Negotiating a Job Offer

Appendix 4 from: The Mind and Heart of the Negotiator (Fourth Edition)

When negotiating a job, you need all the essential skills covered in Part I (Chapters 1, 2, 3, and 4). In addition, you should be comfortable with your own bargaining style (and know its limits; see Chapter 5). You should be well versed in building trust and rapport (Chapter 6) and know the ins and outs of power (Chapter 7) and how to kindle creativity (Chapter 8). This appendix is de-signed to provide you with even more skills for this all-important negotiation that will reoccur throughout your life. We organized this appendix into three phases: preparation, in-vivo process, and postoffer.

Preparation

Salary negotiations are extremely important negotiations because they affect your livelihood and welfare for years to come. A misassumption at this point can have dramatic effects on your quality of life.

Step 1: Figure Out What You Really Want

This step sounds easy enough, but for a 28-year-old, it means an ability to project forward in time and to be concerned with things such as retirement and benefits. Karen Cates of the Kellogg School (1997) recommends working through a checklist of needs and wants (see Box A4-1). Cates further suggests a practical, step-by-step approach to compensation and benefits (see Table A4-1).

Step 2: Do Your Homework

Research the company and the industry. Fortunately, the Internet is dramatically changing the ability of people to get information quickly and easily, especially when it comes to salaries. Several Web sites offer salary surveys, job listings with specified pay levels, and even customized compensation analyses. For example, JobStar, run by a regional public library agency in California, offers links to more than 300 free salary surveys on the Web. ExecuNet, a for-profit job search network, divulges information about the salary, bonus, and stock options offered for the thousands of upper-management positions in their online database. However, for many jobs, cyberspace pay information represents only a starting point. In other words, these Web sites can only tell you if you are in the ballpark and can stop you from underbidding yourself (see Sidebar A4-1).

It is important to do your homework so that you don't ask for something that has already been institutionalized. For example, many companies have on-site chefs because they realized that it just does not make sense to break at noon, have everyone get in cars, and go and get lunch.

Step 3: Determine Your BATNA and Your Aspiration

A negotiator always has a BATNA. Some students who are beginning to negotiate with firms will agitatedly claim that they do not have a BATNA because they do not have any job offers in hand. They may not have an attractive BATNA, but they inevitably will do something with their lives if they do not get a job offer. Perhaps they will simply "extend" their job search indefinitely; perhaps they will travel abroad; perhaps they will do freelance or volunteer work, take a research assistantship at a university, or search for a nonprofessional job while they continue their career search. All of these options are possible BATNAs; they should be assessed and the best one focused upon and evaluated carefully.

Box A4-1
CHECKLIST OF NEEDS AND WANTS
 Necessary Living Expenses  Additional Living Expenses
  • Housing (including utilities)
  • Auto
  • Computer/ telecom
  • Childcare
  • Insurance (auto, home, life, professional)
  • Personal (food, medical, clothing, household)
  • Student loan debt service
  • Taxes (income, property, etc.)
  • Recreation and entertainment (vacations, events, activities, books, etc.)
  • Services (professional and household)
  • Continuing education
  • Children's expenses (lessons, schooling)
  • Gifts, charity
Source: Cates, K. (1997). Tips for negotiating a job offer. Unpublished manuscript, Kellogg School of Management, Northwestern University, Evanston, IL.

 

Table A4-1: Compensation and benefits (Cates, 1997)
 Compensation  Retirement  Paid Leave  Protection
  • Salary
  • Bonus
  • Other variable pay
  • Stock/equity interest
  • Pension/401K
  • Guaranteed pay plans (supplemental unemployment)
  • Savings plans
  • Vacation, sick, and personal days
  • Training time
  • Holidays and special travel considerations
  • Insurance (life, disability, health, other)
  • Care plans (child, elder)
  • Wellness programs

 

Our BATNAs are never as attractive as we would like them to be. The rare times when we have two or more fabulous job offers in hand, two bids on our house, and lucrative investment opportunities, we can afford to push for a lot more in negotiations. Obviously, you are in a much better position to successfully negotiate an attractive compensation package if your BATNA is attractive. As we stated in Chapter 2, your BATNA is dynamic, and it is important to not be passive about it.

