Five Rules to Developing a Winning Offer

Okay, you're sold. You've been out to dinner with your ideal candidate and his or her significant other. Your Search Committee and its chair have given you a resounding thumbs-up. References are complete. The requisite background check was completed by HR. Your industrial psychologist confirmed it's a great fit. Now's the time to develop and negotiate an offer, right? Well, no, not really.…

In fact, the time to begin the offer process was back during the very first interview. By subtly approaching the offer stage early on, critical stumbling blocks or even deal-killing issues are identified and dealt with well before a formal offer is made.

If you hired an ESP, then by the time the Search Chair first met the candidate all parties were also aware of the candidate's compensation expectations. Behind the scenes the ESP will have been shaping an acceptable offer by floating trial balloons back and forth between candidate(s) and client. Where cash requirements are an absolute, allowances can then be made and adjustments considered long before the actual offer is made.

Successful offers account for the needs of the individual as well as those of the company. When one-sided deals are struck that favor either the company or the candidate, the relationship is often short-lived and may be counted in seconds before one party turns and bolts. The residual effect of a win-lose proposition is a relationship that never happens.

To develop and negotiate winning offers, follow these basic rules:

• Understand the candidate's primary motivation for wanting to join your company and sell to it, especially if you know you can't meet all the cash requirements. In some cases psychic cash is worth more than cold hard cash.
• Structure the package to reinforce the position's KPIs as defined in the job description and highlighted in the position profile. Candidates expect to be assessed against firm performance metrics. In short, don't present them as a moving target.
• Make sure the candidate fully understands all features of your company's compensation program. We sometimes find that a company has a better benefits program than most hiring executives or candidates realize. Conversely, at times we've also found the company's first offering wasn't as attractive as they initially believed.
• Ensure the offer is competitive with the outside market and equitable internally.
• Be creative as needed. Such things as signing bonuses and extra stock options can push a candidate in your favor, while not creating undue disruption within your organization.

Talk about your expectations throughout the interview cycle, then listen. Be particularly sensitive to comments like: “My wife/husband will not relocate”; “We have a child in high school”; “My non-compete hasn't expired”; “I have a large bonus that won't be paid for six months”; “My stock options are only partially vested.” These are red flags that should be explored immediately to determine their true impact.

Also watch for comments like: “We're a two-income family,” or, “My daughter has two horses,” or “I will need to buy a new car.” These are not deal stoppers. They are bargaining chips. The candidate is setting the table for the coming negotiations.

You'd be surprised at what we've done:

• Orchestrated the relocation of a horse.
• Placed a CEO's spouse into a new job.
• Arranged storage for a collection of 1,500 bottles of wine.
• Purchased a classic cherry-colored 1966 Gibson ES-335 electric hollow-body guitar—all in the interest of closing the deal.

I must confess the costs to my clients in all cases were less than the costs associated with bridging the candidate's insurance policy between employers—but, more importantly, it went a long way in proving to the candidate that we were listening and really did care about his or her needs.

It's actually a good sign if the candidate is already calculating how to do a deal if the interviews conclude favorably, and as mentioned your ESP should be doing this on an ongoing basis during the interview process. A professional ESP will provide you with this type of discovery.

The Five Elements of Compensation

Once the groundwork has been done to define the issues and decision points in a candidate's mind, and your company's compensation parameters are understood, a compensation package can be developed. In every executive compensation package there are five basic elements to consider (see Figure 7.1).

Within these five basic elements there are countless variables, of course. But to help structure your thinking on the way a compensation program should be developed, the following are the major elements to consider.

Elements to Consider

1. The candidate's current compensation package (your ESP will have acquired this during the recruiting, interview, and debriefing sessions from the candidate);
2. Market rates for comparable positions (because you know the candidate will have researched this thoroughly on Glassdoor.com or other such websites);
3. Rates of pay for peer level executives in your company;
4. Your company's compensation policies;
5. Some other factors that may influence the candidate's decision:
   • Future professional growth opportunities; degree of risk in your company; future reward potential such as bonuses or equity appreciation; amount of dislocation in the candidate's life; the candidate's need for the job and strength of interest in joining your company; the amount of risk you're taking in hiring that candidate; and so on.
   • Idiosyncratic candidate “wants” or “desires” that defy logic or objectivity and could be deal breakers. Examples I've encountered in past searches included periodic round-trip flights to visit a child at college, and a gas card for jet fuel (the candidate owned two planes that he used for continental flights).

