Negotiations Giuseppe (Joe) Labianca, Ph.D. Gatton Endowed Associate Professor of Management Gatton College of Business and Economics University of Kentucky UK Alumni Association’s Third Thursday November, 18, 2010

Page 2 Negotiation Experience Former fellow at the Center for Research on Conflict and Negotiation (CRCN) at Penn State University Examples of my research and consulting projects on negotiations:  Political negotiations in legislatures  Interdepartmental negotiations in organizations  Community negotiations between interest groups  Entrepreneurial negotiations

3 Today’s Schedule 6:00 – 6:45Lecture/discussion on negotiating salaries 6:45 – 7:15Q&A on negotiations 7:15 – 8:00Salary Negotiation role-playing exercise

The Negotiating Equation Negotiating Performance = Negotiating Ability x Negotiating Motivation

How will you know if the negotiation was successful? Unless you know the true reasons for entering into the negotiation, you won’t get good performance – be honest with yourself “I want a raise” Why?  “I don’t feel valued as much as other people in my department” vs.  “I haven’t had a market adjustment in 10 years and my children are going to college soon…I need the money”

The Negotiating Equation Negotiating Performance = Negotiating Ability x Negotiating Motivation

Negotiating Ability There are many tips for improving your negotiating ability First and foremost tip:  Believe in the value of what you are selling Emphasize the positive aspects Don’t dwell on the negative aspects You need to sell the other party on that value, and show them the unique aspects of what you are selling Easy for people to remember when you are looking for a job, but the same applies when you are seeking an internal adjustment

Negotiating Ability It’s difficult to negotiate effectively without data Talk to a wide variety of people when trying to gauge your value  go online!  don’t just ask the people with whom you are most comfortable!  don’t fall into the homophily trap (particularly important for women)!

Winning tactics 1. What is your best alternative to negotiating this agreement (BATNA)? 2. What is your reservation point? The point above or below which you will exercise that alternative 3. What is your target point? Note: This should NOT be the same as your reservation point. Be OPTIMISTIC.

4.Your goal is to claim as much of the value in the bargaining zone (shaded area) 5.Try to ascertain other party’s reservation price 6.Open aggressively with highest defensible offer Anchors other party Try to influence other party’s reservation price (increase the bargaining zone) x x $75K$90K RECRUITER $80K$100K CANDIDATE Bargaining zone Recruiter’s reservation price Candidate’s reservation price

7. Most negotiations end at the midpoint (usually on most typical quantitative negotiating issue, such as salary)  Therefore, when giving concessions on that point, try to get concessions that are more valuable to you on other issues (e.g., bonuses, equipment, travel expenses, research resources, tuition reimbursement)

8. Employ a funnel pattern to your concessions to signal your target point More likely to lead to an agreement being signed, even if final agreement is more expensive

The Negotiating Equation Negotiating Performance = Negotiating Ability x Negotiating Motivation

Negotiating Motivation Develop alternatives that you are willing to exercise if the negotiation doesn’t go well Go out on the market  Forces you to keep current on your skills  Keeps employers from taking you for granted  Can be used as negotiating leverage  Don’t underestimate the power of leaving and returning at a later time  Also consider the internal market within large companies, though this will be less lucrative than the external market

Negotiating Motivation Use the market to your advantage  Negotiating on the way into a position? Generate multiple offers to create negotiating leverage How do I generate offers?  Two techniques you might not have considered (besides sending out your resume and speaking with friends and their acquaintances): Use headhunters Use informational interviews

Use headhunters Use headhunters (professional search firms) to help you search for jobs They are paid for by hiring companies, so there is no cost to you If you know companies you’d like to work for, ask HR who they use for searches

Use informational interviews Contact alumni/friends who are doing what you’d like to do Schedule 20-minute informational interviews or external coffee chats to understand:  What they do  How they got that job Before leaving, ask for two more contacts to call on

Negotiating Motivation Don’t devalue wages…  While it’s healthy to take a broad view of your interests in a negotiation (e.g., vacation time, good schedule, good work environment)…  …don’t assume that you have to trade those interests off for wages and bonuses Present wages form the platform for all future wages, and giving up on them has a huge cumulative effect over your career  Try to get it all first

Negotiating Motivation But don’t get hung up entirely on wages…  Naïve negotiators focus too much (and sometimes exclusively) on wages to the detriment of other issues that can provide more value

Negotiation Motivation A quick deal is not necessarily a good deal If you are getting tired of negotiating, take a break… …don’t just sign

What if the other party says “no?” Ask “why?” Listen carefully Try to understand their underlying interests, not just their position Explain your underlying interests Seek creative solutions that satisfy their underlying interests while still satisfying yours

Proactively develop skills Involve your managers in helping you to develop your skills and to gain experience Let them know that you’re interested in getting to higher positions and work with them to develop a plan for how you will reach those higher positions (e.g., special assignments) Be proactive! Many managers are not used to developing subordinates, so you might have to push them, as well as seek out mentors from outside your department or firm Further your education

Salary negotiation Because your future relationship with this person/organization is important, you can’t approach the negotiation with a scorched- earth strategy But you still need to ask for what you need Extremely important that you approach with the right tone

Work on tone and presentation Practice first. Presentation is important:  Reiterate how much you like the job.  Describe your concerns.  Negotiate most important issues first.  Ask them to help. Tone of voice is very important.  Get everything you want on the table. Avoid commitment words:  Always, “must have”, “deal breaker”, never, “won’t consider.”

After you reach agreement Always get the offer you are accepting and any revisions in writing.  This is without regard to whether it’s an internal offer or an external one.

