© Howard A. Matalon 2010. Strategic Advantage Series. All Rights Reserved

Leverage. One of the most commonly misunderstood and underappreciated concepts in executive and managerial negotiations.

Part of the problem with the use of the concept in employment negotiations lies with its overused primary definition: to increase force on an object. (As an aside, many older dictionaries used to carry an image of a man using a lever to move a  boulder.)

The secondary meaning of leverage, however, and arguably what the concept really  stands for, is something quite different, and far more compelling.

Positional Advantage.

Leverage in business dealings is all about finesse, not force. It is about recognizing and appreciating your negotiating posture from all angles and knowing when and how to change the dynamic of a negotiation to influence the other side. All career veterans understand this concept. And yet it is very difficult to apply in employment negotiations, particularly for high-level employees negotiating their first executive employment relationship with a new employer or at an internal promotion stage.

 The most illustrative example of this problem lies with the executive’s effort to translate the terms of an employment relationship into a beneficial written agreement. Remarkably, many executives remain reluctant despite the sophisticated corporate environment in which they themselves conduct business to seek written employment agreements because of preconceived notions about the relative leverage each side brings to the table in negotiating the employment relationship itself.

Understanding leverage in negotiations can quite literally make the difference between obtaining a successful position and sustaining it in the long run.

There are two competing dynamics that often discourage executives from either obtaining a written employment agreement or securing favorable terms in such agreements.

 When executives secure new positions, no matter how seasoned they are, they invariably regard their hire or promotion as a vindication or validation of their personal worth. (This is, of course, not how executives should view the matter but always do because of the personal investment of time and resources in their careers). By extension, an executive’s perception of an employer can, in certain situations, be heavily influenced by the validation process.

Working against that validation is the fear that somehow they will diminish the employers’ perception of them by overreaching at the bargaining table. Executives remain concerned (particularly given the present economic climate), that even the mere suggestion of asking for employment rights not readily offered to them will leave prospective employers with a negative impression of their new hire before the new relationship commences.

With this concern fixed in mind, many executives often forego discussion of a written agreement or changes to same, and simply take the leap of faith that the relationship will ultimately meet some or all of their expectations, or that their employer will come to appreciate their contributions and offer rewards in line with those expectations at a later date.

More often than not, however, executives fail to recognize that their positional advantage with an employer diminishes at every stage of the negotiation, and virtually disappears after the executive begins working for that employer.

Many executives who do not understand their positional advantage in these situations find themselves accepting from their employer terms of employment that barely define salary and benefits, let alone the critical provisions whose absence can leave the executive exposed when the “honeymoon” period ends. Executives can be sure, however, that almost every intelligent employer will lock the executive into extremely detailed post-employment restrictions as part of the hiring process.

The great irony in executives who are outmaneuvered by employers in this fashion is that they would never allow this situation to occur in their own business dealings with third parties.

How do executives find their leverage in employment negotiations?

Positional advantage always begins with self-assessment. Executives must consider what brought them into the marketplace or to their promotional opportunity in the first place. They must carefully assess their strengths and weaknesses by drawing upon prior employment experiences with management and reach a greater appreciation and understanding of their value in the marketplace and their expectations of a new position or employment opportunity.  

The self-assessment process is also beneficial because it will lead to a more sincere approach in negotiation with an employer. And in such negotiations, candor and transparency are critical tools in delivering executive expectations to employers.

Unfortunately, many executives do not perform this self-assessment before direct negotiations with an employer begin, and thereby underestimate themselves. They assume that in a competitive job market, pressing for clear and definite employment terms will distinguish them from other candidates seeking the same job opportunity or position. Make no mistake. The market will support the executive worth his or her weight in talent regardless of the economy.

Next, executives need to carefully consider the perspective of their employer in how businesses approach employment relationships. It is true that most businesses do not see eye-to-eye with executives on the structure of employment agreements, and will act to limit an employee’s rights wherever possible. However, executives often fail to recognize that they share the rationale underlying management’s viewpoint in negotiation: the protection of assets in the event things go awry in the employment relationship.

The appreciation of mutual self-interest in employment negotiations is at the very heart of positional advantage. The basic goal of every employer who offers a written employment agreement is to protect the company’s business assets and intellectual property because such agreements represent the principal method available to employers to impose post-employment competitive restrictions on executives. In contrast, executives look to written employment agreements not merely to confirm their compensation packages, but rather to secure severance and other benefits in the event of termination by the employer.

 Executives who are capable of seeing this commonality of interest and can articulate in negotiations that the rights they want to obtain from the employer are essentially the mirror image of the terms that their employers want from them will have effectively applied positional advantage and in almost every negotiation will gain the upper hand by controlling the conversation.

