How to Negotiate Salary as an Employer (and Stop Losing Talent)
Every negotiation goes 2 ways and especially so with salary negotiations. Employers negotiate salary not just to save money, but to get the best talent, make sure employees are engaged from the beginning, and to prevent turnover. We’ll cover the best strategies to negotiate salary as an employer, detail common challenges and pitfalls to avoid, and provide key takeaways and a preparation checklist to make sure your negotiations are successful for everyone.
The Meaning & Purpose of Salary Negotiations for Employers
The basic definition of salary negotiations is simple:
Salary negotiation is the process where an employee (or potential team member) and employers work out and agree on the basic conditions of employment. This includes wages, benefits, location, and other factors. In the case of negotiating a raise, it would be an agreement on the modification of the working conditions.
But more importantly, these negotiations have a larger purpose for employers than just wage. Salary negotiations set the tone of the working relationship going forward between a new or old employee.
Key Reasons for Good Salary & Raise Negotiation for Employers
|Ensure you get top talent
|Low-balling or being inflexible can scare good employees away. Showing that you value the employee is integral to good negotiation.
|Build a relationship of respect and trust
|Trust is key to successful workplaces. Negotiations with clear reasoning and a fair offer show employees that you respect and value them, making them likely to stay and contribute to your team.
|Prevent unhappy (and short-term) hires||Some employees are too nervous to negotiate and just accept a low offer. This leads to “buyer’s remorse” and higher turnover and costs. Don’t just play to win the money game, but instead win the employee satisfaction, productivity, and retention game, too.|
Employee Wage Requests in Context: Negotiate Salary From The Business & Personal Perspective
Most current or potential employees ask for salary increases of $5,000 or $10,000 per year. This sounds like a lot to any business leader or hiring manager. But what do these numbers actually represent? The answer to this is what Don Charlton calls the “$800 Game.”
Imagine yourself as an employee for a moment. How much is $10,000 per month? Roughly $800. If you take taxes away, we’re talking around $500. It follows that what employees are really asking for is not a massive payday, but a monthly car payment, student loans, or coverage for a rent increase. Seems a little bit less audacious from this perspective.
What does this have to do with salary negotiations? The way you approach negotiations affects how you handle them. Understanding the very human reasons for salary increase requests helps you know the motivations and connect with the candidate or employee. In turn, you can alter your strategy, offer benefits that help them, and ultimately keep or get top talent on your team.
How to Prepare to Negotiate Salary (An Employer’s Salary Negotiation Strategy Checklist)
Going into salary negotiations as an employer takes as much, if not more, preparation than for employees. It’s a sure bet that your candidate or employee has done some research to back up their salary request. Here are 6 things you need to know to ensure you have a strong position and respectful response to what your employees propose.
8 Steps for Successful Salary & Raise Negotiations as an Employer
Any expert will tell you that negotiating is a skill that needs time and practice. To develop your strategy and make sure everyone gets what they want and need from salary or raise negotiations, remember these effective steps.
Inform yourself about your candidate’s life and work experience
This step lets you personalize your offer and raise your chance of success. Also be aware if this is a candidate’s first job, as they may not know how to negotiate. This leads them to take job offers they aren’t satisfied with. You may have “won” the negotiation, but no one actually wins with skyrocketing turnover rates.
Go for the personal connection
Science says that negotiators with at least some personal knowledge beyond just names are 20% more likely to reach an agreement. Provide some details about yourself and use your information about your candidate to build a good rapport and a good deal.
Make the first offer
It may sound counter-intuitive, but waiting for your candidate to offer first puts you at a disadvantage. By offering first, you anchor the negotiation around a certain number. This lets you play in the ballpark of what you wanted to pay, and gives raise and job candidates a clear idea of what pay range is expected.
Don’t lead with your top offer
Your best offer may be your most convincing but it leaves you with nowhere to go. Don Charlton suggests starting no more than $10,000 below the salary you want to pay. This allows employees the chance to negotiate and actively influence their pay while giving the employer the rate they wanted.
