is for the company to make an offer first.  Large companies tend to compensate based on formulae and there is much less wiggle room.  They also tend to pay in plain salary and maybe some cash bonus and not in equity.  With smaller companies and especially with startups, equity is everything.  Few people will work the startup hours for what tends to be less compensation unless there is that equity carrot hanging out there at the endgame.  This tends to make this negotiation much more complicated.

    Another point that I think is really important for candidates but that in my experience drives companies nuts is this.  When presenting equity offers, the potential employee must be provided with info on 1) percentage vs. just number of shares and 2) how does percentage dilute in subsequent funding events.

    The ideal situation for the employee is of course seeing an offer from the company first with the info I mentioned as part of the overall package.  This almost never happens in my experience.  However, the type and tone of response a candidate gets when they ask for this says alot about how they’ll be treated if they do end up joining.

    • laurayecies

       just because the candidate answers a question about current comp does not mean that’s an assertion about what they expect in “this” job

      • Frank Miller

        By answering that question the candidate defines what the a, b, and c that Chris refers to.  In that sense, it must be considered the beginning of a negotiation.

  • Jeff Sherard

    Trust is a two way street and requires a relationship between both parties based on openness, honesty and transparency.  It seems like you are asking the candidate do all the trusting.  You are not willing to fully disclose the companies position.  In asking the questions you ask in your email without stating the companies position up front seems unfair. You have a number in mind that you can afford to pay for this position, to maintain parity within the company, to be competitive in the marketplace – share that number.  Explain your compensation philosophy to the candidate – are you leading the market in salaries?  or just meeting the ‘going rate’? Do you prefer to compensate wholly with salary? or do you have a mix of salary, bonus, options, performance based compensation? etc

    To just ask the candidate to fully disclose and say ‘just trust us’ seems a little one-sided.

    • http://twitter.com/chrismoodycom Chris Moody

      Jeff, your assumption is that this conversation is the first opportunity to establish trust.  My approach is to establish trust throughout the interviewing process by having very open and honest conversations throughout.  I encourage candidates to ask hard questions and I will do my best to answer them (see my last post to see the type of questions I encourage candidates to ask during an interview).  If someone ask me about salary ranges for the position, I’ll give them an answer.

      As I mentioned in another comment, I’ve taken this approach over a hundred times and I’ve never received any “you go first” push back.   I believe the reason is that trust has been established early and consistently reinforced throughout the process.

  • Ezra Nanes

    Thanks Chris. Another great post. As I read it I experienced many of the reactions that have been expressed in the comments, namely thoughts of anchoring and comp poker. However, reading your comments/reactions lent context to the post and to your comp email. I really like what you said about trust, and I agree that that is the secret sauce that makes the email work. When I am asked the comp question now I always answer with an amount that will make me happy – happiness includes being able to pay rent and daycare and also having something left over to build a future and make the most out of the present. I find its always best to start with what I want and not try to over think how an employer might react. However, for me the ultimate goal of the comp game is to land on a figure or a package that will make both me and my employer happy – an equal sharing of perceived value, if you will. 

  • http://www.keithcowing.com KeithCowing

    “Love, Chris” huh? Aren’t we bordering other HR violations here ;-) ?

  • http://www.repeatablesale.com/ Scott Barnett

    I’m glad that this approach works for you.  Reading through the comments it appears that you are quite bullish that the results are worth it.  I take the almost opposite approach with similar results.  I find that discussions of compensation are quite personal and intimate in nature – so trying to address it formally via an email does not provide the emotional outlet a candidate needs to feel.  I do agree that compensation should not be discussed until the chemistry and fit has been established.  Once that has been done, I will typically bring a candidate in for a separate “interview” specifically to discuss compensation/benefits/role/etc.  I like the give and take as well as see how they handle objection handling and negotiating.  It’s helpful for me to see people in stressful situations, because you know that’s going to happen in your company, and during the interview typically both sides were on their best behavior.  It also gives me the opportunity to ask “what do you want in your career?” and see if we can address it – it’s always (or better be) more than just salary.  I frankly don’t give a crap what they are making in their current role – if this person is a fit and I know how much that position is worth to me, I’ll pay them that much.  What does it say about me if I’m willing to pay $100K for a role, but once I find out the person is making $80K I only offer them $90K?  If the right person is worth $100K, pay ‘em $100K.  If you don’t, somebody else will.

    Using this approach, I’ve had great success finding the right fits for roles I needed to fill.  I wouldn’t do it your way, but as I said I’m glad it works for you.

  • http://www.justanentrepreneur.com Philip Sugar

    I totally agree with this post if and these are three big ifs:

    1. You do not break your salary structure with a new hire.  I.e. you pay somebody much more than people that have been with you in tougher times with similar skills.  (everybody knows everybody’s pay, I was with you when and you paid the new gal what??!!)

