Eli Broad Graduate School of Management, 2005 Successful Salary Negotiations Dr. Jennifer Dunn (with...

Eli Broad Graduate School of Management, 2005

Successful Salary Successful Salary NegotiationsNegotiations

Dr. Jennifer Dunn(with help from Don Conlon and Jonelle Roth)

October 17, 2008

Eli Broad Graduate School of Management, 2005- 2 -

Why bother to negotiate?Why bother to negotiate?

• Because they probably expect you to negotiate.

• Because it will improve your life.• http://www.youtube.com/watch?v=w5Z6WH2ac14


Three general attitudes towards negotiationThree 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


Why should you care?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.


Phases of the Salary Negotiation Phases of the Salary Negotiation ProcessProcess

• 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!


Preparation: Know YourselfPreparation: Know Yourself

• What Kind of Bargainer am I?• Is this style appropriate for job negotiations?

• Do I know what I want?


Research QuestionsResearch 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?


Research Questions cont…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?


Elements of Planning ProcessElements 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


What Details Matter?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



• 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



• 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)


PlanningPlanning

• 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


PlanningPlanning

• 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


PlanningPlanning

• 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


Value Can Take Many FormsValue 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


Next, Some Goal SettingNext, 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?


An MBA Student Negotiating An MBA Student Negotiating Employment Terms...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.


What’s your leverage?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?


How: Determining your leverageHow: Determining your leverage

Increases your leverage Decreases your leverage

Company situation Economically prosperous

Small company

Economically troubled

Large company

Attractiveness to fellow students

Low High

Hiring practices Recruit few students

Negotiating is norm

Recruit many students

No negotiating norm

Sentiment to you Manager wants you

Established relationships

HR wants somebody

No relationships

Your qualifications Unique skillset

Relevant experience

Alternative offers

Undistinguishable skills

Lack of experience

No alternatives


Develop Supporting ArgumentsDevelop 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?


Know Your Stuff: Broad Salary DataKnow Your Stuff: Broad Salary Data

Year Avg. Salary Avg. Bonus Pct. Bonus

2001 $77,529 $12,931 87%

2002 $74,133 $11,474 74%

2003 $75,536 $9,283 77%

2004 $76,313 $9,732 60%

2005 $79,576 $10,502 76%

2006 $83,558 $12,775 86%

2007 $85,974 $14,216 89%


Using Broad Salary DataUsing 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


But are you better than average?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


68%

95%

99%


Other salary sitesOther salary sites

• Jobstar– http://www.jobstar.org/tools/salary/sal-surv.cfm

• Homefair– www.homefair.com

• Monster– http://content.salary.monster.com/


Salary surveysSalary 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


Perspective TakingPerspective 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


The Negotiating ProcessThe Negotiating Process

1. Obtain the offer.

2. Analyze the offer and collect missing information from the employer.

3. Evaluate the offer with regards to your goals, trade-offs, and walk-away point.

4. Negotiate (in person if possible) and obtain or propose a counteroffer.

5. Lather, rinse, repeat (Steps 2, 3, and 4 as needed).

6. Obtain agreement and ask for the final offer in writing.


Initiating a Negotiation DiscussionInitiating a Negotiation Discussion

1. Tell the manager that you have thoroughly considered the offer.

2. Express excitement about the opportunity.3. Indicate that you have several areas for discussion.4. Communicate the expectation that you both want a

positive outcome and your belief that you can work through the areas for discussion successfully.

5. Indicate areas of agreement first.6. Discuss and resolve differences. A signing point helps.7. Affirm the agreement and accept the offer

1. Or take take time to weigh it if not all needs met2. Or graciously decline if it is still below BATNA

8. Ask for confirmation of the finalized offer in writing.


More DetailsMore 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).


Salary Negotiation ProblemsSalary 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


Using the Elements to Succeed: Using the Elements to Succeed: Principled NegotiationPrincipled 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


Remember: Only You Can DecideRemember: 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?


Conclusion and QuestionsConclusion and Questions

• Achieve the results you desire

• Feel Great!

• QUESTIONS?

• [email protected]

Eli Broad Graduate School of Management, 2005 Successful Salary Negotiations Dr. Jennifer Dunn (with...

Documents

Transcript of Eli Broad Graduate School of Management, 2005 Successful Salary Negotiations Dr. Jennifer Dunn (with...