Salary negotiations are often some of the toughest discussions you will face over the course of your career. We have all heard of friends or colleagues who have landed their dream job “getting paid a fortune” where our initial thought is: “How did they manage to get that deal?” We often attempt to assess our own work with a dollar figure greater than the one we earn. So, did your friends get lucky or is there a science behind negotiation?
True Market Value
In truth, there is no science to negotiating a better deal. The successful negotiator understands the playing field and the rules of the game. We have all been there, trying to judge the moment and to work out just how well a deal you can negotiate for yourself with a current or future employer. What it all boils down to is simple preparation, and knowing your true market value, rather than your perceived value to a firm. These two “values”, whist appearing similar, are actually polar opposites.
True market value is something you can actually demonstrate to back up your demands, often calculated via information that’s in the public domain like salary surveys. Perceived value, on the other hand, is more akin to a game of poker, where you are always trying to guess how far the employer is prepared to go, without precedent, so it’s a purely a gamble and that doesn’t allow you to exude confidence in your negotiations. In the end, preparing and understanding your true value, with objective information as an aid, will provide you with the most effective tool in negotiating salary.
There are often times over the course of your career where you will feel you are not being properly compensated by your employer. This may encourage you to look for new opportunities or, alternatively, you may look to approach your current employer to alert them of your position. Whichever path you choose, you will need to be able to back up your claims; researching across various reputable sources is a strong starting point. Recruiters, especially those who specialize in your particular field, will be able to impartially advise you, based upon historical work and assignments they have worked on. Depending upon your chosen career, there are also ‘salary surveys’ published by reputable companies who benchmark compensation and benefits across the marketplace. Most HR divisions would have copies of at least one of these surveys for you to reference, but alternatively you may find the information available in your local business library. Although its not as common these days, salary information may well be posted alongside job advertisements, and cross referencing this could be extremely important to put you on the right track.
Other situations that can and do occur is when a role changes internally and doesn’t get reclassified, for example the scope of your job broadens, or your responsibilities increase but your salary gets forgotten. In these cases. it’s actually a very sensible tactic to bring this to the attention of your line manager and/ or Human Resources, who, if they agree with your case will look to have your role re-assessed.
Negotiating your compensation is not just about the salary, but also the working conditions, the benefits package, and taking less money while having the freedom to work part time from home if that is enticing to you, for example. Getting a comprehensive understanding of a firm’s standard benefits package is good preparation, but also speaking to other team members can help. You must be aware of the pitfalls and trade-offs from your current employment situation: for example, if you have been with your firm for ten years and get 25 days paid vacation, but your potential new employer only offers 15 days to new recruits and there is no room to bargain, are there other things you can negotiate for yourself such as flexible working arrangements, private healthcare, pension plan, etc.?
In addition to preparing and understanding your true market value from a financial perspective, it is also helpful to understand what motivates you to make more money or receive more benefits in the first place. The concept behind understanding one’s motivation fueling the “position” in any negotiation, not just in the workplace, stems from interest-based negotiation.
Focusing on a party’s interests in negotiation is effective because quite often one or more parties focus on what it is they’re asking for, as opposed to why they are asking for it. Interest-based negotiation works because in most situations, the mutual benefits of reaching an agreement far outweigh the costs of not agreeing.
A simple example: A valuable employee asks for a 20% raise. On its surface, the negotiation pits the position of the employee (a 20% raise) against the position of the company (not wanting to spend more money each year); however, a further analysis of the situation shows that the employee’s position of a 20% raise is motivated by wanting to feel more deeply appreciated by the company, as opposed to needing 20% more money. If the parties do not look at what the motivations of the employee are, then the worst thing that can happen is that they do not reach an agreement and the employee resigns. By understanding the true interest of the employee, the employer can find alternative, possibly creative, solutions that are in line with both parties’ interests.
Interest-based negotiation is multi-faceted, but it starts with reminding yourself not to get entrenched into positions and to focus on the motivations and interests of you and the other parties.
A True Story
Many years ago, I was called in to try to rescue negotiations on behalf of a CEO in Asia who was desperate to join a new employer, but having tasked a lawyer to manage the discussions initially, negotiations had reached a state of impasse. What had happened was that the CEO was used to a certain level of benefits package that was ‘Industry Standard’ in their country; however, the prospective employer was a foreign entity that was new to the region and benchmarked everything back to their head office in the US. In terms of the actual financial offer, we knew we could easily match and better the current terms, but the benefits package, which was important to the executive, was comparatively poor. The employer felt that since they didn’t offer senior executives in their home base certain benefits, then they couldn’t be seen to set precedent elsewhere in their firm. Rightly or wrongly this situation had escalated and caused a rift between the potential incumbent and employer to the point where neither side would budge. What transpired was that the CEO had a company car, car parking, a company phone line at home, country club memberships, an interest-free mortgage on his main property and various other high-end benefits and he didn’t want to, nor see why he should have to, give them up. The employer, understood these were important to the CEO and could see his point, but policy dictated they couldn’t offer him the benefits.
My job was to break the impasse, I began by pricing each item individually: Let’s say the cash value was in the region of USD 50,000 per annum, a number that whilst high in itself, in context of the compensation package was not. I didn’t want either side to lose face in this situation, and I was pretty sure neither party would back down, but I explained to the employer and employee that we had a solution. I asked the employer to consider creating an additional allowance as part of the overall compensation structure called ‘executive benefits’ the amount was to be paid monthly to the employee and would cover the cost of the lost benefits, which meant the incumbent CEO would not lose face. As a quid pro quo the employee understood the employers position and agreed to put the leased company car and ancillary benefits in his own name rather than the company’s. I also explained to the incumbent employee that this type of flexibility would be appreciated and furthermore would give him more flexibility.
The upshot here was that when the final offer came through, the employer didn’t pay more overall than they expected to in total cash terms and the employee had received an offer that was strong enough for him to join the firm. Neither side had lost face, and a situation that had risked derailing the entire transaction had been avoided. This wasn’t a moment of genius on my behalf, but I knew from my research and discussions that what I was asking for from both sides was a reasonable trade off and I was confident in approaching both parties with the concept and suggestions to effectively execute on my mandate! Whilst not in proportion to everyone’s situation, the moral of the story is about thinking laterally and being open to negotiate by trading one thing off for another. For those of you who are interested, both parties remain together 10 years down the road and this remains to be viewed as an extremely successful hire by the client and a great decision by the employee.
Negotiating a salary with confidence can require many skills but really its about facts and figures and making a case that you can justify. Playing games in negotiations may well get you what you want but, in my opinion, being straight and not trying to be greedy, will always win the day!