It is important to think about how we might improve upon our BATNA. Most negotiators do not spend adequate time attempting to improve their current situation. As a result, they approach negotiations feeling more desperate than they need to be.

Step 4: Research the Employer's BATNA

Developing your BATNA is only half of the work that needs to be done before the negotiation. The next step is to determine the other party's BATNA, which requires tapping into multiple sources of information.

Step 5: Determine the Issue Mix

You have made your best assessment of the employer's BATNA. The negotiation is fast approaching. Now what? The next step is to determine the issues that are important to you in this negotiation. Do not make the mistake of letting the employer define the issues for you. Be ready to talk about your interests and needs.

SIDEBAR A4-1. HOW THE INTERNET CAN HELP YOU OBTAIN A BETTER SALARY


 

Executive recruiter Korn/Ferry International unexpectedly got a firsthand lesson in salary information on cyberspace when they created an electronic job-search venture called Futurestep with The Wall Street Journal. To compile an internal database of possible applicants for midlevel managerial vacancies, Futurestep offers people a free analysis of their salary and bonus potential, among other things. Unexpectedly, several Korn/Ferry recruiters signed up for Futurestep and found that they were underpaid. For example, Peter Reed, a 28-year-old recruiter in Korn/Ferry’s Chicago office, says that he found out he was 18 percent below prevailing rates. Reed says that Futurestep analysis will be part of his action plan when it comes to review time. The result: Korn/Ferry increased Reed’s base salary 10 percent (The Wall Street Journal, Sept. 22, 1998).

After you determine which issues are important from your perspective, go back through your list and attempt to create an even more detailed list, breaking down each of the issues into smaller and smaller subsets. Breaking up the issues into smaller subsets does two things. First, it allows the negotiator to be much more specific about what is important (e.g., the paid aspect of a vacation or the number of days allowed off). Second, it provides much greater opportunity for creative agreements.

In addition to focusing on the issues and concerns of importance to you, anticipate the other party's perspective. Again, information and research can help here.

Step 6: Prepare Several Scenarios

Most likely, the negotiations will not go at all as planned. Rather than being caught off guard, prepare your response to several different scenarios, including the following:

• The employer agrees immediately to your counteroffer.

• The employer makes a low-ball offer (in your eyes) and flatly states, "This is our final offer."

• The employer makes one small concession.

• The employer asks you to make a reasonable offer.

Step 7: Consider Getting a "Coach"

A job coach is someone who can help people advance their careers and achieve their compensation goals. Job coaches are people who help managers plan their future. The way that Peter Goodman, CEO of MyJobCoach, puts it, "If you have a legal issue, you go to a lawyer for advice. When doing financial planning, you go to an accountant. So why would you not go to a career coach when planning your career, the area where you spend over 70% of your waking life?" The number of "job coaches" has grown from 5,300 nationwide in 1998 to more than 10,000 in 2001 (Business Wire, July 30, 2001). CEOs have always taken coaching seriously, at least when it comes to negotiating their compensation packages. For example, Joseph Bachelder has negotiated job contracts for top corporate executives for 23 years (The Wall Street Journal, June 25, 2003). His hourly rate of $975 does not deter George Fisher (Eastman Kodak), Patricia Russo (Lucent), Lou Gerstner, Jamie Dimon (Bank One), and executives at Allied Signal and IBM. He also negotiates severance for departures, including that of Jack Grubman, former Salomon Smith Barney telecom analyst. In his typical role, he invites CEOs to talk about their financial goals. Bachelder employs a Ph.D. mathematician, B. Roslyn Abramov, to help leverage the number-crunching showdowns. He is not reluctant to remind companies that terminated executives can be important witnesses in continuing litigation. Moreover, savvy companies often suggest that their employees use Bachelder. For example, Lucent suggested that Richard McGinn, dismissed as CEO in October 2000, use Bachelder because they reasoned that his expertise in wrapping up matters ultimately would serve Lucent well. In other cases, ousted executives want to restart their careers quickly and be freed from a thicket of noncompete clauses. One such client, Jamie Dimon (previously Citigroup), hired Bachelder to ensure that he could take helm of Bank One and take six of his former colleagues with him.