Presenting the Offer

The Executive Search Professional (ESP) is there to help negotiate terms of an agreement satisfactory to both parties. They'll have been consciously doing this ever since the first phone call with the candidate many months ago. They also need to ensure your second choice is also kept enthusiastic, in case you're unable to come to terms with your first choice. The more delicate issues regarding compensation negotiation should be handled by your ESP well in advance of your final meetings—especially if you're expecting issues around base salary and/or power sharing within the defined role.

Making a major life decision like this may be very difficult for the candidate, particularly if it requires relocation. Several times during the offer stage the candidate may even get cold feet and renege. Unfortunately, it's often easier for a candidate to simply make a non-decision and stay put. In this situation, it's critical the ESP and Search Chair continue keeping the candidate focused on the opportunity at hand by focusing on the candidate's WIFM (the “What's In it For Me” factors we discussed in previous chapters).

When the final offer is made you obviously want it to be accepted, and there should be no surprises if the ESP has verbally delivered your offer. Any details that needed to be negotiated or clarified will have been dealt with. The offer is good to go pending final reference checks, which can usually be completed within five to 10 days, during which time your Search Chair and ESP will be in constant contact.

The Best Candidates Have the Shortest Shelf Lives

On occasion over the years, the authors have had the pleasure of working with companies that really understand how to finesse a deal. We'd like to showcase one for you now.

We'd just finished a rather complicated search for a company in Chicago, Great Lakes Dredge and Dock, whose CEO Jonathan Berger has flair (to put it mildly). To help close one particular executive vice-president search, following the last meeting Jonathan couriered a package to the executive's home. Included with the offer letter was a high-gloss copy of the company's annual report (see Figure 7.2) featuring a forward-thinking “thank you” for the candidate's contribution, as well as a dozen long-stemmed red roses for his wife. This creative and personal touch drove home to the candidate how much the company valued him. So when the search is completed, don't be shy about celebrating appropriately with the candidate and Search Committee—it might just be what seals the deal in the candidate's mind.

How to Extend the Honeymoon Period Indefinitely

Tulip's search for a chief operating officer concluded successfully. By following our process, we expect your search will conclude successfully as well. But that's not where the story—or your placement—ends. Hiring and on-boarding a new executive is one thing, but keeping him or her becomes your next challenge because competition for the best and brightest will only continue intensifying.

After all the effort and expense an organization goes through to acquire and develop top talent, how do you ensure your new executive stays—that they don't get raided or head for greener pastures? The first 100 days is typically the bellwether. To get off to a solid start, we follow up with both parties and schedule set times for the Search Chair to touch base with both the candidate and ultimate hiring authority to ensure objectives and promises are being met. We also send both parties a copy of George Bradt's book, The New Leader's 100-Day Action Plan: How to Take Charge, Build Your Team, and Get Immediate Results. When you combine the candidate's 30-60-90-Day Plan presentation with George's book, you have the basis for a fast start on the right track.

Through the years and talking with executive A-Players on a near-daily basis, our combined 45-plus years of executive search experience has taught us what executive talent retention is really all about. Year in and year out, the very same issues always come to the forefront. We use these issues to initiate the dialogue that will eventually lead to plucking them out of one company, and into our client's. We methodically comb through and use issues we know have been the catalyst for engaging executives in conversation long enough to listen to our offers. None of these tactics should come as a surprise, because we've written about this over the years in several HR magazines.¹

There are ten keys to keeping your prized executive. They're all derived from three fundamental management principles covered during the recruiting and interview process: challenge, communication, and compensation.

Challenge

A stimulating and challenging environment provides the first three keys for executive talent retention.

1. Vision and Goal Setting—At the Top

Your key executives want to know where they fit into the big picture and how they can position themself and plan for their own success. Your job is to help them see it. How? Communicate the company's goals, its vision, and its mission. Put performance goals in place, with a formal review process as part of the program to measure performance at realistic intervals. When executives' personal goals are tied to the company's own mission and goals, they feel connected and can gauge their own value contribution. This makes it very difficult to woo them with the promise of “greater challenges.”