Question and Answer Session

Salary Negotiation Read your role Think about the least/most you’re willing to pay/receive; think about what you’d like to pay/receive Get an understanding of the other issues involved Think about how you want to talk about these issues in this negotiation Pair up with someone you don’t know Negotiate for no longer than 20 minutes

Conclusion Develop alternatives – don’t be afraid to exercise those alternatives Get data, and seek it from diverse sources Don’t be afraid to negotiate – everything is negotiable, even if people tell you it is not Don’t give away value needlessly Don’t start conceding right off the bat – try to satisfy ALL of your interests first

Thank you!

Negotiating a job offer from a new employer

“O.K.” O.K. are the two most expensive letters in job negotiations Those two letters could cost you: A $3,000 computer for home use A $7,000 bump in salary A $4,000 bonus An $8,000 relocation allowance An extra $2,000 in your retirement account A reduced rate mortgage

“O.K.” “O.K.” is what most people say in response to a salary offer They mean, “I accept what you’ve just offered. Thank you.” A simple “hmmm” can improve your outcomes

Negotiating Process Overview Receive a preliminary offer. Congratulations! Be excited, and let them know you’ll consider it carefully. Get it in writing. Prepare for negotiating. Negotiate using an integrative (win-win) strategy. Only accept offers with which you’ll be happy in the long run.

At What Point Do You Negotiate? Never begin a negotiation until you have a firm written offer. Some firms may ask about your bottom line number, expectations, etc. before offering you the job – dodge and deflect. Write “negotiable” if they ask for a salary range on an application. Pre-offer phase

Dodging and Deflecting They may ask for a number either before an offer is made or once they have told you they are offering you a position (on-the-spot). If you deflect once, over half the time, they’ll ask you again. Keep dodging and deflecting! Pre-offer phase

Sample Dodging and Deflecting Statements “Compensation is important to me, but could we hold that discussion until I know more about the position and you know more about my skills and experience.” “I am more interested in finding the right opportunity. This job really interests me and I know I can do it. I am sure you will be fair and that the money will take care of itself.” Pre-offer phase

Responding to the On-the-Spot Verbal Offer Ask for time to fully consider the offer. Never accept or negotiate on the spot. Asking for the offer in writing can buy you time. Offer phase

Should You Negotiate? Yes. All offers are (in part) negotiable. This is the only time where you have the upper hand. The company has made a commitment to you. They want you and do not have you! You have more power than you think. Offer phase

Evaluating Your Offer Fully Focus on the total package – don’t get locked in only on salary or monetary compensation Offer phase

Evaluating Your Offer Fully Most important part of negotiation is often position : Responsibilities/job content, location, staff, resources, expected hours, advancement potential, direct boss. Monetary compensation Base salary, sign-on bonus, year-end bonus, equity/ stock options, profit sharing, company match. Benefits Vacation, medical, retirement, incentive savings plans, day care, spousal assistance, relocation services, tuition reimbursement. Offer phase

Prepare Thoroughly for Negotiation Think through these issues: What do you want? Prioritize your wish list and assign weights. Be ready to compromise and be creative. What is your ideal opening offer? What is your bottom line? How will you frame your requests? Offer phase

Go Through Your Planning Document Consider how will you respond if the answer to your request is “no”?  Have a backup position in the event whatever component you are negotiating is not negotiable. [Remember to ask “why” (in a nice manner)]. Offer phase

Research Reasonable Targets Job Assessment  Determine the value of the job in the market.  Factor in industry differences. Self Assessment  Know how your skills, experience, and academic credentials fit the job.  Be confident of your value and your ability to communicate your value. Offer phase

Once Negotiations Begin Practice first. Presentation is important:  Reiterate how much you like the job.  Describe your concerns.  Negotiate most important issues first.  Ask them to help. Tone of voice is very important.  Get everything you want on the table. Avoid commitment words:  Always, “must have”, “deal breaker”, never, “won’t consider.” Negotiation phase

Responding to a Verbal Lowball Offer Be silent. Do not respond too quickly if you are not satisfied. Indicates you are either carefully considering the offer, or that you are not happy with the offer and expect more. After a pause, respond with enthusiasm and interest for the job and the organization, regardless of how you feel about the package. “I am excited about the opportunity, but a little concerned with the salary.” Keep it short. Ask them to send it to you in writing, and tell them you’ll review it. Negotiation phase

Study the offer details Make sure you understand the details Examples: What controls the performance bonus and historically how much has it paid out? Based on your efforts or the company performance or both? What does the profit sharing program look like as well as company match? What is the vesting period? Negotiation phase

If the package isn’t enough If company won’t budge and you want the job, you might try to ask for an accelerated review (6 months vs. 1 year) linked to a salary increase. Don’t say “no.” Leave a window of opportunity (“It’s just very difficult for me to accept an offer at that level. I’m very sorry.”) This gives the employer an opportunity to come back with something better. If the offer still falls short, phone the manager and relay your decision to pursue other opportunities. Resolution phase

Accepting/declining an offer Always get the offer you are accepting and any revisions in writing. Send thank you notes to key players in your job search process, even the companies you decline. Managing the process of turning down an offer is just as important as accepting an offer. Focus on the positives: The job you accepted was more closely related to your needs versus how their position was not. Resolution phase

Takeaways Build a solid base of data through self- assessment and market research Convince prospective employer of your value Negotiating is an acceptable, reasonable and often necessary step in the job search process – don’t shy away from it Negotiate using a collaborative style Negotiation isn’t just about base salary - there are many financial and non-financial terms of employment you may want to negotiate