Successful Salary
Negotiations
Dr. Jennifer Dunn
(with help from Don Conlon and
Jonelle Roth)
October 17, 2008
 Eli Broad Graduate School of Management, 2005
Why bother to negotiate?
• Because they probably expect you to negotiate.
• Because it will improve your life.
• http://www.youtube.com/watch?v=w5Z6WH2ac14
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 Eli Broad Graduate School of Management, 2005
Three general attitudes towards negotiation
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•
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
 Eli Broad Graduate School of Management, 2005
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.
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 Eli Broad Graduate School of Management, 2005
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!
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 Eli Broad Graduate School of Management, 2005
Preparation: Know Yourself
• What Kind of Bargainer am I?
• Is this style appropriate for job negotiations?
• Do I know what I want?
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 Eli Broad Graduate School of Management, 2005
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?
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 Eli Broad Graduate School of Management, 2005
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?
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 Eli Broad Graduate School of Management, 2005
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
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 Eli Broad Graduate School of Management, 2005
What Details Matter?
• What is Negotiable?
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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
 Eli Broad Graduate School of Management, 2005
What Details Matter?
• What is Negotiable?
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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
 Eli Broad Graduate School of Management, 2005
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)
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 Eli Broad Graduate School of Management, 2005
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
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 Eli Broad Graduate School of Management, 2005
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
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 Eli Broad Graduate School of Management, 2005
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
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 Eli Broad Graduate School of Management, 2005
Value Can Take Many Forms
• Tangibles
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Quantity purchased
Price
Delivery
Installation
Length of agreement
Financial terms and
conditions
 Eli Broad Graduate School of Management, 2005
• Intangibles
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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 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?
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 Eli Broad Graduate School of Management, 2005
An MBA Student Negotiating
Employment Terms...
• Company A offers
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$90k salary
stock options
moving expenses
signing bonus
• But, student wants an
offer from Company B
– This makes Co. A the
BATNA
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 Eli Broad Graduate School of Management, 2005
• “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?
• Positive leverage – what do they gain by hiring
you (vs. the next best candidate)?
• Normative leverage – what standards support
your position?
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 Eli Broad Graduate School of Management, 2005
How: Determining your leverage
Increases your leverage
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Decreases your leverage
Company situation
Economically prosperous Economically troubled
Small company
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
HR wants somebody
Established relationships No relationships
Your qualifications
Unique skillset
Relevant experience
Alternative offers
 Eli Broad Graduate School of Management, 2005
Undistinguishable skills
Lack of experience
No alternatives
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?
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 Eli Broad Graduate School of Management, 2005
Know Your Stuff: Broad Salary Data
Year
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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%
 Eli Broad Graduate School of Management, 2005
Using Broad Salary Data
• Calculate the premium/discount of
– Region
– Function
– Industry
• Example: West coast, Mfg, supply chain
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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
 Eli Broad Graduate School of Management, 2005
But are you better than average?
• Do you have objectively superior qualifications?
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experience, awards, grades, GMAT scores
skill certifications
• Example: Estimate your qualifications to be in top third
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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
 Eli Broad Graduate School of Management, 2005
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 Eli Broad Graduate School of Management, 2005
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95%
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
99%
68%
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Other salary sites
• Jobstar
– http://www.jobstar.org/tools/salary/sal-surv.cfm
• Homefair
– www.homefair.com
• Monster
– http://content.salary.monster.com/
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 Eli Broad Graduate School of Management, 2005
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
–
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 Eli Broad Graduate School of Management, 2005
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
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 Eli Broad Graduate School of Management, 2005
The 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.
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 Eli Broad Graduate School of Management, 2005
Initiating 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 met
2. Or graciously decline if it is still below BATNA
8. Ask for confirmation of the finalized offer in writing.
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 Eli Broad Graduate School of Management, 2005
More Details
• Offer and Acceptance
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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).
 Eli Broad Graduate School of Management, 2005
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
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Not Knowing Your BATNA
Underestimating (or overestimating) Your Power
Agreeing too Quickly
Not Emphasizing the Relationship
 Eli Broad Graduate School of Management, 2005
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
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 Eli Broad Graduate School of Management, 2005
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?
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 Eli Broad Graduate School of Management, 2005
Conclusion and Questions
• Achieve the results you
desire
• Feel Great!
• QUESTIONS?
• dunn@bus.msu.edu
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 Eli Broad Graduate School of Management, 2005