Recent press coverage of Elon Musk’s very public compensation negotiations with the Tesla board of directors, along with the Delaware Chancery Court’s decision to invalidate his current package, has put the spotlight on the art of negotiating executive pay—particularly for CEOs, founders and other C-suite executives where the board is directly involved in the negotiations. Lawyers advising clients in similar negotiations must bring both an understanding of the law and awareness of the behavioral factors in play to negotiate a legal deal that satisfies all parties, including shareholders.
Behavioral Dynamics: Building Bridges and Getting What You Want
Negotiating executive compensation involves more than just numbers; it’s a dance of personalities, egos, long-term relationships, leverage and dollars. Lawyers advising executives must be attuned to the behavioral dynamics that underpin these negotiations.
- Building and maintaining relationships. One of the critical aspects of successful executive compensation negotiations is the ability to build and maintain positive relationships with the board and its advisors. Encouraging open communication and fostering a collaborative atmosphere go a long way. Executives must assert and establish their worth and cultivate a relationship with the board that is built on trust and mutual respect.
- Understanding board dynamics. Knowing the dynamics of the board is crucial. A lawyer advising an executive must analyze the board’s composition, individual members’ priorities and the company’s culture. This understanding enables tailored negotiation strategies that align with the board’s expectations and values, increasing the likelihood of a successful outcome.
- Communication skills. Effective communication is a linchpin of any negotiation. Attorneys should coach their executive clients on articulating their value proposition clearly and persuasively. This involves not only highlighting past achievements but also demonstrating a vision for the future and the positive impact on the company’s bottom line.
- Leaning on leadership and performance coaching. Many CEOs, founders and C-suite executives already work with leadership and performance coaches. They can be vital help and a huge plus factor in managing relationships with corporate boards, including when preparing for negotiations with the board.
- Leverage. While establishing good relationships and communication goes a long way, this isn’t tiddlywinks. There will be pushback and countermoves. There will be a cold-eyed analysis of leverage by all players, and there may be threats (implied or explicit) to leave or to find someone else. Musk is very plainly and publicly threatening to devote his considerable energies elsewhere if he does not get what he wants from the Tesla board. That is a power play, plain and simple. Or maybe just a bluff. What would be the impact on the company’s stock if he leaves? Is there a successor? What about a boomerang—the potential damage to Musk’s own net worth if he leaves Tesla and the stock collapses? Evaluating leverage and applying it wisely matters greatly.