In Vivo: During the Negotiation Itself

You have done your preparation. Now it is time for the actual negotiation.

Think About the Best Way to Position and Present Your Opening Offer

Remember to back up your offer with a compelling rationale. Use objective standards. Focus and select those standards that are favorable to you, and be prepared to indicate why standards unfavorable to you are inappropriate.

Assume That Their Offer Is Negotiable

Do not ask, "Can we negotiate this offer you have made?" because a negative response can put you in a weak position. Rather, assume that the offer is negotiable and begin by articulating your needs and interests. Cates (1997) advises saying the following: "I have some questions about the insurance coverage that I would like to talk about if we can," or "I have some concerns about your moving allowance, and I need to talk to you about it." A survey conducted by the Society for Human Resource Management found that 8 out of 10 recruiters were willing to negotiate pay and benefits with job applicants, but only one-third of the job applicants surveyed said they felt comfortable negotiating (U.S. News and World Report, Nov. 1, 1999). Most job applicants do not push employers at the negotiating table. The failure to negotiate a first offer from an employer can cost workers a lot of money. "A 22-year-old who secures a $2,000 increase in annual salary at his or her first job will, because of the compounding effects of years of raises to follow, most likely generate roughly $150,000 in extra income over the course of a 40-year career" (U.S. News and World Report, Nov. 1, 1999). The effect is even more dramatic for an MBA student negotiating a $90,000 job offer. What's more, if you do not negotiate for what you want in that brief window between your receipt of a job offer and your acceptance of it, you may never get it. You are never more powerful than when you are responding to "their offer" because it is the one time the employer may want you more than you want them (U.S. News and World Report, Nov. 1, 1999). What are some things to ask for in your negotiation? (For a list of possibilities, see Side-bar A4-2.)

Sidebar A4-2. Things to Ask for When Negotiating an Offer


 

Some things to ask for when negotiating an offer (other than a higher salary, which is always worth asking for):

  • Paid time off plans
  • Free parking
  • Season passes (ski lift, opera, whatever you fancy)
  • Money to move your hobbies (horses, motorcycles) to the new location
  • Right to hire an assistant
  • Right to take three-hour lunches (as long as the work gets done)
  • Right to take off of work if the wind is blowing at a certain speed (if your hobby is windsurfing)
  • Car
  • Signing bonus (or bonus for achieving certain milestones)
  • Severance pay
  • Stock options or profit sharing
  • Accelerated performance review (if you are confident that you need only six months to prove you deserve a raise)
  • Clothing allowance (typical only in the fashion and entertainment industries)
  • Computer, cell phone, laptop, or other home-office equipment (especially common at technology companies, but spreading quickly)
  • Flexible scheduling (does not cost real cash)
  • Memberships: dues for professional associations and athletic clubs
  • Telecommuting: ask for this ahead of time, because most companies still handle this issue on a worker-by-worker basis
  • Tuition reimbursement and coverage of books, fees, noncore courses
  • Vacation: extra days and scheduling
  • Pet health insurance
  • Concierge and dry-cleaning services
  • On-site fitness centers
  • Prepared, take-home meals

Sources: U.S. News and World Report, Nov. 1, 1999; Crain’s Detroit Business, May 7, 2001.

