better language, business development

Salary “Negotiation”? More Like “Battle”

There’s a problem with the phrase “Salary Negotiation”. And no, I’m not talking about how the public school system has left millions woefully unable to spell “negotiation”.

I’m talking about the fact that this phrase even exists. In today’s modern age of taking all kinds of feelings into account, shouldn’t we have advanced past this simplistic, unenlightened mentality?

The Problem Of “Negotiation”

The problem lies in the word negotiation. Inherent in this is the perception of adversarial conflict. Two sides, each on their end of the battleground, coming together to “negotiate” a resolution to their disagreement.

Warsaw_Negotiation_Round_Senate_of_Poland_2014_01
courtesy of Wikipedia

The implication is that each side is going to have to give up something, in order to get something else. It’s a zero-sum game. Everyone loses something, and nobody goes away happy.

Because if you could have achieved everything you wanted without the negotiation, then there wouldn’t have been one in the first place!

But why should you care about this when discussing salaries? Doesn’t everyone have the same goal during salary negotiation, whether for new employees or at performance review time?

Nope.

Not even close.

For the employee (or potential employee), their perspective is to get as much compensation for as little as possible. And for the employer, their desire is to pay as little as possible for that same employee.

Thus, conflict.

Why Normal Doesn’t Work

The standard salary negotiation doesn’t work, because, as in any negotiation, one side must make the first move. Generally, this puts the first mover at a disadvantage.

Poker players know this, which is why they want to be able to make their moves after the other player. (This is called being “in position”.) The advantage comes from the chance to gain more information about the other player, or the other negotiator, by their first action.

And now we get into game theory! Those who have to act first know that their adversary will get more information from their actions, so they try to bluff by making their position seem stronger (or, sometimes weaker) than it actually is, to induce a targeted action by the other.

In our salary discussion, this shows up in a couple of ways. Neither side wants to go first – employers don’t want to commit to too high a value, and potential employees don’t want to feel like they’re not getting what they’re actually worth.

I’ve noticed that employers have stopped putting salary ranges on job descriptions. That’s fine, because it eliminates one of the disadvantages they had before.

When they listed a salary range, they’re often automatically excluding qualified candidates who would have worked for slightly more than that range, but feel constrained because there might not be any flexibility.

And second, they’re attracting unqualified candidates who think they’re worthy of the salary, which leads to excess HR waste and time spent dealing with it.

From the candidate’s perspective, though, this is removing the advantages they had of knowing what the minimum and maximum are. It gives them some opportunity for additional conversation, though, and that’s really what I want people to start doing more.

Let’s Get It All In, Shall We?

The other problem with listing “salary ranges” is that it doesn’t accurately reflect the total compensation of the position. Two companies might each promise to pay a coder $75,000 for full-time employment. Seems fair. But one has benefits (health insurance, retirement, flexible time off, taxes paid, etc.) that are worth about 20% of that salary ($15,000), while the other has benefits worth 40% ($22,500). If you’re just “negotiating” on salary alone, without taking into consideration all the other elements, you’re missing out.

So, what to do about this? I think there are two changes that need to be made when discussing compensation, and one easy process to help make that happen.

First, Let’s Call It A “Compensation Conversation”

Because, frankly, there is much more to compensation than just “salary”. It’s the whole package that must be considered, and, unfortunately, since most of the additional benefits aren’t ever actually quantified, it has been a hidden factor for far too long.

Thus I think we should start including the financial value of benefits as part of the job offer or raise discussion, rather than simply talking the dollars on the paycheck. This will force into the open many elements that previously have been hidden, allowing for full disclosure and consideration by both sides.

An image from the promotional poster for the movie "Disclosure"
courtesy of Google, just like everything else

Next, Let’s Make Sure Neither Side Has To Overcompensate By Going First

Remember, the problem of going first leads to overinflating your position, because you know your opponent is going to try to negotiate you off your power, and since you know they’re going to do that you’ve expressly inflated your position, and they’ve expressly inflated their own, leading to a growing divide between the two parties. Rather than helping mitigate the conflict, I contend that having a “negotiation” widens the disagreement and further entrenches each side in their own position, lowering the chance of success.

