Joey Bosa played college football at The Ohio State University. Joey was drafted third overall by the San Diego Chargers in the 2016 National Football League (NFL) draft back on April 28. What has transpired since in contract negotiations can provide some lessons in salary negotiation for all of us in the corporate world.
by Jose J Ruiz
Contract negotiations, salaries, and bonuses for rookies in the NFL reached a ridiculous level in both amount and complexity during the first decade of this century. In 2011 the NFL’s collective bargaining negotiations between the National Football League Players Association (NFLPA) and NFL team owners yielded a new collective bargaining agreement with a new rookie salary system that limits spending on first-round draft picks.
There is little room to negotiate Joey Bosa’s total package which is currently at USD$25.8 million for five years. His compensation includes a signing bonus of USD$17 million with payment split between 2016 and 2017.
Contract negotiations are stuck on what is called offsets and deferrals. Offset language in the contract states that if another team hires Bosa before his current contract expires then, Bosa can´t double dip. Explained by Mike Garafolo of USA TODAY “An offset means the next team to sign a player would foot the bill on any or all of the guaranteed money owed a player who has been released. For example, if a player owed $3 million is released and is signed by another team for $2 million, his former team would only owe him the difference of $1 million. A player with no offset language would earn the original $3 million plus the $2 million from his new employer.”
Deferrals mean that he won’t get his bonus in a single lump sum. The average deferral in the NFL is 30%. The San Diego Charger’s latest offer deferred less that.
Lesson One: Prove yourself.
Worth has nothing to do with your perceived value, and it is important to distinguish your perceived value from your market value. What others with a similar skill-set and experience (your competition) are currently making or are willing to make defines your market value. I have had candidates tell me: “I saved the company 500,000 dollars last year why can’t they pay me 50% more?” The answer is pretty straight forward, harsh, but straightforward: Because they do not have to if someone else can save them the same amount for 25% less than what you make. Joey’s market value is based on the CBA scale. However, there is another side to the equation: Impact.
Worth is based on expected impact. It’s a bet on what you will be able to do in the short term. The risk involved is a mix of betting on potential and evidence of previous success. Don´t expect someone to pay you based solely on what you have done in the past if there is no concrete evidence that you can do it again and don’t expect someone to pay you based on potential if there is no evidence in the past that you can be successful.
Going into a new organization expect something close to where you are now. Consider that most companies understand that money is important, but they will seek a candidate’s decision based on the challenge, expected career path and professional development. Many hiring managers are suspicious of candidates seeking a job for an immediate boost in pay. For that reason, most organizations will shy away from providing sharp increases when presenting an offer.
Get in and prove your worth. Bet on yourself. By not accepting the offset language and the deferral, Bosa is not betting on himself. In today’s NFL, the big payout tends to come in the second contract, not the rookie contract.
Lesson Two: Know your leverage
You would think that the pay structure in most companies would match current market data. Unfortunately, it is not always the case and not because organizations would not want it that way. External events can change the market quick and create temporary spikes based on talent demand. Many organizations will be disciplined and not react to those changes. When we see a mismatch, it is typically a temporary supply and demand issue for specific industries and disciplines. In most instances, companies will be willing to take more time to fill a job opening and even lose a few employees to a hot job market to not turn their cost structure upside down or generate disgruntled employees. They are aware of the consequences of increasing the salary range for specific positions while keeping other similar ones the same.
The San Diego Chargers are claiming precedent as the main reason to not budge. It could be considered stubbornness. It could be considered cheap. However, it’s not unprecedented. Not unprecedented in the NFL or the corporate world. Most organization will sacrifice the potential benefit of an outstanding player for the sake of consistency in their policies.
Never forget that you may have leverage, but it’s limited.
Lesson Three: Leave your ego at home
When you think you have leverage, and you’re going to use it, make sure you don’t break it. Joey Bosa already has USD$25million in guaranteed money. Based on ego, Bosa is pushing for what he considers fair and is not compromising based on principle. There is nothing wrong with standing by his principles. However, here is the business case: Bosa can stand strong on his principles. Not sign. Sit for the 2016 NFL season and enter the 2017 draft. Essentially forfeiting over USD$6 million and getting a year closer to the potentially big contract. Most experts agree that the likelihood of Bosa getting picked three overall again is very very slim. That means that his salary, per the rookie scale, won’t be USD$25 million. Bosa is essentially risking USD$25 million in an attempt to get USD$4 million six months earlier. Not a solid business case.
Understand your ultimate objective. Use game theory to understand risk vs. reward. In the eternal words of Kenny Rogers “know when to hold them and when to fold them”
About Jose J. Ruiz
Jose J. Ruiz serves as Alder Koten’s Chief Executive Officer based in Houston and is a member of the firm’s CEO & Board Services Practice. He is involved in executive search work focused on board members, CEOs and senior-level executives. Prior to joining Alder Koten, Jose was a Principal with Heidrick & Struggles’ Global Industrial Practice based in Houston, TX and Monterrey, Mexico. He holds a master’s degree in organizational leadership and a bachelor’s degree in mechanical and electrical engineering from the Instituto Technologico y de Estudios Superiores de Monterrey.
About Alder Koten
Alder Koten helps shape organizations through a combination of research, executive search, cultural & leadership assessment, and other talent advisory services. Our recruiters and executive search consultants bring to the recruiting process an in-depth understanding of the market conditions and strategic talent issues faced by clients within their particular industry. Our leadership consultants provide advisory services that are crafted to be collaborative, responsive, pragmatic, and results oriented. Focused on expanding the capabilities of the organization through talent.