    2. You oversell the equity option portion of it.  I.e. the person wants to win the lottery with you in two years or they are “out of here”.  (if you are busting ass because you think it is a get rich scheme instead of enjoying the moment, there is always going to be somebody prettier, richer, etc than you)

    3.  If they turn out to not be what they say you get rid of them quick (see point 1, that needs to be clear because there is no place to hide)

  • Human Resources

    On the contrary, I think these questions can be addressed in writing when you first bring your candidate onsite for an interview. In most cases employers will ask for an employment application to be completed at that time, and these questions can be incorporated. The earlier the question is asked, the more control the employer has in the discussion which to me is the optimal outcome. I ask majority of these questions during my phone screenings of candidates, and have never had an issue reminding the candidate of what they told me during our interview.

    Additionally, there is nothing worse than losing control of a negotiation because the candidate is given the impression or feel pressure that they should negotiate higher. I think it hinders the relationship between candidate and employer and is very risky. I’m all for paying people what they are worth, but I also believe that budgets should be respected and significant increases in salary can be earned or wrapped up in variable comp.

    From both sides, as a candidate I would not be comfortable with Chris’s approach because it puts unnecessary pressure on the candidate, (#1 it’s in writing, #2 it’s extremely impersonal) and as an employer I am not comfortable in making this a final step, but rather a first step to align expectations early on and maintain control of the negotiation process.

    And yes, the “Love” closing is totally strange

    • http://twitter.com/chrismoodycom Chris Moody

      In the startup world, my experience is that a candidates desired compensation can be highly variable based upon the opportunity.  For example, a candidate may be willing to take far less for the right position with the right company.  And yet, the candidate typically knows very little about the opportunity at the beginning of the process.

      If you base your view of compensation fit on early screening (or, even worse, an employment application) you are doing so before the candidate really understands the opportunity.  You will certainly know what they are currently making, but you won’t know how they think about their current salary as it relates to your unique opportunity. That’s the important compensation data that can only be obtained at the end of the process.

      Again, I’m not opposed to some early upfront salary screening.  The power of this particular approach is that you get specific feedback as it relates to your specific opportunity.  At the end of the process, both parties are more informed about what they would be willing to do to make compensation work.

  • http://david.ulevitch.com/ davidu

    I think signing your professional, COO-hat-on email with “Love, Chris” is a bit odd, and bordering on inappropriate. If it’s tongue-in-cheek, compensation discussions aren’t the place.  If it’s sincere, that’s weird. :-)

    • http://twitter.com/chrismoodycom Chris Moody

      It was a joke.  I don’t actually sign my emails that way :-)

      • http://twitter.com/QualityNinja QA Ninja

         I liked the joke.

  • James Mitchell

    I always ask applicants this information before I meet with them. I’ve have interviewed people for a job where I expect to pay $175,000 a year and they are currently making $500,000! If things are within range, I leave the subject alone until later. But if things are totally out of range on either side, I think it is worth at least part of the discussion before meeting the applicant.

     

  • http://twitter.com/QualityNinja QA Ninja

    As someone who has had firms offer both above and below my expectations, I like seeing the amount face first(even a broad range) so I can usually say forget it or yes to even having a discussion.  This way no one is pissed off and no time is wasted by either party.

    Usually I have taken roles via referral from friends or former colleagues so they are willing to give up the details more so than a company’s recruiter.

  • http://www.carbonlover.com carbonlover

    “B” is clearly the best answer. If I were to respond, I would choose B and state that I was making more than I actually am.

  • Hulu_Monster

    Why not list the salary with the job description.  Clearly you know what you are looking for and how much it is worth.  Candidates that are willing to do that job for that money apply.  You hire them for the amount advertised +/- 10 %.

    Saves everyone a lot of time.

  • http://www.marckrejci.com Marc Krejci

    I was recently hired in a new position and had no problems starting this dialogue in an email.  They wanted to start the conversation on the phone, but by sending the following in an email first, it made for a much more productive conversation: 

    “My salary expectations are in the $xx,xxx – $yy,yyy range. This is flexible and negotiable within this range, depending on factors such as the specific benefits offered, advancement opportunities and performance-based incentives.”

    Notice I didn’t state my “requirements”, but “expectations”. But more Interestingly, their budget for the position was below my range; but offering this in writing first started a more in-depth conversation about benefits and creating benchmarked incentives. All of which combined ended up being right in the sweet-spot of my range. The details were discussed on the phone, then a written offer outlining those details was extended and accepted quickly thereafter.

  • http://twitter.com/ElaineEllis Elaine Ellis

    I work at Gnip and really like this approach. An email approach lets you put thought into it and think about it. I squarely fell into the C category and had taken two pay cuts in a row at my last two jobs, so I definitely wasn’t going to take a pay cut again. I told them what my range was and what I wanted to be earning (big jump), and they came back to me with a higher offer. It started our employment off on the right foot. Gnip just isn’t the kind of company to shoot itself in the foot by beginning a long-term relationship in the wrong way. Frankly, I think previous salary negotiations should have been my first clue into the types of relationships I would be building at my previous two jobs. In the future, I’d use it as a lens to examine the type of relationship we’re building. 

    I was also already familiar with the benefits that Gnip offers. I’ve learned the hard way that benefits really add up financially, and I think a lot of people don’t take into account to their detriment. 

  • http://athenatria.com/ Athena Jeunnesse Mae Tria

    really nice article.

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