OK, guys and gals...the +1 has received an offer package from the company he will most likely be working for. Since I haven't been in private industry recently, I have a question about it. It includes a salary (lower than acceptable), plus a bonus at the end of the first year, based on performance, plus a signing bonus. All designed to come closer to the overall amount he is willing to take. I'm curious about the split between the salary and bonuses. I assume they want to keep the salary lower in order to conform to the hourly rates of the contract he will be working on. Bonuses I would think count differently on the company's bottom line. Anywho, just trying to get a better understanding of how this works before he negotiates with them next week for a final package. Thanks!

 

At our company the bonus levels are at 10/20/30 percent depending upon level (Manager/Director/VP). One other issue to understand with a bonus is how is it calculated, i.e., against your own goals (how are they set and measured), company financial performance (you may not have any control over a bad decision by an exec), combination, etc.

They are great but you need to understand what is involved let alone the percent of compensation. You might also want to inquire if you can earn partial credit as opposed to an all or nothing. The flip side being if you over achieve can you earn a greater amount than what the bonus percent.

Dan

 

Be wary of any bonuses that the company establishes based on their performance. Those numbers can be altered to fit their requirements. If however bonuses are based on personal performance than your husband has to be honest with himself and realistically predict where he can go. Also, bonuses are usually paid on gross dollars and your husband will receive a 1099 form to pay all the taxes. He has to look at the tax category where you folks fall. Also, what about the second and future years? Is there a non-compete letter required? I worked strictly commission for 25 years before starting my own business 7 years ago and believe me you have to get everything in writing. Best of luck to you and your +1.

 

I'm not sure, but as I recall, bonus is not a given. My son worked as a production manager for a company here for a long time and got bonus based on performance, delivery on contracts, production cost cuts, etc. His bonus kept getting cut (percentages) until he finally got wise and moved on. +1's bonus is based on the company stock's performance which is an entirely different ballgame.

 

Bonuses based on individual performance can be quite subjective. He will really want to understand the metrics for determining the value of the bonus.

Bonuses can be quite tricky and understanding how they are dolled out is of utmost importance.

He might try to see if they will guarantee any of the bonus for the first year as an incentive. This is done in some industries.

 

In my current position my maximum possible bonus is based half on my division's performance, and half on the entire company's performance. Then they use my individual performance rating to decide whether I get 100%, 90%, 80%, ... of my max possible bonus.

I can see the need to base some of it on the company's performance. Even if I do a great job they won't want to pay me a big bonus if the company is in trouble. But the half that's based on the division gets me angry. Year after year the division's goals are completely unrealistic. Every quarter we get an email from the division head telling us what a great job we've done, profits and revenues have never been higher, market share is up, ... However, profits we not up by the 30% that was in the plan, so no bonus money.

My previous company took a different approach. Bonuses (Boni?) were almost a given. They were based primarily on your own performance, and you didn't need to stretch too far to get 100% of you max possible. But when the company fell on hard times they just announced that the bonus program was being discontinued. They made it up to us by giving everyone a raise equal to half your potential bonus.

 

I've always discounted the perceived value of any bonus program.
Too may variables.
It's often what I call a loss leader in the offer. You see stars in your eyes and accept less in base as a result.
I would suggest always negotiate the highest salary vs. a combo offer with bonus.

 

Salary is usually better. Like Traveler, my last company based bonuses first on division performance, then individual performance.

Even if I was eligible for 100% of my individual bonus, it never amounted to much, because the division never got more than a 30% score while I was there. Why is that? Well, it was the Retirement Services division, and it took quite a hit after the first Internet Bubble popped in '99.

However, I had negotiated a high salary, so I wasn't that concerned about the bonus.

 

^ That's exactly what the +1 plans to do. And the VP of the company already said twice to him to please discuss the package before rejecting it outright. I think he knew it was not going to be acceptable, but he had to leave some negotiating room. Right now it looks like a higher salary and a higher signing bonus is going to be requested. Resolution to be determined next week. Great advice here. Thanks. I'll be showing him the posts.

 

I totally agree. The metrics that managers pull out of the arse to meet your "bonus" demands gets laughable.

In the negotation, never accept the first offer. That is for suckers who don't know how to negotiate. Knowing your industry, and how to negotiate is as important as the skills posessed in my book. In salary negotations, I've always counteroffered to the point that they say take it or leave it. After their initial offer, that has always been a minimum of 5% more than they offered originally. Remember that companies aren't your friend. They exist to produce a product for the lowest possible cost and sell at the highest possible price to gain the maximum amount of profit they can.

In short, tell the person negotating to be firm, sharp, and have a backbone. It's just like buying a car, don't just take what the salesman is trying to push, push back