Immediately Reanchor Them by Reviewing Your Needs and Your Rationale

Indicate your interest in working for their company, and tell them how your needs (and wants) can be met in a variety of ways. Many candidates reach impasse because employers falsely assumed that the candidates did not want the job when they did. Thus, keep reiterating your heart-felt interest in their company. Cates (1997) advises to "get your requests on the table and keep them there." According to Cates, salary negotiations are really about candidates helping recruiters to solve their problems. In other words, let the employer know what they can do to make their offer more appealing. This offer of information may even come to sharing your own prioritization and MAUT analysis of the issues.

Do Not Reveal Your BATNA Nor Your Reservation Point

Negotiators have a million ways of asking people about their BATNAs. Asking a potential job recruit about his or her current salary and wage package is one of them. Remember that this in-formation is your business, not the recruiter's. If you are currently employed, redirect the discussion by indicating what it is going to take to move you (e.g., a more exciting job and a wage package commensurate with the job). If you are not employed, respond by explaining what it will take to hire you. Again, ward off direct attacks about previous salary by explaining that whether you will accept a position depends on the nature of the job offer and wage package.

You should be prepared to take the initiative in the conversation. Practice by role-playing. If the employer attempts to get you to talk about why you are leaving a former job, avoid falling into the trap of trashing a former employer, even if you did have a miserable experience. It is a small world, and a relationship you do not immediately see may be involved. Even more important, the employer will probably get the wrong impression about you (e.g., regard you as a troublemaker or as overly critical).

If you have not yet been offered the job but sense that the employer wants to find out what you desire in a job offer, avoid talking about salary or specific terms until you have a job offer. You are in a much weaker position to negotiate before you have a job offer than after you are offered a position. If you have been told that "things will work out" or that "a job offer is coming," express appreciation and inquire when you will receive formal notice. After that, schedule a meeting to talk about the terms. While you are negotiating, you should assume that everything is negotiable. If you are told that some aspect of the job is "not negotiable," ask questions, such as whether everyone (new hires and veterans) receives the same treatment.

Rehearse and Practice

It is important to plan for negotiation. According to Michael Chaffers, a senior consultant with CMI, a negotiation group in Cambridge, Massachusetts, "A pitch for a raise is no different than making a presentation on any subject: It helps to practice beforehand and even do some role playing. Tell an empty chair what you plan to say to your boss (though you might want to make sure no one's around to see you). If you can find a willing participant, have them play the boss, while acting cantankerous and giving you flack" (Machine Design, Feb. 11, 1999, p. 96).

Imagine That You Are Negotiating on Behalf of Someone Else (Not Just Yourself)

Many people are reluctant to negotiate their job offer because they feel greedy or have a hard time acting assertively. However, these same people are quite effective when negotiating for a company or for someone else. One solution is to approach a job negotiation as if you were negotiating on behalf of an important company: your own family. If we think about the direct effect that our salary will have on our ability to provide for our children, our spouse, and our parents, we can be much more effective. Even the unmarried student without children is well-advised to think about the family he or she will have or might have in the not-so-distant future and negotiate on the behalf of those people.

Postoffer: You Have the Offer, Now What?

Do Not Immediately Agree to the Offer

Do not start negotiating until you have a firm job offer and a salary figure from the employer. Do not prolong things, however; this approach only frustrates the employer. Instead, give the employer positive reinforcement. Cates (1997) suggests something like, "This looks great. I need to go over everything one last time before we make this official. I will call you at [a specific time]."

Get the Offer in Writing

If the employer says that it is not standard to make written offers, be sure to consult with others who would know this (e.g., the company's human resources division). At the very least, inform them that you will write down your understanding of the terms and put it in a letter or memo to them. Keep notes for yourself regarding the points agreed to during each meeting.

Be Enthusiastic and Gracious

Someone has just made you an offer. Thank them and show your appreciation, but do not accept immediately. Say, instead, "Let me go home and think about it." Make an appointment to return the following day and state your negotiating position in person.