2. Expectations

High-energy, high-impact executives like to run with the business equivalents of a Peyton Manning or Michael Jordan. Healthy egos thrive in an environment that not only recognizes excellence, but expects it. There's tremendous pride that goes with being associated with the best and being recognized as a top performer. So make your company a magnet for exceptional employees. Earn a reputation for top-level performance by expecting executive excellence. Others will want to join you, and your current staff won't want to leave.

3. Creative License

A challenging work environment offers not only the ego-satisfying contentment of reaching tough goals, but also the spirit-building, competition-crunching exhilaration of finding new ways to reach them. Sadly, the opportunity for creativity often disappears the week after a new hire starts. This is when the company is most vulnerable to losing him or her to a counteroffer from their former employer, or a shrewd competitor. Don't let your new executive think they're now just a cog in the “system.”

Compensation

A good compensation program holds the final three keys for attracting and keeping the best executives.

In the real world, if the cash side is insufficient, you have no room for error in any other area of retention. Money can be a highly effective lever for prying executives loose. It won't generally be the only or even deciding factor, but it gets them to listen hard to the other components of an offer. As an executive's existing financial package gets better and better, it puts increasing pressure on any new deal to be not only better, but to be outstandingly better in the other areas (challenge, opportunity, visibility, etc.) in order to balance the risk involved in making a change.

10. Over-the-Top Rewards

The final component of a good retention package is one that rewards exceptional performance generously. This means performance that significantly exceeds high expectations. Cash, gifts, airline tickets, weekend or week-long getaways, a golf or fishing trip with the boss, an invitation to dinner—all are valued and appropriate rewards that will contribute to a long-term relationship. In my experience, when an executive achieves beyond the norm it's usually a group effort—and the spouse who feels appreciated is less likely to support (or advocate for) a move to a new situation. Make the package first-class and always consider the executive's family and personal life. Do it right, or don't do it at all. (Trust us on this—we've nailed more wingtips to the deck with this strategy than all others combined.)

People don't quit companies—they quit bosses! Thankfully, the only thing you need do to keep headhunters at bay is pretty basic: Keep all the promises you made while courting them, even the ones that weren't documented.

Counteroffers

Don't even consider it. If it happens, hang your ESP, who should have been discussing the potential of a counteroffer early and often with candidates. By the time the process is finished, the intellectual decision to join has been made. Download the special report on counteroffers at the website.

Conclusion

In the introduction, we stated, “There are very few opportunities for a company to improve organizational performance and culture by taking just one single action. Hiring Greatness is one of them.” We compared Marissa Mayer and Ron Johnson because contrasting the two offered such an extreme example of the value of attracting the right executive to the right role—in this case $21.3B. At the time she was hired, Marissa Meyer was the sixth CEO in five years at Yahoo!² Most companies don't have the luxury of time, nor the money, to keep hiring executives until they get it right. Likewise, Ron Johnson, who had a solid career at Apple and Target, was clearly the wrong fit for JCPenney and shouldn't have been placed in that role.

Those of us involved daily in the management of a business know that every investment must be measured by the returns it produces for all stakeholders in a business. Too often management views the acquisition of staff as a simple process of expansion, but the acquisition of key players is an investment like any other—one that should have a demonstrative return on investment (ROI), and clearly justifies the effort and cost involved.

Mark and I have seen, firsthand, the results of Hiring Greatness at early-stage companies, SMBs, billion-dollar multinationals, and Fortune 500 companies. Our clients expect greatness, and the executives we've hired have achieved some impressive returns for their companies:

• Ignited 700 percent growth and ever-increasing earnings, drove stock from $3.90 to a peak of $68.
• Grew sales from $8M to $77M in six years with more than 29 percent EBITDA, exited with three times multiple.
• Moved last place company (globally) from worst to first and an exit in less than 10 months.
• Sales jumped 497 percent in first 15 months, delivered greater than 30 percent CAGR year over year for five years.
• Resuscitated company, took share price of $0.69 to a high of $7.10, acquired for six times multiple.
• This repositioned company morphed from approximately $440M to $3.2B.

Some journeys are more impactful than others. Hiring Greatness is one of them. Indeed, there are few initiatives as strategically challenging, as demanding on management, and as fundamentally disruptive to normal operations as a leadership search. But at the same time a successful executive search is the only initiative that can so thoroughly move a company to the next level, and to a place it can realize its potential.

Hiring Greatness, when done right, isn't just valuable—it's critical.