I was perusing the Fordyce Letter website today and read this post about counteroffers (http://www.fordyceletter.com/2014/05/20/how-to-counteroffer-proof-your-offers/). I thought it was interesting and I got a particular kick out of the author’s definition of what makes a good offer. Here is his breakdown:
Offer Formula
Generally speaking, offer percent increases fall into these general ranges:
- 0-10% = Poor to Fair Offer Increase
- 10-20% = Fair to Very Good
- 20% – 30% = Good to Excellent
- Above 30% = Outstanding
This formula is too simplistic if used in a vacuum and potentially does a disservice to both candidates and clients (in fairness to the author, he does state that there are other factors to consider).
There are multiple components to an offer/employment opportunity. Base compensation, sign-on bonuses, annual bonus potential, equity-based pay, benefits packages, advancement potential, the type of work the person will be doing, job location, etc. are all important pieces to the puzzle. Each candidate will weigh the importance of these components differently. One candidate may place a high value on base compensation, while another candidate may accept a lower base for greater bonus potential. I’ve seen candidates gladly accept a lateral offer or even take a pay cut if it means they can eliminate a terrible commute.
How do you close a client while also representing your client’s best interest?
My approach is to develop a trusting relationship with the candidate. Once we have that relationship, we can speak openly about what is most important when evaluating the opportunity at hand. Until I know what is important to my candidate and what she/he needs to see in order to accept an offer, I can’t properly advise my client without making numerous assumptions. If I have to play a guessing game due to a candidate not being open with me or even worse, due to me not asking the right questions, then perhaps the formula above could be helpful. Unfortunately, there are considerable risks to all parties involved if we have to resort to a formula to guide us on what a candidate should find acceptable.
Client Risk – The client ends up overpaying for a candidate that would have been happy taking less. This can create a ripple effect. Future increases to the candidate’s base salary may be less if the client has to overpay from the start. This can lead to the employee being disappointed/unhappy when they have their next salary review. If other members of the team find out that this new hire has a bloated salary, that can cause internal equity issues and create further damage. Finally, if the search firm is compensated off of a percentage of the candidate’s first year compensation package, then the client will also have to pay a higher fee than they should.
Candidate Risk – The recruiter or search firm incorrectly guesses what is important to the candidate. The candidate then receives an offer that isn’t to their liking. How does the candidate fix the situation? Does she go back to her current employer and show an offer that she doesn’t like and isn’t prepared to accept? She runs the risk of her current employer telling her that no counter will be provided. Even if the current employer does counter, there are no guarantees that the counter will be worth the potential damage caused. Either way, the relationship with that employer will never be the same. Trust me, I learned this personally early in my career.
If the candidate is truly interested in the opportunity presented, then a golden opportunity was lost by not getting the offer terms right from the start. Now the candidate has to try to negotiate from a position weakness. The client has already presented an offer that they believe the candidate should find acceptable. How much can the candidate go back and ask for at this point in the process? Depending on the client, additional attempts at negotiation may not be well-received. The candidate’s chance at a dream job/offer just took a serious hit.
Recruiter/Search Firm Risk – Trust is everything in this business. If a client thinks for an instant that a search firm is being reckless with the client’s money or putting their own interests ahead of the client’s, then then relationship is doomed. My clients and candidates both have to know that my goal is to facilitate and broker an agreement that is fair to both parties. The only way I know to accomplish fair and successful placements is to cultivate a trusting, open relationship with both candidates and clients.
Tim Gummer is a Principal and occasional blogger at Recruiting Associates. Give us a call or drop us a note using the contact form at the bottom of the page. Follow us on Twitter and LinkedIn.