Assess Their Power to Negotiate with You

Before you begin negotiating or contemplating a counteroffer, determine who in the company has the ability to negotiate. Generally, those persons higher up in the organization are the ones who negotiate and the ones who care most about hiring good people. You should be well-versed about the advantages and disadvantages of negotiating with an intermediary, such as a human resources manager (see Chapter 9 on multiple parties). If you sense that things are not going well in the negotiation, try to bring someone else into the loop. However, make this move in a gracious way, so as not to antagonize the person with whom you are dealing.

Tell Them Exactly What Needs to Be Done for You to Agree

A powerful negotiating strategy is to let the employer know exactly what it will take for you to agree. This technique is effective because the employer can put aside any fears about the negotiation dragging on forever and being nickel-and-dimed to death. When you make your demands, though, ground them in logic and clear rationale. Requesting something too far out of whack may lose you the job. Ross Gibson, vice president for human resources at American Superconductor in Boston, says he judges applicants by the way they negotiate—and withdraws offers from those who come across as immature or greedy (U.S. News and World Report, Nov. 1, 1999).

Do Not Negotiate If You Are Not or Could Not Be Interested

Suppose that you are the lucky person sitting on four job offers, all from consulting firms (A, B, C, and D). You have done enough research, cost-benefit analysis, and soul searching to deter-mine that, in your mind, firms A and B are superior in all ways to firms C and D. The question is: Should you let firms C and D off the hook, or string them along so as to potentially improve your power position when negotiating with firms A and B? Our advice is to politely inform firms C and D that you will not be accepting their offers at this time. You still have a wonderful BATNA, and it saves everyone a lot of time.

Exploding Offers

Exploding offers are ones that have a "time bomb" element to them (e.g., "The offer is only good for 24 hours"). The question is how to deal with exploding offers. Consider the case of Carla, who has no less than six interviews scheduled, including one interview at company A. Company A interviews Carla and makes her an exploding offer, with a deadline of the following week. Carla's interviews extend into the next four weeks. What should she do? This situation obviously requires a gambling decision (see Appendix 1 on risky decision making). In our experience, firms usually do not rescind exploding offers once they have made them (unless it is for family, medical, and emergency reasons, as a matter of courtesy). Generally, we advise that job candidates who receive an exploding offer above their BATNA seriously consider the offer. It certainly can-not hurt to inform your other companies that you have an exploding offer and move up the time of the interview, if at all possible.

Do Not Try to Create a Bidding War

Bidding wars regularly occur on Wall Street, in professional athletics, and in the business world. We do not advise, however, that job candidates attempt to create bidding wars between companies. Rather, we advise that job candidates signal to potential employers that they have attractive BATNAs, that they do not want to start a bidding war, and that they tell their top-rated company what it would take to get them to work at the company.

Know When to Stop Pushing

According to Cates (1997), it is important to know when to stop negotiating. Cates suggests that negotiators stop when they see one or more of the following signals.

• The other side is not responsive.

• Reciprocal concessions are becoming miniscule.

• After some back and forth, they say "Enough!"

Use a Rational Strategy for Choosing Among Job Offers

If you find yourself in the lucky position of having multiple offers, you are then faced with a choice. First, you should recognize this enviable position as an approach-approach conflict. How should you weigh the choices? The simplest way is to use MAUT by constructing a grid listing the choices along a row (e.g., firm A, firm B) and the relevant attributes along a column underneath (e.g., salary, fringe benefits, travel, vacation, bonus, etc.). Then, fill in the grid with the de-tails of the offer and how they "stack up" compared to the others (on a scale of 1 to 5 or 1 to 10 in your mind). Next, you can simply add the columns to find a "winner." A more sophisticated version of this strategy is to multiply each grid value by how important it is before adding columns (with importance defined on a scale of 1 to 5). For example, for most people, salary is highly important (maybe a 5), whereas moving expenses are less important (maybe a 1 or 2). This distinction gives a more fine-grained assessment (see Appendix 1 for a step-by-step approach to the MAUT).

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