Successful Salary Negotiations

1. Successful Salary Negotiations Dr. Jennifer Dunn (with help from Don Conlon and Jonelle Roth) October 17, 2008

2. Why bother to negotiate? • Because they probably expect you to negotiate. • Because it will improve your life. • http://www.youtube.com/watch?v=w5Z6WH2ac14

3. Three general attitudes towards negotiation • Expected • Established guidelines for negotiation (what’s negotiable, ranges) • HR managers in charge of negotiating • Accepted, but not expected • Willingness to negotiate on case by case basis • Common in small-medium firms where managers run HR • Not accepted • Norm is not to negotiate • Standard offers across firm • Common in firms with many incoming employees at same position • Consultants, management trainee programs

4. Why should you care? • Suppose that two professional students receive job offers at age 30 for $62,000. • One of the students accepts the salary offer and the other negotiates successfully such that the salary increased to $66,000 (an increase of 6.4%, the average found in a recent study when individuals chose to negotiate). • If each student receives a 4% raise per year, the one who didn’t negotiate at age 30 will earn a salary of $244,658 by age 65. The one who negotiated that one time at age 30 will earn a salary of $260,442, or $15,784 higher. • While $15,784 doesn’t seem like an enormous difference, remember that the student who negotiated earned more every year for 36 years—a total of $307,910 over their career.

5. Phases of the Salary Negotiation Process • Preparation • Know yourself • Decide what you want and its importance • Know the market • During the Process • Be flexible • Stay focused on what you want to “sell” • Post Offer • If your needs aren’t being met, let the employer know • Don’t negotiate if you aren’t interested in the job!

6. Preparation: Know Yourself • What Kind of Bargainer am I? • Is this style appropriate for job negotiations? • Do I know what I want?

7. Research Questions • 1. What salary is typically offered for this job in this geographical region? What range is typically offered by firms in this industry? • 2. What salary is typically offered for new graduates with your degree? • 3. What sorts of benefits packages are offered by firms in this industry? Firms in this region?

8. Research Questions cont… • 4. What things (outcomes or goals) are valued by this organization? What does management care about? • 5. What additional compensable knowledge, skills, experiences, competencies, connections, etc. do you bring to the job? • 6. What tasks or duties can you successfully tackle that will add value or cut costs to this organization? Why are you worth more money?

9. Elements of Planning Process • Define the issues • may be more difficult than you think • Assemble the issues into the agreed upon “bargaining mix” • Prioritize the issues • Determine which (if any) issues are related to each other • Generate alternative ways that they could meet your interests

10. What Details Matter? • What is Negotiable? • Deadline for Acceptance • The Job itself • Location • Starting Date • Salary • Bonuses (including signing bonus) • Stock Options • Benefits • Relocation Package: moving expenses including travel and hotel; low interest housing loans, advances for housing down payment

11. What Details Matter? • What is Negotiable? • Spousal Assistance • First Salary Review Date • VISA Help • Parking, subsidized transportation costs, company car • Office computer and software, laptop computer, cellular phone, fax, home office equipment • Health care insurance, including dental and optical care • Life insurance • Tuition reimbursement, supplemental training, continuing education costs • Travel costs to professional meetings or conventions

12. What Details Matter? • What is Negotiable? • Child care subsidies and access to provider networks • Pension plans: Some terms of defied benefit or contribution plans, 401(k) plans, stock options • Advances on salary • Vacation time: number of days and timing of vacations • Sponsorship in professional organizations or other organizations in which business contacts might be made • Subsidized access to social or recreational facilities such as health clubs, sporting or cultural events, etc. • Company sponsored credit cards (e.g., guaranteed approval, special discounts)

13. Planning • Understand your interests, not just positions • Positions: Starting points on issues • Interests: The “why” of positions • Prioritize • pick the few things most important to you • pick some things you are most willing to trade off • Discussion of positions does not always lead to understanding/disclosing interests

14. Planning • Talk to your constituents and with the other side • With constituents • to make sure you have key issues on the table and you are in touch with their interests, not just positions • With the other side • to insure ground rules of negotiation, bargaining mix, etc. • Might also be opportunity to learn about other’s underlying interests and preferences

15. Planning • Determining value • Sometimes you may be able to quantify value of every issue in financial terms • Other times, more difficult to do so • Use of “points” or some scoring system/metric to allow you to make relative comparisons among your issues

16. Value Can Take Many Forms Tangibles Quantity purchased Price Delivery Installation Length of agreement Financial terms and conditions Intangibles Getting the deal Standing by my principles “Beating” the other side Preserving my reputation Being fair Making the customer happy Saving face Looking good to my boss or constituency Maintaining a precedent

17. Next, Some Goal Setting • What’s your target point? • What’s your resistance point? • Do you have any alternative possibilities? • What’s your BATNA? Can you get a better one? • What’s your opening bid, offer or asking price?

