Monday, August 8, 2011


David, in response to your question about negotiating compensation...

Fair question... here are my thoughts.

The underlying principle is fairness - win/win. When a one time transaction is involved, the issue of fairness is transient and short lived. But when the transaction is ongoing as with employment or service contract, the matter of fairness is always on the table and is likely to shift due to changing circumstances - what was fair yesterday may no longer be fair going forward. Thus periodic review is warranted.  Employment is about mutual exploitation of value. When the value is no longer mutually beneficial or overly constraining it will end.

Compensation is all about contribution. At the heart of mutual value exploitation is the fairness of compensation relative to contribution. Increased compensation assumes there is a proportional increase in the creation of value. If one desires more compensation, one must be willing to contribute more value creation. Since one's compensation is assumed to be economic (i.e. not just heart felt gratitude), then one's contribution must also be economic. Just because someone is handsome, really liked, and smart does not mean they contribute economic value. The value of knowledge is proportional to its fruit. I frequently see GIFT Fellows who expect higher compensation because of the knowledge they have acquired. That knowledge is worthless in an employment situation unless it is translated into economic value - more clients, more revenue, better profit. That's just the way it is.

Professionals are not motivated primarily by money. Compensation needs to be adequate but it is not what drives knowledge based workers. In fact, financial incentives only work in manual labor. Financial incentives actually have a negative impact in knowledge based work. Professionals are motivated primarily by Purpose, Autonomy and Mastery. 

Tenure has little economic value in employment. People are not worth more simply because they have been with a company for a long period of time. Their value is determined by their current level of contribution. As such annual increases make little sense unless they correct a market inequality or contribution has increased.

The first responsibility of a business owner is the survival of the business. Employees who demand too much compensation can and often do undermine the vitality of the business, reduce job security for all who are employed, and reduce the company's ability to serve its customers. 

So with compensation there is the matter of contribution and business vitality. 

Shift gears...

If I'm an employee and I want to earn more, first I must demonstrate incremental, or even better, exponential financial value creation. That is what justifies higher compensation. I need to be willing to give it before I get it. I need to prime the pump. Oh, and I also need to practice good loyalty, team work, and good company citizen ship. Employees with low productivity, who are  high maintenance, demanding, or generally a "pain in the ass" are in a poor position to negotiate anything.  

Next I must find out what I'm worth in the market place. To do that I can: ask around, seek other job offers, and research compensation databases (many available on the internet and through professional associations). This is all about benchmarking - where do I stand in comparison to others and how do I contribute in comparison to others. Keep in mind that compensation involves wages, benefits, working conditions, growth/advancement opportunities, flexibility, etc - compensation is the whole package. There is always variation across employment situations. Sometimes these are negotiable and sometimes not. Employers do have certain legal and practical fairness obligation. 

As to actual negotiations, I'd recommend stating what financial compensation you want and why you deserve it - value creation, economic contribution, comparative compensation, commitment/loyalty, and willingness to share financial risk Then talk about the time line for achieving your financial goals - it may not be possible tomorrow, but can you at least launch on on a favorable trajectory. Be creative - what can you substitute for dollars, how else could you contribute, how much risk are you willing to accept in exchange for greater opportunity? For instance, would you be willing to risk a 20% reduction in compensation in exchange for a 20% upside opportunity depending on your financial contribution to the business?

One thing is for sure - if you go into a compensation negotiation with attitude, anger and threats it will backfire eventually. Conduct your negotiations professionally and respectfully. Be factual. Be creative. Be accountable. Be patient. Be fair!

I hope there's a nugget or two in all of this that you can use.

All the Best!


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Performance Builders