©William Maddux 2008, All Rights Reserved

©William Maddux 2008, All Rights Reserved

$281,386
$312,339
Did not negotiate
Did negotiate
$100,000 $111,000
From
Women Don’t Ask
--Linda Babcock Salaries at 30 Salaries at 65
Lost income is $1,600,000
©William Maddux 2008, All Rights Reserved

• Women Don't Like to Negotiate
– 2.5 times more women than men said they feel "a great deal of apprehension" about negotiating.
– Men initiate negotiations about 4 times as often as women.
– When asked to pick metaphors for the process of negotiating, men picked "winning a ballgame" and a
"wrestling match," women picked "going to the dentist."
– Women are more pessimistic about the how much is available when they do negotiate and so they typically ask for and get less when they do negotiate—on average, 30 percent less than men.
– 20 percent of adult women (22 million people) say they never negotiate at all, even though they often recognize negotiation as appropriate and even necessary.
©William Maddux 2008, All Rights Reserved

• Women Suffer When They Don't Negotiate
– In one study, eight times as many men as women graduating with master's degrees negotiated their salaries. The men who negotiated were able to increase their starting salaries by an average of 7.4 percent, or about $4,000. In the same study, men's starting salaries were about $4,000 higher than the women's on average, suggesting that the gender gap between men and women might have been closed if more of the women had negotiated their starting salaries.
– Another study calculated that women who consistently negotiate their salary increases earn at least $1 million more during their careers than women who don't.
©William Maddux 2008, All Rights Reserved

• No! Unfortunately, the double standard persists
– People don't accept the same behavior from women as from men.
But this doesn't mean women that should just give up and stop asking for anything.
• Women should ask for what they want in ways that feel comfortable to them and that society will accept.
– By not seeming overly aggressive, women can actually remain tough on the issues they're negotiating—they just need to be gentle with the people involved.
– Women have to worry much more than men about how they will be perceived when they ask for what they want and this puts an unfair burden on women. Unfortunately, however, that's currently the situation in our society.
©William Maddux 2008, All Rights Reserved

• Negotiation is a decisionmaking process by which two or more people with different motives and preferences try to agree on how to allocate resources.
• Debate
– Convince another party of the validity of your position or interest
• Arbitration/adjudication
– 3rd party imposes settlement
– May not be mutually acceptable
©William Maddux 2008, All Rights Reserved

• Parties typically believe that conflicting interests exist
• Communication between parties is possible
• Intermediate solutions & compromises are possible
• Outcome not reached until accepted by both parties
• Parties have incomplete knowledge about each other’s interests
• Often pressure to get a deal
©William Maddux 2008, All Rights Reserved

• Negotiations at work
– Your own contracts, raises, benefits, offers from other employers or to your employees
– Clients, vendors, partners, competitors
– Entrepreneurial ventures
• Negotiations outside of work
– Cars, houses, family/relationship issues
©William Maddux 2008, All Rights Reserved

©William Maddux 2008, All Rights Reserved

• Take 30-45 minutes to negotiate a deal
• Point of the exercise: To get the best outcome for yourself as possible
©William Maddux 2008, All Rights Reserved

©William Maddux 2008, All Rights Reserved

• Negotiators who discover interests of other parties get better deals whether the negotiation and/or issue is win-lose (distributive) or win-win (integrative)
• The more you know about what’s motivating the other party, the more likely will find a mutually acceptable deal
• Find out as much as you can, ask questions, gather information
©William Maddux 2008, All Rights Reserved

• “Distributive Issues”
– Parties desire exactly opposite outcomes
• Zero sum, competitive
• When one party gains, the other necessarily loses
• “Compatible Issues”
– Parties desire exactly same outcomes
• Cooperative
• But can be used strategically
• “Integrative Issues”
– Issues are of differing importance/value to different parties
– Can be traded
©William Maddux 2008, All Rights Reserved

– Parties’ interests are opposed
(location)
– Parties want the same thing
(benefits package)
– Parties have differing preferences
• vacation (M), promotion (M), salary
(VP), bonus (VP)
©William Maddux 2008, All Rights Reserved

ISSUE
Location
Alternatives
Hong Kong
Tokyo
Singapore
Sydney
London
Manager
6000
4500
3000
1500
0
Parties desire exactly opposite outcomes
Zero sum, competitive
When one party gains, the other necessarily loses
VP
0
1500
3000
4500
6000
©William Maddux 2008, All Rights Reserved

ISSUE
Benefits Package
Alternatives
Plan A
Plan B
Plan C
Plan D
Plan E
Parties desire exactly same outcomes
Cooperative
But can be used strategically
Manager
2400
1600
800
400
0
VP
2400
1600
800
400
0
©William Maddux 2008, All Rights Reserved

