Last month, we talked about four keys to preparing for employment contract negotiation: articulating your goals, knowing your strengths and weaknesses, sizing up your negotiation partner and identifying what both parties agree to so these can be taken off the list of what to negotiate. Now we’ll look more closely at the actual negotiation and the four keys for getting a better employment agreement.
1. Know What kind of Negotiation It Is: Win/Lose, Win/Win … and What Your Partner Thinks It Is
In all but the simplest of transactions, every “negotiation” is really a series of related transactions and negotiations. At some point, the negotiation will likely have a cooperative feel to it, and then the next moment, it will be pure horse-trading. The key to success is knowing when to trade horses and when to “problem solve.”
Let’s look at an example of negotiating a restrictive covenant. The employer is asking for a non-compete covenant that would bar you from practicing within a 10-mile radius of any of its offices, should your employment terminate. You’re okay with five miles, because you know there are areas outside of five miles you could relocate to which wouldn’t be a hardship to you and your family if things didn’t work out. How can you “solve” this problem?
One way to handle this might be to look at the practice’s actual demographics. Seldom does a practice draw its patients from within a neat radius. Rather, patients respect what they see as natural boundaries — highways, bridges, rivers and so forth. Doing that kind of research allows for parties to actually craft non-compete covenants that are grounded in the reality of patient movement.
That being said, some folks lack strong negotiating and/or interpersonal skills. In the event you are negotiating with someone who has a purely competitive mindset and will not change, you will likely have to adapt — and learn to trade horses. “Ten miles is too much, but I’ll agree to two miles, as long as I voluntarily terminate or you terminate me for ‘cause.’” Then you try to settle in between.
However, for most employment deals to be successful, you’ll have to bring it around to a “win-win” situation; no one in a long-term relationship can afford to feel like a “loser.” That said, you should not be afraid to maximize your leverage. Just remember to leave enough on the table so the other party can feel like they’ve “won” also.
Keeping with the non-compete covenant example, let’s say you have another offer from a competing group in town that is willing to give on the non-compete covenant. However, the practice is not necessarily your first choice. The fact that you have another offer allows you to say, “Look, I’d love to work with you, but I already have an offer from someone who is willing to agree to a less aggressive non-compete covenant — and that is really important to me.” That’s a good use of leverage, and yet the other party can still feel like they got something at the end of the day because they’ll know they are only doing what another practice was willing to do.
2. Know Your “Bottom Line”
Failure to know your bottom line before you begin negotiating can lead to taking a bad deal or fruitless negotiations. Once you know which items are a must, you’ll also know which items you can trade to get what you really need. However, in order to know your “bottom line,” you’ve got to know what the options are — including the options available if no deal is done. If you know what the best alternative is, you know where your bottom line is in any negotiation. (Your bottom line is $1 or other unit of value better than the alternative.)
For example, if you know that covering your student loans, mortgage and other basics requires guaranteed compensation of at least $120,000, you can’t accept one dollar less than that. No matter how you slice it, if you need that financial guarantee, no inventive arrangements that don’t provide that guarantee will ever be enough.
Or take another case: If your spouse has landed a job in the same area and it would be difficult, if not impossible, to live with a county-wide restrictive covenant because you’d have to completely relocate, you can’t accept such a covenant. Knowing your bottom line in advance is crucial so you don’t waste your time or the time of an employer, and you won’t have to give up more than you need to.
However, before you step away from the bargaining table, make sure you’ve done your best to “think around disagreements.” Often, disagreements can be resolved by reframing the “either this or that” discussion as merely one set of choices among many alternatives. It then becomes a matter of problem solving.
Again, looking to the example of a non-compete covenant following termination of employment, one need not always take an “all or nothing” approach. Perhaps there could be a “time window” during which the covenant does not apply — e.g., the first 90 days, before the new employee has a chance to make inroads into the community. Or, perhaps, there could be a buy-out of the covenant with payments over time. The key is to look beyond the obvious, black-and-white solution.
Another option is to “package” issues, trading seemingly unrelated items. Back to the case of the non-compete covenant. Let’s say you are actually OK with not only the concept but the duration and the radius covered — but you really need more money. As long as you haven’t tipped your hand, you might trade the covenant for more money.
Now this may seem disingenuous. If you’ve narrowed down the list of things to negotiate and scratched the “covenant” off the list because it’s otherwise acceptable, why would you bring it up? Because it has value to the other party, and you need that higher salary, or benefit, or time off or whatever. So you put it on the list of negotiables so you can make progress in another area.
The key is to be inventive. If the guaranteed salary is too low, look at increasing the incentive bonus. If you need more money, extend the terms of your non-compete covenant. You get the idea.
3. Bargain Well
Once you know your bottom line, you need to understand the psychology of bargaining. Even in an employment context, where there will likely be only one or two rounds of negotiations/discussions, you need to be prepared to make bigger concessions early and to know which concessions will lead to smaller ones — incrementally smaller ones. That kind of movement “signals” to the other party when they are getting close to a deal. Do otherwise and expect to lose credibility — and leverage.
4. Use Advisors Wisely — and Get It Done
Knowledge and preparation are key, but you can’t know everything. Get help — from lawyers, accountants and other advisors. But don’t hide behind them. Use them sparingly and not as obstacles to getting a deal closed.
Additionally, employment agreements should not take too long. Too much back and forth often signals a less-than-optimal long-term relationship. This isn’t a labor negotiation, where the parties will see each other in five years when a new contract comes up for negotiation.
Finally, don’t drag things out or let your advisors do that for you. Do work with them to gain knowledge, develop your bottom line and strategy and to help seal the deal. And, be ready to pull your weight in the discussions. You can’t have your lawyer in your back pocket all the time, so in many cases, it’s wise to do some face-to-face negotiation on your own. This makes for good practice, as you will have to negotiate with your employers and future partners on a daily basis for a long time to come.
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About the Author: Rob Wade is an attorney with extensive experience representing health care providers and related organizations. His practice focuses on physician-related contracting matters. An author of numerous articles on health care law and practice management issues, Mr. Wade lectures nationally on practice management, financial and legal issues and has led seminars for many organizations, including the Academy. He was a keynote speaker at the 2009 YO Program in San Francisco.