I recently decided to leave a Fortune 100 company after nearly seven years. I accepted a generous severance package and have just been offered a good job at a small but growing company. I don’t think this company can match my salary demands so I would like your advice on compensation — how to negotiate professionally with them. Thanks.

Nick’s Reply

compensation negotiateJob candidates can flub negotiations if they fail to recognize that there are two components to compensation. There’s money, and there’s everything else. If you ignore that dichotomy and focus primarily on the money, you miss the point of compensation and you might forego a job you really want. Of course, if salary is the key for you, then much of this advice won’t be helpful. But if you’re open to alternatives to salary alone, read on.

What is compensation?

Compensation is not necessarily just money. An employer compensates, or “counterbalances or makes amends for” actions you have taken (that is, work you have done) for the employer’s benefit. Viewed this way, compensation might have little or nothing to do with paying you money.

You might think I’m batty, but if you’re forced to negotiate with an employer who can’t meet your salary requirements, suddenly the idea of negotiating beyond money gets interesting. Let’s consider what compensation really means.

What is compensation for?

You devote time, effort, brain power, and perhaps muscle to do a job. These resources are all limited. You deplete them from your life as you deliver them to your employer.

For example, you take time away from your family so you can do the job. Who takes care of your kids? Who grows the potatoes for your dinner? Where do you find time to build a shack to shelter your family from the cold?

If you’re going to tend the job your employer needs done, who will take care of your needs? Simple: your employer. A company must compensate, or counterbalance, for what it takes away from your life — or you will not be available to do the job you’re hired for.

What kinds of compensation are there?

An employer could provide you with housing. (Coal mines used to build entire towns to house their workers. We won’t get into how this system was often abused.) Or, it could give you food. (Restaurants often feed their workers.) In recent times, companies have provided on-site day care for children, or have allowed employees to bring pets to work. If your mortgage, meals, and child care were covered, salary might not be the only salient component of your compensation. You might instead focus on negotiating for a house rather than a shack; for education in addition to child care; and for steak rather than potatoes for your kids.

Did you negotiate for any of those things the last time you entertained a job offer? Maybe you should have, especially when the employer couldn’t cough up the cash you wanted. (See How I negotiate compensation.)

Of course, the list of potential forms of compensation is virtually endless and depends on the company and on you. The challenge is to explore the best, most reasonable alternatives together.

Compensation: Negotiate beyond money

Now, some of these examples are admittedly extreme. But when a company is strapped for cash, should you hang your head and walk away? For better compensation, negotiate beyond money. The smart job hunter knows to shift the negotiation to non-cash, non-salary forms of compensation. You can suggest acceptable alternatives and help the company identify ways to “make amends for” its inability to compensate you in cash. To do this, you must be able to express your needs in terms that can get them satisfied.

Cash futures. If a company can’t match your salary requirements, but you still want the job, don’t fight it. Instead, put other compensation options on the table.

These might include “cash futures”: company stock, an early review with a guaranteed raise, an incentive plan based on agreed-upon performance criteria, guaranteed severance upon termination, elimination of a non-compete clause, or a retention bonus payable once you’ve been on the job for one year.

Salary alternatives. Then there are indirect benefits, on which a company gets a discount (think tax write-off, too), but which deliver value to the employee: computer equipment and other technology to use at home, extended paid vacation, a transportation reimbursement, an expense allowance, child care benefits, a paid cell phone, education benefits, and tax advice services or even payment of taxes (not uncommon for executives).

Priceless time. There’s also quality-of-life compensation: flex time, sabbatical leave, unpaid time off and, nowadays, the freedom to work from home. Most people crave more control over their schedules. You won’t get paid for those summer Fridays off, but if a company can’t afford a full week’s work anyway, you still have a job to go back to on Monday.

Money is great because it’s fungible. It’s an almost universal medium of exchange. It gives us the freedom to buy what we need. But when cash is tight, there’s also freedom in knowing how to negotiate beyond money to get compensated for our work in other ways. You must be able to discuss alternatives, because creative compensation terms might yield a job where there was none.

I’d never suggest taking a job that doesn’t pay well enough, unless maybe if you’re desperate. To be a really effective negotiator, you must be prepared to walk away from any deal that’s not good enough. But before you walk away from a good job with a good employer that “can’t afford you,” try to boost the compensation — negotiate beyond money.

Have you ever foregone higher salary for something else important to you? Have you successfully negotiated beyond money? What are the top three forms of compensation for you? What’s the most unusual form of compensation you’ve received for your work?

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  1. As a military Reservist, I accepted employment with a start up firm where money was tight. Rather than forego salary during the weeks I was away performing my military duty, I negotiated for the company to continue paying me the same as if I had never left. They also added stock options to the package.

  2. My employer had a generous sick day allowance. As I very seldom needed sick days and left a lot on the table when I departed at previous employers, I requested and received additional paid vacation days in exchange for fewer sick days. When I departed, those additional unused vacation days were paid in my final check.

  3. Health insurance benefits are also part of compensation but understand what those plans involve. With medical coverage, it’s essential to understand how much must come out your pocket beforr the plan kicks in. This means premium, deductible, and co-pay/co-insurance. Be especially wary about high deductible plans. Sure, the premium might be low(er) but can you really afford to spend $$$$ before the plan pays a dime? (A relative of mine with several medical serious conditions between them and their spouse had no other choice when the employer put in a high deductible plan. They had to pay $2000 each as deductible and, as things happened, they went through that before the end of January. It was money they did not have.) Also, check out the network of providers. You many not want a health plan that has a network that is thin, does not have many of the “better” providers in your area, or has little choice of specialists.
    If health coverage is important to you, do not wait until you are hired to get the information you needd to determine if the plans meet you needs. Ask for a Summary Plan Description (SPD) and access to the list of network providers for medical, RX, dental and vision. They may try to give you a Summary of Benefits and Coverage (SBC); it’s better than nothing but if you have a specific need for certain treatments for a chronic condition, the SPD is highly preferrable.
    As a benefits administrator for many years, I can’t tell you how many times I had to deal with employees who took a health plan without understanding the financial impact for their particular situation.

  4. Most of these other things still cost money. If the employer doesn’t have money for salary I don’t see them having much money for other types of compensation

    • @James: It’s all a matter of budgets. For example, it’s a common misconception that if a company uses a headhunter to fill a job, the fee comes out of the new hire’s compensation. That’s never true (unless the company is mismanaged and naive). The headhunter’s fee comes out of the HR budget, not the salary budget of the department making the hire. That’s just one example.

  5. A reader on another blog cautioned about accepting more PTO to compensate for less money. They said that’s never worked for them, because employers can change their PTO policies at any time.

    At one lower-paying job offering 3 weeks PTO to start and 5 weeks later, they negotiated 5 weeks out of the starting gate. But then the employer changed its policy and gave all employees 5 weeks, so the negotiator ended up accomplishing nothing.