To gain that necessary edge in negotiations, executives need to have in mind at all times during the hiring process the critical terms that they want to build into a written agreement of employment:  

Job Responsibilities and Duties. Executives are going to want the nature and scope of their work for the company identified in a written agreement. Incorporating into the agreement a job description or an outline of duties and responsibilities is a must because it serves as the backdrop to evaluate how an executive is perceived in the work environment, the flexibility to maneuver for a greater role, and forms the very basis for job performance evaluation. If possible, executives also want their employer to identify who they will be reporting to at the company. This becomes very important particularly where an executive has successfully obtained a well drafted severance provision.

 Compensation. Executives need to consider far more than merely the amount of base salary. A well-drafted compensation provision will address how and when salary increases and avoid allowing the employer to correspondingly decrease their salary in an economic downturn. If the employment relationship involves incentive plans, bonuses or stock awards, the executive must insure that the terms and conditions under which such additional compensation is awarded are as clear and precise as possible. Executives must also be wary of provisions that define the conditions under which employers can rescind or forfeit such additional compensation.

 Benefits. Some of the same concerns about compensation play an important role in detailing the benefits that employers will make available to their executives. Many employers refer to non-existent policies yet to be created as to the nature or extent of benefits. And recently, employers have started adding provisions to bargain away an executive’s rights by negotiating flexibility in benefits plans, reserving the right to review and alter plans on a periodic or annual basis. There are a variety of creative solutions to address this issue, including allowing employers to reserve certain rights to modify benefits to meet their business objectives as long as the aggregate value of the benefits are not diminished.

Severance. This is the holy grail of executive rights in an employment relationship. Today, many employers are cutting back on severance provisions, which may in fact be a grave mistake, particularly since many of them are still insisting upon post-employment restrictions such as noncompetition agreements. (In a number of instances, employees have successfully challenged those restrictions without severance as an unfair impediment to their ability to earn a living.) One of the new popular programs being offered to executives are “bridging” severance provisions, which allow executives a limited period of severance while looking for new employment. The severance is terminated immediately once the executive obtains new employment.

Severance provisions always come at a price, however. Executives must be prepared to adhere to certain post-employment restrictions governing their ability to compete or solicit business away from their employer. As these restrictions have become the business norm, executives should focus their energies upon reaching an understanding with the employer that those restrictions parallel the term of severance (i.e., a one year non-compete can be accepted provided that a year of severance is provided). Executives will want to insure that they are provided with severance in the event that the employer fails to deliver on its promises, such as payment of salary or benefits, or the business of the employer is acquired by third parties in what is known as a “change of control”. A change of control severance trigger has enormous benefits to executives, particularly where it is carefully drafted to encompass a wide range of circumstances, including management buy outs or shareholder approved liquidation of the company’s assets.

 Termination. This is perhaps the provision most important to employers other than non-competition and intellectual property/confidentiality rights. Many employers will insist on a host of provisions, including their ability to terminate the executive with little or no notice, while requiring months of notice from their executives. One effective strategy available to executives facing strict company provisions on termination is to request a parallel provision that allows them to leave the company’s employ for “good reason” and still obtain severance, such as a breach of the employers’ obligations under the agreement, company relocation or a reduction in salary or benefits. This good reason clause is the mirror image of the clause that allows the employer to terminate at will.

Once the executive has these core concepts firmly in mind, they can weave them into negotiations from the outset of the hiring process. Failing to do so may have disastrous repercussions for a successful negotiation of employment rights. As negotiations continue, employers grow increasingly resistant to the efforts of executives to modify what has been agreed to verbally. The written agreement should therefore resemble in every respect possible what has been discussed verbally in the negotiation of employment rights.  

Finally, the executive must remember the cardinal rule of all negotiation. Never sign an employment agreement without due diligence. No buyer in a merger or acquisition would ever acquire a business without a thorough understanding of that business. An executive’s career is her most important business asset. It is therefore critical to review the agreement word for word with an employment specialist, who should be seen in the revisions process, but never heard.

In closing, Leverage is the very key to the negotiation and development of a successful employment relationship. For the executive who masters the technique of positional advantage, great opportunities in the marketplace are always close at hand.

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Howard Matalon, the author of the Strategic Advantage Series, is a executive coach affiliate of QUAD 2 Consulting, specializing in inplacement and outplacement of executives. He is also a seasoned employment litigator, with over fifteen years of experience counseling both executives and management on important issues of labor and employment law. Mr. Matalon also practices law as a partner of OlenderFeldman LLP in Northern New Jersey. Mr. Matalon’s contact information is available from QUAD 2 and on his firm’s website, www.OlenderFeldman.com.