ISSUE
Vacation Time
Salary Raise
Alternatives
6 weeks
5 weeks
4 weeks
3 weeks
2 weeks
25%
20%
15%
10%
5%
Manager
4000
3000
2000
1000
0
1600
1200
800
400
0
Issues are of differing importance/value to different parties, Can be traded
VP
0
400
800
1200
1600
0
1000
2000
3000
4000
©William Maddux 2008, All Rights Reserved

ISSUE
Performance Bonus
Alternatives
50%
40%
30%
20%
10%
Now
6 months
Manager
1200
900
600
300
0
3200
2400
VP
0
800
1600
2400
3200
0
300
Promotion 1 year
18 months
1600
800
600
900
2 years 0 1200
Issues are of differing importance/value to different parties, Can be traded
©William Maddux 2008, All Rights Reserved

• Agree on compatible issues
– Or use strategically
• “Logroll” tradable issues
– Give away issues that are of lesser importance in exchange for issues of greater importance
• Take as much of the distributive pie for yourself as possible
©William Maddux 2008, All Rights Reserved

Salary Raise
Benefits
Vacation
Promotion
Bonus
Location
Total
Manager
800
800
2000
1600
600
3000
8,800
VP
2000
800
800
600
1600
3000
Joint
8,800 17,600
©William Maddux 2008, All Rights Reserved

Salary Raise
Benefits
Vacation
Promotion
Bonus
Location
Total
Manager
0
2400
4000
3200
0
3000
12,600
VP
4000
2400
0
0
3200
3000
Joint
12,600 25,200
©William Maddux 2008, All Rights Reserved

• By just compromising on all issues, you leave 7,600 points on the table (3,800 for each person)
• This is value that could have been created via effective negotiation, but was not
• “Logrolling” integrative issues allows you to create more value that can then be claimed
©William Maddux 2008, All Rights Reserved

• Aspiration/Target
– Ideally, what would you like to get?
• Best alternative to negotiated agreement (BATNA)
– What’s your alternative if don’t get a deal?
• Reservation price
– What’s the worst deal you’re willing to go before walking away?
©William Maddux 2008, All Rights Reserved

• Set an aggressive but realistic target price!
• 3 important reasons
– If you don’t ask for it, you can’t get it
– Allows you room to make concessions & reciprocate
– 1 st offers have a large impact on final outcome
©William Maddux 2008, All Rights Reserved

We do not adjust estimates sufficiently from an initial anchor.
Example
• Wheel of Fortune and car mechanics
• Real estate agents anchor on list price
• First offers in negotiations
Managerial Problems
• Anchors set reference points (framing effects)
• 1 st Impressions create “lock in” effects: “High potentials” and “halo effects”
• Changing decision may be difficult in general
– Most problematic in rapidly changing environments
– We often escalate our commitments
©William Maddux 2008, All Rights Reserved

–Favorable anchors yield better outcomes, even when other party knowledgeable
–Anchor should be aggressive, not outrageous
–Know the available range, ask for the most favorable number; be prepared to justify!
–Focusing on your target throughout the negotiation leads to better outcomes for you
©William Maddux 2008, All Rights Reserved

Explicit consent (opt-in, gold)
& presumed consent (opt-out, blue).
©William Maddux 2008, All Rights Reserved

st
1) If you have little/no information about bargaining zone
– 1 st consulting job…
2) If it would be inappropriate to do so
– typical job negotiation
©William Maddux 2008, All Rights Reserved

st
3) Bidding/auction situation
4) If negotiation is very unstructured
5) If you are in a very low power position
©William Maddux 2008, All Rights Reserved

– Information inconsistent with the opponent’s first offer
– Opponent’s alternatives
– Opponent’s reservation price
• (Galinsky & Mussweiler, 2001, JPSP)
©William Maddux 2008, All Rights Reserved

• Psychologically, we have a need to meet others halfway
• Successful negotiation requires reciprocity
– High anchors give you room to reciprocate
– ‘Playing the game the right way’ encourages other party to give you what you want
– People expect reciprocity in negotiations
©William Maddux 2008, All Rights Reserved

(Best Alternative To a Negotiated Agreement)
• Your BATNA is your greatest source of power
– Means you don’t necessarily need an agreement on the current deal
• Gives you the power to ‘walk’
– Rule of 3
• Counterparts’ perceptions of your
BATNA important
• Do everything you can to improve
BATNA before you negotiate.
©William Maddux 2008, All Rights Reserved

• Reservation Price is your
“bottom line.” The worst deal you are willing to accept
• Reservation Price is BATNA
+/- preferences for different choices
– If you prefer this deal, reservation price may be lower than BATNA
– If prefer another deal, reservation price may be higher than BATNA
©William Maddux 2008, All Rights Reserved

