I like negotiating, and I believe everything is negotiable. However, there can be a lot of confusion and frustration within the process. In order to help relieve some of that frustration, we are about to break down the dos and don’ts to keep in mind when you’re negotiating salary. You’ve interviewed the candidate, and now it’s time to discuss pay. Negotiations are always a cause for concern and can be a bit uncomfortable for both the HR representative and the candidate. You don’t want to lose a great candidate because of a failed negotiation, and you don’t want to pay more than the fair market value. Negotiation experts are savvy, informed, confident, and reasonable.
Before any discussion of compensation begins, you should have a salary range that you are prepared to extend to a candidate. Salary and compensation are actually different. Salary is the annual amount of money earned or paid. Compensation is the total financial package, including bonuses and any other benefits. These can be stock options, reimbursements, expense accounts, fringe benefits, travel costs, and even housing. This is important to remember when negotiating, because it allows you to be flexible and creative when making compensation package offers. You may have firm limits on the salary level, but you can often be more flexible on the extras that can make or break a deal. If you’re not sure about what a reasonable compensation package should be for the job at hand, you can perform an industry comparison. You’d be surprised at what kind of salary information you can obtain by using Glassdoor, the Bureau of Labor and Statistics, the Ladders, Salary.com, and your network of HR professionals as resources. Whenever you make an offer, it goes without saying that the employee or candidate wants the top of the range, and sometimes they can be unrealistic and emotional in their salary demands. This is why it’s important for you to base your salary offers upon data and market research. It’s important to note that every company in every industry has a compensation strategy: they will either lead the market, lag the market, or reside somewhere in the middle. Choose which approach works best for your company’s culture, and be prepared to walk away from a negotiation if it falls outside of your reasonable range.
But there is a great line in the Academy Award-winning movie “The Unforgiven,” where Clint Eastwood’s character, William Munny, says “Deserve’s got nothing to do with it.” And that applies to salary negotiations: base your offers on the candidate’s worth and potential versus emotions. If a current employee feels that he deserves a raise, then he should initiate a meeting with his manager to discuss the situation. Everyone feels they deserve a raise, but the evidence-based proof is the key: performance evaluations, congratulatory emails, achievement-based goals met, and other tangible evidence of their successful performance is what’s needed.
Current employees can reasonably expect about 5% as a maximum annual raise, but when negotiating for a new job, it’s customary to add 10% to your current salary, unless you have completed a new certification, degree, or training program which is associated with a larger pay raise. I have heard of new employees negotiating on student loan assistance, auto maintenance and repair allotments, credit cards, clothes allowances, help with childcare, and even jobs for their spouses. As an HR manager, you need to prepare a compensation package that is reasonable for the job they are recruiting for and, especially, for your company. For instance, a gasoline company may want to provide company gas cards to their employees as a perk. Leading companies understand the importance of offering a competitive salary, but they also understand the importance of having a strong company culture and brand message. Think about Microsoft, Yahoo!, Apple, Google, Disney, Zappos!, and PIXAR. They all have no shortage of applicants willing to take a reduced salary to work for them because of their positive reputation and the word-of-mouth recommendations by their current staff. As an HR professional, you should know your company’s worth: its strengths, marketplace standing, and reputation. All of these things will help you navigate negotiations like a true champion.
A good practice before negotiating a salary is to set the up and down limits of the salary you can offer. And if everything is clear why you need to have the up level that’s how much you can afford to pay, then down limit needs more explanation. Actually the down limit is responsible for your company reputation, that is how little you can afford to pay in order to keep your brand.
I think it’s much easier to negotiate salary with a candidate than with a current employee. Because, even though you offer fair market salary, your employee might have much higher expectations because of his/her loyalty. Such negotiations can turn a trap for an employer, as he/she doesn’t want to lose a valuable, experienced, talented and loyal employee, but can’t afford to give the raise employee expects. For me this has always been very difficult.