Let me give an example. Suppose the software company wants to hire the coder for $90,000 ($75,000 salary + $15,000 benefits). But they know that coders will try to get every extra dollar possible out of them, and there will be a negotiation, so they purposely start out low ($70,000 salary listed), expecting the coder to ask for $78,000, and then they go back and forth.

The coder, too, has to play this game. Suppose he would have been happy with $80,000 total compensation ($66,667 salary + $13,333 benefits). But he knows the game, he knows that the posted salary from the company is “lower” than what they finally expect to pay, so he counter-offers the $70,000 with $80,000, expecting them to go back and forth from there.

Now, it may seem like everyone’s happy here. But are they, really? Sure, they got to a final agreement, but it took a lot of time, and wasted the chance for a lot of goodwill that could have been created through a better process.

But if I’m suggesting neither side go first, how do I plan to fix the process?

Instead Of One Side “Going First”, Have Both Sides “Go Together”

The difference in this situation is that both sides will, at the point of being willing to extend (and receive) an offer, agree to a Mutual Declaration. In this instance, instead of either the employer or the (potential) employee going first, both will reveal their position at the same time.

How this works would be that each side determines a range of total compensation over which they would feel is fair for the position, the expectations, travel, etc. Once each side has their range determined, both sides then exchange with the other, or an impartial third party.

If their ranges overlap, then the middle is automatically selected. If they don’t, then you actually get to have a conversation about what each side believes is fair. And that conversation can, and should, include much more than simply salary.

How It Might Work

Let’s go back to our coder. The company obviously has an upper limit somewhere around $90,000 for their position. They create a range that says [$80,000 – $92,000].

The coder, for his part, looks at the requirements of the job, the people, the benefits offered, and decides that he thinks it’s worth [$78,000 – $86,000] to him. Others might have a different perspective, but for him, anywhere in that range is fair.

Once they’re both done, they reveal their ranges. Since there’s an overlap from between $80,000 to $86,000, they pick the middle ($83,000), solve for a salary ($69,167) and benefits ($13,833) that each is perfectly happy with.

The main advantage is that both sides feel the process is fair, it’s taken a lot less time, and you’ve eliminated the confusion about total compensation, since you’ve added in the value of the benefits up front.

And what happens if the ranges don’t overlap? Suppose the coder feels that in order for him to accept this job he would need somewhere between [$95,000 – $105,000]. Well, now the differential is between $90,000 and $95,000. If there is flexibility on either side (work from home, more retirement benefit, more vacation, less vacation, higher salary offered from the company, lower salary accepted by the candidate), then all of those elements can be quantified and the conversation (not negotiation!) can continue.

In the end, they’ll either reach an agreement or not. But at least they’ll do it with the full faith and confidence that all of their positions have been taken into consideration.

An Obvious Limitation

I do suggest that there be some limits on the ranges. For example, you shouldn’t just list [$0 – $1,000,000], in the hopes of forcing the other side to accept the middle of their range automatically. That’s just ridiculous. At the same time, nobody should have a range that’s too narrow [$60,000 – $60,500] to, again, not really give anything away about their interpretation of the process.

So I recommend a range where the upper limit is no less than 10%, and no more than 30%, above than the lower limit. This creates a reasonableness check on the two sides and ensures nobody’s manipulating the other and the process. So if the software company above really wanted to pay around $90,000, they should have that as the middle of their range, something like [$85,000 – $95,000], and should be comfortable if they have to pay a couple of thousand dollars more than their “target”.

A New Term – Hopefully Used Often

I know this is a bit of a departure from my typical blog posts, but it’s an issue that’s been on my mind lately. It’s especially important because lately I’ve been doing so much thinking about terminology (“retention”, teaching, and inappropriate “Thank You” spring to mind). This is another area where a shift in perception will only happen with intentional shift in language.

I hope this perspective catches on. I truly believe it could add much value to the process.

***

Do you like this article? Or don’t? Send me a note and let me know what you think.