Play the (negotiating) game
Nearly half of employees want to negotiate their salary. If a candidate negotiates, make sure to have room to move within your salary range and benefits. If they don’t, then have a fair and equal to market value offer ready for their services.
Don’t offer too many explanations
The more reasons you give for your offer, the more weakness you build into your argument. Keep your logic clear and simple with just 2, at most 3, good motivators of your salary suggestion.
Take employee research seriously
In the age of open information, employees are well-informed on market pay levels and their own value. This means you’re not gonna pull the wool over anyone’s eyes, even if you wanted to. To make sure everyone is respected, taken seriously, and happy with the outcome, integrate and respond to the numbers and info your negotiation partner provides.
Offer support and time to consider
Emotions run high on both sides when discussing compensation. Ensure good decisions by showing understanding and not using pressure sales tactics. Offer candidates or employees a few days to decide about the final offer and let them get back to you. This way they know they’ll be happy with the offer and you can sleep better with lower turnover and more motivated employees.
What Employees Expect From Salary Negotiations
Good negotiation results mean walking the fine line between making an offer you’re comfortable with and not creating tensions or disrespecting employees. To this end, it helps to know what employees are expecting. They expect:
- To be taken seriously
- A conversation on equal terms
- Additional perks and benefits
- An offer at least on par with market value
- Respect and appreciation of the value and skills they contribute
- To negotiate around the full amount they requested (see: anchoring)
- Clear signals that negotiating is not desired (if the employer has already given their best offer.)
- Remember: They aren’t afraid to walk away either
Perfect Perks to Negotiate Salary & Promotions
Money isn’t everything. Employees have complex lives like yours, with car payments, moving stress, education debt, and family costs. It can go a long way for your negotiations if you address some of these concerns in your offer. Addressing personal considerations even convinces many candidates to take a position for less money, if it contains perks that make life easier. If you’ve found your dream candidate but aren’t sure if you can afford them, try offering some of the following:
- More paid time off. Life is full of surprises and many employees would like the comfort of addressing these without losing money or their jobs. The US is already lagging behind the world’s richest economies in terms of paid days off, so there’s room to improve this in your salary negotiations.
- Student loan payments. It’s a hot issue nowadays. The younger generation is trillions of dollars in debt just from getting the skills from which your company benefits. That’s quite a burden. You can help your future employees and your salary negotiations by building in coverage for student loan costs.
- Parental leave. Yet again an area where the US, on average, doesn’t offer as much as other countries. Luckily, this opens an opportunity for you to help out employees looking to start families and benefit your compensation conversations at the same time by offering more parental time off.
- Flexible hours and remote working. Depending on the work you do, the freedom to work from different locations and times can be priceless to employees. Look at what flexibility your workplace can offer candidates that could make up for any salary short-comings.
>> Read about great remote working and flexible hours ideas here. <<
- Compensate for transportation costs. There are seemingly thousands of ways to get to work these days. Car-sharing, scooters, trains, you name it. Find and finance options that work for your employees and the environment to improve your employer brand, the burden on your employees, and improve your offer all at once.
- Offer development opportunities. Close to half of millennial employees find a lack of development a deal-breaker. Know your audience and offer ways to help candidates or employees grow as a way to sweeten the salary deal while getting extra skills into your company.
>> Read more about the importance of employee development and growth here. <<
Key Takeaways: 6 Deadly Sins of Salary Negotiation (What You Should Never Do)
For your clarity, and in case you missed it above, we’ll quickly repeat the core elements. Here are the 6 things you shouldn’t do (ever) while negotiating employee promotions and salary.
- Never go in unprepared.
- Never start with your maximum offer.
- Never make a low-ball offer (and still expect a good result).
- Never wait. Make the first offer.
- Never over-explain your reasoning.
- Never place money above the value your employee contributes.