• Ask questions
• Build trust and share information
• Give away some information
– Reciprocate
• Build trust & rapport
• Take the perspective of the other side
• *Add additional issues
• Logroll issues
©William Maddux 2008, All Rights Reserved

• Interests of parties are the key to getting a deal
• Anchor negotiation in your favor
• Know your BATNA, improve as much as possible before negotiating
• Know your reservation price, but do not reveal it
• Look to create more valuable agreements if there is integrative potential
– Ask questions, share information, use reciprocation, build trust, add issues to the table
– Logroll integrative issues
– Look for compatible issues, be ready to fight over distributive issues
• Always Negotiate!
©William Maddux 2008, All Rights Reserved

©William Maddux 2008, All Rights Reserved

•
•
Know about the company
– What are their interests
• Use the Web, the library, ask around
Know the labor market situation
– How many are they planning to hire?
– How tight is the managerial labor market in their industry?
– What are other grads in your area being offered?
– What is the typical deal for people in your position in the industry?
– What are the regional impacts on a deal
(e.g., costs of living)?
– What is their reservation price?
©William Maddux 2008, All Rights Reserved

• Prepare a planning document and develop a scoring system
– Carefully think about your priorities
(Financial, stability, location, i ndependence, mental stimulation, personal growth, low stress)
– Identify the least acceptable deal to cover your interests!
– Identify missing issues
– Identify issues that are compatible
– Identify trade-off possibilities
– Review your sources of power to build confidence.
– Remind yourself of the reasons you deserve your target offer!
©William Maddux 2008, All Rights Reserved

• Be creative in considering all the forms of compensation that you could get (remember that some of these forms may be of high value to you but low cost to them!)
•
•
Base Salary
Signing Bonus
•
•
•
•
•
•
•
Annual bonus (individual and group)
Relocation expenses
Stock Options, Retirement Options
Tuition reimbursement, Housing assistance
Paid Leave: vacation, sick days, training/conferences, holidays
Insurance: health, disability, life
Care Plans: child, elderly, parental leave
©William Maddux 2008, All Rights Reserved

– Even if offer ‘non-negotiable’
– Even if BATNA is unattractive
– There are ways around this
©William Maddux 2008, All Rights Reserved

• Do not negotiate until you are prepared to say yes if they meet your target price
– “I’ll except the offer today if the contract includes….”
• You are most powerful before you say
“yes”
• Emphasize how elements of counter-offer display commitment to firm
• Use interests strategically
– “I’m very flattered and interested, but I have some questions and want to be sure I have all the information so that I can make a long-term commitment that will be mutually beneficial.”
©William Maddux 2008, All Rights Reserved

• Probing for a low anchor –
Questions about current/former salary
– If it is an extremely high anchor, okay to reveal
– If it is below your target price, politely explain that old salary is irrelevant because have a new skill set and better credentials
• Ask them to make you their offer
• You can avoid letting their offer anchor the negotiation through preparation and focusing on your target price!
©William Maddux 2008, All Rights Reserved

• Probing for a BATNA/RP? asks about your other offers
Recruiter
– Use objective standards instead of BATNA
• What other graduates of your school are being offered
• What other companies in the industry are offering
• What other companies in the region are offering
• First Offers – Recruiter wants you to make the first offer
– Take advantage of the anchoring effect – be optimistic, but realistic
©William Maddux 2008, All Rights Reserved

• Recruiter says giving you the salary, bonus you are asking for will disrupt the internal wage structure
– Focus on your unique qualities, especially the value of your education
– Point out that hiring from outside instead of promoting from within produces higher salaries because of transaction costs
• Recruiter says cannot justify wage package now
– Negotiate a review in 6 months instead of a year
– Negotiate a bonus contingent on your performance
– Propose to trade for another issue (tuition reimbursement, mortgage loans)
©William Maddux 2008, All Rights Reserved

• Recruiter says something is not negotiable
– Do not ask “Is this issue negotiable?” Instead, say, “I have some questions about the moving allowance, can we talk about this?”
– If they insist something non-negotiable, find out why
– Ask if something can be traded for the nonnegotiable item
• Recruiter wants to negotiate one issue at a time
– Suggest that there are a number of elements to your decision and you would like to know what they are offering on all
– Counter offer with a package deal
©William Maddux 2008, All Rights Reserved

• Ask for what you want! (If you don’t ask, you can’t get it)
• Negotiate for yourself as if you were negotiating for someone else
• Add issues to the table
• Get things in writing
• Know when to stop negotiating and accept the offer
• Keep the long-term relationship in mind
• Be comfortable with your negotiation style.
©William Maddux 2008, All Rights Reserved