18. An MBA Student Negotiating Employment Terms... Company A offers $90k salary stock options moving expenses signing bonus But, student wants an offer from Company B This makes Co. A the BATNA “What does Co. B need to offer me so that I feel it is identical to the offer made by Co. A?” This represents the reservation point, and should include all in column A plus quality of life, feelings about the city where s/he will move, etc. A reservation point then is a quantification of a negotiator’s BATNA.

19. What’s your leverage? • Positive leverage – what do they gain by hiring you (vs. the next best candidate)? • Normative leverage – what standards support your position?

20. How: Determining your leverage

21. Develop Supporting Arguments • What facts support my view? What validates this information as factual? • What records, files, or data sources exist to support my arguments? • Have these issues been negotiated before by others under similar circumstances? Can I get in touch w/ those people to find out which arguments work and which do not?

22. Know Your Stuff: Broad Salary Data

23. Using Broad Salary Data • Calculate the premium/discount of • Region • Function • Industry • Example: West coast, Mfg, supply chain • West = 91,400 (premium of 6% vs. overall average) • Supply Chain = 87,071 (premium of 1.2%) • Mfg = 86,187 (premium of 0.2%) • Average “fair” salary = 85,974*(1+7.4%) = 92,336

24. But are you better than average? • Do you have objectively superior qualifications? • experience, awards, grades, GMAT scores • skill certifications • Example: Estimate your qualifications to be in top third • Top third ~ 67%tile ~ 0.44SD above mean (google “z calculator”) • Avg “fair” salary from last slide = 92,336 • Range = 120,000 – 62,000 = 58000, SD ~ 58K/6 ~ 9,666 • Estimated market value = 92,336 + 0.44*9,666 = 96,588

25.  99%   95%   68% 

26. Other salary sites • Jobstar • http://www.jobstar.org/tools/salary/sal-surv.cfm • Homefair • www.homefair.com • Monster • http://content.salary.monster.com/

27. Salary surveys • A pretty good site: • www.salary.com (see methodology section) • This one has reasonably good (national avgs.) for HR jobs • http://www.wageweb.com/hr1.htm • This page has links to several which appear to be pretty good (always check methodology, etc.) • http://www.hr-guide.com/data/043.htm • Many of these will cost $$--they’re created for companies to purchase—but sometimes they’ll publish limited info for free

28. Perspective Taking • What is the other party’s point of view likely to be? • What arguments are they likely to make? • How will I respond to these likely arguments? • What are their interests? Their BATNA? • What is their authority / latitude? • e.g., up to 5% increase in salary, anything under $3k • Larger requests may need approval by higher levels

29. The Negotiating Process • Obtain the offer. • Analyze the offer and collect missing information from the employer. • Evaluate the offer with regards to your goals, trade-offs, and walk-away point. • Negotiate (in person if possible) and obtain or propose a counteroffer. • Lather, rinse, repeat (Steps 2, 3, and 4 as needed). • Obtain agreement and ask for the final offer in writing.

30. Initiating a Negotiation Discussion • Tell the manager that you have thoroughly considered the offer. • Express excitement about the opportunity. • Indicate that you have several areas for discussion. • Communicate the expectation that you both want a positive outcome and your belief that you can work through the areas for discussion successfully. • Indicate areas of agreement first. • Discuss and resolve differences. A signing point helps. • Affirm the agreement and accept the offer • Or take take time to weigh it if not all needs met • Or graciously decline if it is still below BATNA • Ask for confirmation of the finalized offer in writing.

31. More Details • Offer and Acceptance • Always begin by being very positive. • Negotiate only after a job has been offered. • Negotiate only if you’ll take job if all conditions met. • Never Lie. • Accept written offer before declining others. • Decline other offers graciously (It’s a small world).

32. Salary Negotiation Problems • Lack of Preparation • Not knowing what you want • Not telling them what you want • Assuming you know what they want • test your assumptions • Not Knowing Your BATNA • Underestimating (or overestimating) Your Power • Agreeing too Quickly • Not Emphasizing the Relationship

33. Using the Elements to Succeed: Principled Negotiation • Separate the People from the Problem • Be soft on the people and hard on the problem • Focus on Interests, Not Positions • Interests define the problem; Ask “why” to uncover interests • Invent Options for Mutual Gain • Think about solving their problem • Can you add in issues and then make tradeoffs, or provide more of a problem resource, or cut costs for the other party • Identify (and if possible improve) your BATNA

34. Remember: Only You Can Decide • How will I know if I should accept an offer? • How will I know if I got enough in the negotiations? • Should I negotiate in every case? • What if I love the company/job/location, but don’t like the offer? • How can I avoid having second thoughts?

35. Conclusion and Questions • Achieve the results you desire • Feel Great! • QUESTIONS? • dunn@bus.msu.edu