No one likes to negotiate. Negotiating compensation with current and prospective employees is a delicate process, requiring both parties to take into account the other’s interests.  A healthy process involves, among other things, discussing a multitude of factors and considerations in order for both parties to be satisfied with the end result. No matter what anyone says, negotiating is an emotionally taxing endeavor, whether openly acknowledged or not. This article aims to provide a reflective framework to simplify the negotiation process and remove emotion from the discussion. 

 

An approach to negotiating that has gained some popularity across the portfolio in recent months is having candidates create their own compensation structure – in certain instances this approach has been highly successful!

 

The logic behind the framework is that no two candidates have the same needs and motivations. Just short of ‘buying’ a candidate, an employer will never be able to close someone unless they understand what motivates their prospective hires or employees; and to further complicate matters, both parties often have multiple different motivators governing their decision making process. This is why some have adopted a new strategy for closing: ‘Why not let the prospective hire or employee decide?’ Crazy, right!?

 

This has been a resounding success in multiple instances. At one of our portfolio companies, an employee, who for the purposes of this article will be named Jessie, was up for a promotion. Jessie was creating substantial value and the founding team was on board with awarding Jessie with a raise. But when the founders asked Jessie to outline her expectations, they were shocked to find out that Jessie’s compensation expectations were significantly above what they had anticipated. Jessie had asked for nearly a 100% increase! So, they approached Jessie with a project: write a proposal justifying your compensation ask by including metrics that you anticipate reaching or exceeding in the coming year – and be pragmatic! Subsequently, Jessie came back with an ask that was much more realistic! When broached with the exercise of creating her own compensation plan and tying it to quantifiable metrics, Jessie’s compensation expectations were suddenly more equitable. In doing the project, she was able to look through two lenses: 1) her own asking for money, and 2) she was able to empathize with the business challenges facing her employers. With limited tweaks, the founders and Jessie came to an agreement soon afterwards. 

 

Employees’ varying motivators and circumstances allow for this approach to generally yield positive results. They can tailor their ‘compensation ask’ to include salary, bonuses, tokens, equity, and PTO, among other factors. Some may prefer more salary, while others may opt for less salary and a higher token allocation. 

 

Senior executives often tie their performance to share prices; similarly, a Head of Business Development might tie their compensation closely to revenue or incremental business that they generated for the company. Some individuals want more salary (fiat) and in crypto, some want no salary, just tokens. This is okay! Have them leverage their own motivators to come up with the perfect package for them… but within reason. This is common practice for executives who often tie their compensation to the company’s share price. Why shouldn’t a Business Development or Community Manager’s compensation be tied even more closely to revenue or a corresponding metric? 

 

Remember, compensation is an incentivization tool. We have seen numerous instances where compensation structures are misaligned with roles! Employee compensation should closely align with the type of work!

 

We can’t tell you how many times we have seen candidates resist the process at the outset. There is so much unnecessary anxiety built into ‘negotiations’ as the employee fears that they’ll say the wrong thing. But having a prospective or current employee design their own compensation structure can help to simplify the process by providing a clear framework for the discussion. It also removes the emotion from the process and steers the conversation in a constructive direction. This helps to ensure that both parties are on the same page and that there are no misunderstandings or surprises. Furthermore, this can also build trust and create a more collaborative atmosphere not only for the negotiation but moving forward as well. 

 

One other very positive externality that we discovered while testing out this framework was that it proved to be a great interviewing mechanism! One can learn a lot about how well someone understands a role/industry, and their place therein through how they craft their compensation plan.  

 

Another portfolio company was on the verge of hiring a COO. This prospective COO, “Blake”, was working at a wildly successful, later stage company and looking to go back to an earlier stage shop. Blake knew that he would have to take a salary cut, but still wanted the upside of ownership through an equity grant, which is reasonable given the circumstances and Blake’s experience. For the sake of negotiation, Blake was playing coy in an effort to not miss out. The founding team gave Blake this compensation exercise: create a two year business plan that is tied to your compensation, and again, be ‘realistic’. The best part of this presentation was that in doing so, Blake was building out his business plan for the company. He was also tying his own expectations to very real metrics. Armed with a roadmap for the next two years, everyone was aligned from a work and offer perspective. 

 

Creating your own compensation structure can help to ensure that the final agreement is fair and equitable for all parties. By taking the time to consider all of the factors that are important to employers and employees alike, people tend to create a package that is mutually beneficial and meets everyone’s needs. This can help to build a stronger and more positive relationship for everyone involved.

 

While we’ve seen this approach work in many cases, it may not work for everyone or every role. Success in certain positions may not be easily quantifiable as in other roles. This strategy is best used for positions that have quantifiable impact (e.g., Business Development and Revenue, Recruiting and Hires, Community Managers and Followers, etc. 

 

With that said, if you’re an early stage employer, try it! We think you’ll be pleasantly surprised at what you learn about your employee or prospective hire.