On Salary Negotiations

Salary negotiations are often presented from the perspective of a potential employee, but I rarely read anything regarding strategies for companies who want to do their best to hire a particular candidate. As someone not formally trained in HR, my opinions on the topic have been developed strictly through my experiences. If you’re an HR expert and think I’m crazy then I ask you contact me and help me improve my perspective.

The main problem from the salary perspective is how much has been budgeted for the position, if it’s been budgeted at all, how much the company thinks is far and how much the candidate feels is fair. There are other issues like salary structure within the organization and frameworks for computing salaries, but in this case I’m only covering organizations that are flexible in terms of salary. Obviously, in the case of government entities or other organizations with fixed rank and grade salary scales, this whole topic is moot.

So the question is, what’s the best way for an organization with a flexible salary structure to make an offer which ensures they have the highest likelihood to get the candidates they want?

The answer isn’t that hard, and the approach I use is to simply offer the highest counter-offer which I am willing to accept.

Consider for a moment the implications of alternate approaches. If you try to get away paying a candidate the lowest salary they are willing to accept, you decrease the chances you will be able to recruit them and you also decrease the chances they will stay for a long time. In many companies, without very strong leadership, it’s hard to push through large salary changes, so it’s very likely that someone’s salary won’t change much during the term of their employment. If a person is being paid less than their market value, they’ll simply leave sooner or later. In my experience, people tend to leave when opportunities for salary increases get to around 15% or 20%. If the company environment is bad, people will leave even if they take a cut in salary, but leaving for a pay cut is a symptom of a very different organizational problem.

So what is the risk to the organization when taking this different approach to salaries? Well, higher staff costs is the most quantifiable risk and the item with this approach that Finance or a CFO would define as a problem. However, there is also the benefit that (all other things being equal) with more favorable salaries comes lower churn, and churn has many negative impacts on the company besides the cost of refilling the position. The morale impacts are not really measurable in direct financial terms, but it’s definitely harmful. Additionally, the employees who can easily make a change and get paid more are often the most talented, so you suffer the problems of churn and morale combined with losing the employees most capable of commanding a higher salary.

The argument against this approach is that you don’t want to retain people who are only there for a salary. This is true, but if people aren’t getting paid what they could earn elsewhere in the market then the company isn’t being fair either. If the company can’t afford to pay market salary to its employees, this is a leadership failure from which the company needs to recover or the company must offer some form of intrinsic motivation that makes up for the lower salary structure. Non-profit organizations are a good example of an exception to the market salary rule. For companies that can’t afford to pay market salaries, but want to, possible options are something like layoffs with fair severance or other arrangements in order to lower or maintain overall staff costs and raise salaries for the remaining employees to a fair level.

So the short version is, one way to handle the salary topic from a hiring perspective is to simply start by offering the highest counter-offer you are willing to accept. This is often a higher offer than the candidates expectations, but if not then there is simply not an overlap in compensation needs.