There’s one piece that may be the most critical to ensuring you are walking into a compensation negotiation from a position of strength: Have a grasp of a company’s compensation philosophy, otherwise known as their “compensation culture.” Compensation culture will dictate salary ranges, the negotiation and everything in between.
There is no doubt that the topic of compensation for in-house attorneys is very complex. Understanding the numerous components involved can make even the best minds deeply confused. Compensation packages consist of a base salary, a bonus in many cases, equity with a range of structures, and then an array of benefits that often complete the picture. And let’s not forget the compensation structure can vary significantly at a private company versus a public company. Admittedly, it is very hard to keep it all straight, and any added elements only make this muddy picture even murkier!
There’s one piece that may be the most critical to ensuring you are walking into a compensation negotiation from a position of strength: Have a grasp of a company’s compensation philosophy, otherwise known as their “compensation culture.” Compensation culture will dictate salary ranges, the negotiation and everything in between. You may be armed with research, but you also must understand this key puzzle piece to ensure a successful compensation negotiation and that your expectations around compensation align with how your future employer views this important topic.
What is the “Compensation Culture” of a company and why does it matter?
You may have heard this term and wondered exactly what it means. Simply stated, compensation culture is the way in which a company thinks about and allocates different components of its compensation packages. It is their philosophy when it comes to paying their leaders and is applied to how they arrive at compensation packages for these leaders. This philosophy can vary dramatically from company to company depending on size, industry, and location, among other factors. Whether a company is public or private is also another crucial component as the way in which a package is structured in a private company, particularly at the executive level, will look different—often with an emphasis on equity.
What types of compensation cultures might you encounter?
Your expectations around a company’s compensation structure may be quite different from its actual culture. Some companies may offer compensation packages with a heavy cash component. In this, they may rely on a strong base salary but have a weaker bonus structure, or they may offer below market base compensation but have above market bonus structures. Or they may be above market on both but offer limited or no equity. Others may be an equity heavy culture, so cash amounts will be lower.
The compensation culture of a company will affect the way you think about your compensation package and how you negotiate at the offer stage. If cash is important to you, then a company that leans heavily on equity will not be the right match. For candidates who see a strong equity package as an opportunity for long-term wealth creation, companies that offer little or no equity will not be interesting. The key takeaway is that you must think about your drivers as you enter a compensation negotiation to reach the right place.
How does the compensation culture affect a compensation negotiation?
A company’s compensation culture will play a critical piece in your “asks.” Keep in mind, a company will not change their compensation culture for you. As John Nixon, a partner at Duane Morris in Philadelphia, shared in a recent webinar, “Your negotiation strategy is going to be driven by the company’s compensation culture. …Asking for more when it doesn’t have a rationale behind it is a mistake. So, if you frame your requests in the context of [the company’s] culture, that will lead to success.”
For example, take a candidate who is negotiating a package with a company where the compensation culture emphasizes equity. Someone who enters the negotiation focusing on increasing their cash compensation will be seen as unreasonable at best and, at worst, as lacking a basic understanding of the company’s compensation philosophy (which by this stage in the process should be clear). The right tactic is to approach the conversation by demonstrating a deep understanding of the company’s equity structure (options, restricted stock, RSUs, etc.), vesting triggers (time-based and/or performance based), and grant frequency (one time or annual refresh), among other key variables.
In fact, this may be the perfect time to consult with an executive compensation attorney who can help you think about how to structure any package you might consider and how to ask for what makes sense within a company’s parameters. Figuring out what you want and need and matching that to a company’s structure will ease negotiations.
As noted, there are some asks that will not align with the culture and, therefore, may seem unreasonable—a negotiating place you don’t want to lead from. But most importantly, know yourself and your levers and stay true to those. You should understand your future employer’s compensation culture early in the discussion so you can honestly decide if it matches with your long-term goals.
What is the difference between compensation Cultures in public and private companies?
The final and perhaps trickiest piece of the puzzle is the difference in the compensation culture between a public and a private company. It is fairly easy to gain an understanding of a public company’s compensation structure through public filings.
To determine where your compensation should fall for a public company, John Nixon suggests looking at both the “vertical equity” and the “horizontal equity.” Vertical equity is how your GC compensation compares with the C-suite at a company. This information should be generally available in public filings. Horizontally, you might consider using peer data as leverage to see where you should fall. It’s more art than science, but using the data in public filings is part of the science. Also knowing what the previous GC made can be used as a benchmark, but not an absolute guarantee as to where you may fall in the structure.
A private company is another factor. There are many types of private companies: family-owned, closely held, private equity portfolio companies, and so on. The compensation culture of these entities can be tough, even a black box in some cases. You will need to ask questions to determine the culture in these instances. However, with private equity portfolio companies, there is almost always solid cash, but a heavy reliance on equity tied to a future “liquidation event” (e.g., acquisition or IPO) that in many cases is a true opportunity for wealth creation. Consult an expert to determine what questions you should be asking and how to find out the company’s culture in this regard.
A company’s compensation culture is a critical puzzle piece you must understand as you approach compensation negotiations. Coming armed into a conversation knowing what you need and expect will also help make negotiations go smoother. Your ultimate goal is to know yourself and to also know as much as you can about the company you are interested in joining so you make the best decision for your career.