How to Negotiate Your Pharma Executive Compensation Package
We have several clients right now who are negotiating with companies to move between companies or between roles within companies, and I thought it'd be helpful to have a conversation about three different areas we want our clients to think about when they're going into a negotiation for a new role.
1. Know all of your "pockets" of income you can negotiate.
To start, make sure that you know all of the different areas or pockets associated with your total compensation structure. Your compensation is not just your base salary and your bonus structure. It's also going to include items like your
- Cash incentives
- Long-term incentives
- Stock options
- Stock grants
- How much the company matches on your 401k
- Profit-sharing contributions to your retirement plans
- Other pension benefits that you're accumulating with your current company or with the new company
- Extra items like a company car
Ensure you're negotiating from a position of all of those line items and rolls. It's not that you need to get each one on your terms, but you can look at each one as a lever that you can use to accomplish your income goals. In the aggregate, across the offer between the companies, there needs to be an evaluation that's done to work out where that sweet spot is.
Last year, we had a client who was moving between companies, and the recruiter was so focused on the 10% increase in base salary that he completely overlooked about a 9% gap in what was being contributed to the 401k and about a 7% gap in the target bonus compensation. That was a real problem. We ended up stepping in and helping negotiate some other things to help make the deal work for the client. The client eventually did take the job and took the job from a position of strength, having negotiated some other areas.
Learn More: Check out Wayne Wagner Jr's book on financial planning for pharma executives – including a more in depth chapter on contract negotiations!
2. Know which line items are negotiable (and which ones are not).
That brings me to number two. Number two would be understanding where the compensation areas are maybe more set in stone versus a bit more flexible.
Base Salary + Bonuses
For instance, your target compensation is going to have a high range and low range for what the base salary can be. Then, your bonus target will typically be geared toward the role or the title. If you don't like where that target bonus percentage or amount is, maybe have a conversation with the hiring manager about what opportunities there may be to rebrand this role once you excel in it. Or, are there other opportunities to jump up to the next role within an organization once you get there and show excellence and proficiency within the first year or two.
Cash Up Front
We've seen cash upfront not be just a one-time thing, but often will help a client ask for, "Hey, increase the amount you're going to give me up front, but give me half of it now and half of it 12 months from now." This spreads that increased compensation across a couple of tax years, which benefits the client. There's also typically a 12-month clawback for the company if you leave during the 12 months after a cash payment. In that way, it also benefits the company by splitting that to say, "Hey, we're going to give you cash now. If you leave within the first 12 months, you have to pay it back. We'll give you more cash 12 months from now, and if you have to stay for another 12 months." The company is really locking you up with a kind of two-year golden handcuff instead of a one-year golden handcuff, and there are benefits to each of you in that scenario. So cash up front's an important one.
Long-term incentives. We've had clients say, "Hey, I have 10,000 stock grants with my current company, but the new company's going to give me 50,000 stocks." Well, they're not stock shares. They're options. This may mean that the 10,000 shares that you actually have with your current company are actually worth more cash right now than the options you'll be given with the new company. Make sure you're negotiating that and understanding the actual value that's involved from that perspective.
3. Don't be afraid to negotiate from weakness (without a current role)
The last area scares many executives in the pharma space, but it's the nature of the industry. Our clients often leave one company before they land at another. There's been some transaction or transition with a company where there's been a big layoff. It happens at one point in time or another.
As a result, our clients end up feeling like they're negotiating from a position of weakness, and that's not always true. Remember that companies anticipate recruiting someone for this new role – someone they have to buy out from a similar role at another company. They've already mentally lined up a compensation structure that allows them to give cash, stock, and provide coverage for relocation and other expenses that may be affiliated or associated with getting the right person for this role. Just because they're not going to relocate you or because you're not coming out of another role at the moment doesn't mean those line items are automatically zero.
Negotiate smarter – be creative when approaching the table.
Remember, you will not get 100% of what you don't ask for. In a negotiation process, be sure to be knowledgeable about:
- Which pockets are available to negotiate
- Which pockets may be a bit more flexible
- How to negotiate well even if you don't have a current role
There are still pockets of money that are open for negotiation. Here's how I need you to think about this.
How you represent yourself in negotiation for that hire is, in part, giving your potential boss a window into how you're going to work for and represent that company.
You're going to add value to this organization by bringing the same level of professionalism and directness to every discussion. You're showcasing how you navigate opportunities on behalf of the company. So don't be afraid to put your best foot forward and be a bit more direct and ask for a bit more.
Here at Vizionary Wealth Management, we're always here with perspective for the decisions ahead. I hope these principles have been helpful for you. If we can help in a current or pending negotiation on your behalf, don't be afraid to reach out for a discussion.