Salary negotiations too often prove to be extremely stressful and difficult. This is especially true when you’re a business owner as profit margins and your paycheck are at stake. However, through careful planning and the mastery of a few simple tactics, you are more likely to reach a positive compromise in your next salary negotiation with an employee.
Top Tips for Salary Negotiations
Part of any business owner’s operational budget should be awarding raises and bonuses to keep your key employees happy. That said, no one wants you to give away the store, either. Listed below are 15 tips for preparing in advance when employee evaluation season rolls around and navigating the negotiation process itself.
Be Prepared: 7 Tips for Getting Ready to Negotiate
1. Have a solid understanding of market value.
To calculate the salary your employees deserve, it’s important to do your research. Find out what level of pay your employees should realistically expect. You’ll need to decide ahead of time on a figure that matches their skill set. To do so, consider the following five categories:
- amount of experience;
- specific field and industry;
- roles and responsibilities;
- company size; and
- geographic location.
If you need help researching expected salary ranges, talk to recruiters and other professional contacts in your industry. Use websites such as Payscale or Glassdoor. Scan job advertisements for similar roles with defined pay ranges.
2. Start at the bottom.
After doing your research, you should have a good idea of the lowest salary for the role in question. This is where you should begin your negotiations. It shows that you are being fair and have a good understanding of what your employees expect and deserve.
Keep in mind that for an employee negotiating a wage increase, starting high and accepting a lower offer is one of the top negotiation strategies. You can expect your employee to be playing the opposite game and name a figure at the upper end of the scale.
3. Prepare your walk-away point.
A vital part of your prep should be to decide on a precise figure that you feel to be the highest fair offer you will accept. Be prepared to let down an employee if they refuse to accept. This figure could be based on current market rates, the financial realities of your business, or your determination of what salary you feel should motivate an employee to do well on the job.
A study conducted by Columbia Business School found it’s best to prepare a very specific figure when deciding on your highest possible salary offer. For example, choosing a price such as $49,500 — rather than $50,000 — is more likely to improve your outcome.
One reason for this could be that it shows you have thought about what they are worth, rather than simply choosing the lowest reasonable number. This helps them realize that you are being fair rather than simply trying to get the best deal for yourself.
4. Consider if the employee is ready.
When it comes time to negotiate salary with your employee, you may need to consider if now is the most appropriate time and situation to increase their salary at all. It might not be.
Although rejecting a salary increase completely might damage your relationship with that employee, this step may be needed for good reason. As a general rule, salary increases can be considered a fair request in the following situations:
- The employee has been with your company for one year or longer.
- This employee has taken on new job responsibilities.
- The employee excels in important skills.
- This employee is exceeding expectations.
If the employee doesn’t meet at least two of these criteria, do your best to let them down as gently as possible. Explain your reasoning and provide a path to improvement.
5. Make plans in advance to award increases.
It’s common for employees to request salary increases during their annual performance reviews. However, as a business owner, you’ll need to know in advance about any pay raises while working out your annual budget. For this reason, you’ll need to have some idea of the raises you plan to offer and for who. Budgeting often takes place months before an annual performance review period.
6. Pick the best day and time for your meeting.
No matter what type of business you own, it’s always better to schedule negotiations and difficult conversations toward the end of the workweek.
Research shows that all parties are more likely to be flexible and accommodating on Thursdays and Fridays. The reason for this could simply be “that Friday feeling.” Everyone wants to finish their week quickly and end it on a positive note.
7. Practice your delivery.
Entering into a salary negotiation is likely to make you nervous and uncomfortable. As a business owner, keep in mind that you are in charge of the discussion and have the ultimate say over who gets what. You don’t want to come across as flustered or out of control.
If, for whatever reason, you’re not feeling confident or are new to this type of negotiation, the best idea is to practice the conversation with trusted friends, family, someone in your professional network, or even on your own in front of the mirror.
As with anything — preparation breeds confidence. You’ll come across as a smooth professional who can express opinions clearly with evidence to support them. Composure will go a long way to appearing fair even when rejecting a salary increase.
Evaluation Day Arrives: 8 Salary Negotiation Tips
1. Get pumped.
You can employ several simple tricks to help your body and mind prepare for a negotiation session. As just one example, the classic “power pose” — standing tall with your chest and chin out — can help raise hormone levels and increase confidence.
In addition, a simple cup of coffee can do a lot to give you a boost. Research has proven that caffeine can make you more resistant to persuasion.
2. Exude confidence and a positive attitude.
Calmly welcome your employee into the room. Make eye contact and remain polite throughout the conversation. Keep your head held high and focus on the positives of the role, salary/benefits, and the employee’s work history.
Staying professional and expressing yourself confidently will help you win over other parties in any meeting. This holds true regardless of the topic under discussion.
3. Ask questions, pay attention, and take brief notes on responses.
A great way to begin your salary negotiation is to ask questions to identify your employee’s preferences, priorities, and needs. Asking good questions can significantly improve your outcome. In addition, taking good notes reinforces your memory and signals attentiveness.
When you understand where the other party is coming from, you can find solutions and more quickly reach mutually beneficial compromises.
4. Consider who else is being represented in the negotiation session.
Interestingly, research from Columbia Business School has shown that when someone is negotiating on behalf of someone else, they are more likely to get a better result.
By considering all stakeholders in the negotiation — including everyone from your employee to their family plus your own family and its commitments — you’re able to demonstrate that you care. This keeps them motivated even if you don’t give them everything they asked for.
5. You go first.
The first number you suggest in your salary negotiation is known as “the anchor.” It’s essential as this figure sets the tone for the rest of the negotiation. Therefore, the best tactic is to ensure that you’re the one to put that first figure on the table.
As mentioned above, aim low while keeping it reasonable. Never suggest a salary range. This is a surefire way to end up with the highest figure. Naming a range effectively prevents you from reaching a lower number through negotiating your employee down.
6. Take your time.
When you hear the first counteroffer, it’s important not to rush your response. Give yourself time to think. Take a deep breath. Don’t respond positively or negatively until you have had time to think. Even muttering a simple “Hmmm…” can give you the time you need.
Additionally, allowing some time for the offer to sit in silence can often mean the other party is more likely to improve their offer.
7. Don’t make it personal.
It’s always important to base your offer on an employee’s skills, motivation, and market value. However, even if you’d like to, it’s unwise to make offers based on personal needs and situations outside work.
As a business owner, you almost certainly know of numerous people in your company who could use a pay raise to provide for their family, pay bills, or reduce debt.
As a boss, though, you need to focus the discussion on your employee’s work achievements. If the employee does bring up personal reasons, you can point out that many other employees could also use the extra cash. You might offer to help out separately, as a friend, but stick to organizational value as a boss.
8. Consider other options.
If you’re unable to (or don’t want to) increase an employee’s salary as requested, it can sometimes be a good idea to offer them other benefits to keep them happy and motivated.
Some examples include additional vacation days, flexible working hours, a more impressive job title, or involvement in more exciting tasks or projects. This way, your employee will still feel like they’re making progress and will consider you a fair boss.