What is the purpose of salary negotiation?

Talented professionals look for positions that give them fair value for their time, experience and skills. They may have several job opportunities to consider, giving them more leverage to negotiate their salary and other compensation. Offering a competitive salary is vital to acquiring new talent for your team. Negotiating employee compensation within a reasonable range for the role can give you valuable insight into a candidate’s long- and short-term expectations for how they want to be paid for their work.

Current employees may also renegotiate their salary after gaining experience at the company or taking on more responsibilities. Your salary negotiation strategies can strengthen your bottom line as well as the relationship you have with your employees.

Related:Salary Increases: Best Practices for Leaders to Consider

Useful employer salary negotiation tactics

Before going into a salary negotiation, prepare the strategies you want to use to come to a mutually beneficial agreement. Use these tips to help guide your negotiations when discussing salary and compensation with an employee:

1. Know industry standards

When deciding on the best way to negotiate salary amounts with your employees, gather data on the pay ranges for jobs in your industry at different experience levels. More experienced candidates may expect a higher salary than individuals who are just starting out in their careers. Research your key competitors who offer comparable services, since they’re likely to be hiring for similar positions. When performing market research, browse job postings that list salary and see how your business compares, especially within your geographic area. Don’t forget to research other forms of compensation such as benefits, travel stipends and bonuses.

Another point of research is the job seeker’s mindset. It’s important to seek qualified candidates in the fields that would most benefit your business, but keep in mind socio-economic factors that also influence potential hires. For example, gender may play a role in salary negotiations. Recent research shows that 46% of men initiate salary negotiations at an interview, while only 34% of women have the same practice. Of those surveyed, it was also found that location played a role in negotiations. New Yorkers, for example, request salary negotiations up front 55% of the time, which is a higher percentage than in any other state.

2. Search in prime markets for your field

Visit job fairs and colleges to find candidates who are interested in your industry and offer them job-specific perks, such as discounts on technology for those interested in telecommunications or computer sciences. When writing your recruiting materials, use the term DOE (depending on experience) to find candidates who are passionate about the work being done at your company. When making an offer of employment to a person, attracting them with industry-related benefits and a shared culture can improve your salary negotiations.

3. Set a range

Assess your company’s budget and make sure you understand how much you can afford to spend on a new hire. Set an upper and a lower limit that’s reasonable for the position and think about what factors could influence your offer depending on the candidate. Unique skills, experience, attitude, industry connections and plans for growth could all make a candidate more valuable to your business.

While the upper salary limit functions to make sure you can afford labor expenses, the lower limit helps ensure the employee gets reasonable compensation and won’t leave the role in search of a fair salary for their workload. The salary range you set also should make sense in the context of how much other employees are paid.

Related:What Is a Scale of Salary? A Guide for HR Professionals

4. Determine their expectations

Ask candidates what kind of salary they’re looking for to understand their expectations. Some employers ask this question on the job application to help hone in on a reasonable salary offer. Don’t be intimidated if the answer they give is higher than you’re prepared to pay. Candidates who are willing to negotiate may start high with the expectation of compromising on a lower salary. People who can directly ask for a fair salary show initiative, self-awareness and confidence in the value they can bring to your business.

5. Understand your benefits

One of the most effective employer salary negotiation tactics is to outline the ways a person will benefit by working for your company. An employee’s pay rate is only part of their compensation package, and you can use company benefits as a tool in a salary negotiation. Employees may be more flexible about their salary expectations if your company offers perks like unlimited time off, performance bonuses, tuition reimbursement, professional development opportunities or excellent health insurance.

Before initiating a salary negotiation, be prepared to discuss what additional benefits you could give an employee to make the terms of their employment more attractive. Some benefits like a company health plan may not be up for negotiation, but you could consider offering additional paid vacation time or flexible workdays.

6. Start the negotiations

Begin by offering a specific salary amount. This allows candidates to adjust their expectations and also gives them an idea of a reasonable salary range. Influencing someone else’s expectations by giving the first offer is called “anchoring.” Mentioning the first salary figure shows the candidate how you value the position, which can have an impact on how they perceive a job offer.

For example, you have a salary range of $50,000 to $60,000 for a particular position. If you offer the candidate $50,000 up front and they originally envisioned earning $60,000, they might split the difference and ask for $55,000 when they hear your offer. If you wait for them to make the first offer, it could be difficult to negotiate them down from their $60,000 ask.

7. Consider a signing bonus

Offering candidates a one-time cash payment of a few hundred or thousand dollars as a signing bonus may motivate them to accept a job offer. The immediate gratification can generate excitement about the position without requiring you to commit to a long-term salary increase.

8. Expect a counter

Be prepared for the candidate to make a counteroffer where they ask for a higher salary or better benefits. This is part of the negotiation process so don’t interpret a counteroffer as disrespect or lack of interest. Employees want to make sure they feel valued and see a future at your company.

The counteroffer can give you insight into a candidate’s wants and needs and help you carefully craft a benefits package and salary offer they’d find acceptable. A helpful strategy is to start by offering an amount that’s lower than you’re willing to pay so you can make adjustments based on a possible counteroffer.

9. Be direct

Once you reach your limits in a negotiation, be clear with the candidate that you can’t offer any more compensation. Being transparent when discussing your company’s resources demonstrates respect and prevents you and the candidate from wasting time trying to negotiate further. If you can’t come to an agreement with a candidate that falls within your budget, respectfully set a firm limit that they can either accept or reject.

Remember to clearly define the value that your company brings and the specific benefits that will entice an employee when counter-offering. Offerings such as access to a company vehicle, a more flexible schedule or valuable training programs can be more valuable than a higher salary, depending on the circumstances.

10. Give it time

Allow candidates to spend time considering the offer and weighing the pros and cons before giving you a final answer. It’s a good idea to carefully weigh life decisions like job offers, so be patient with candidates once an offer has been extended. As an employer, you want to hire candidates who are confident in their decision to join your company at an agreed-upon rate.

FAQs about salary negotiation strategies

What size companies need to strategize their salary negotiations?

While a more established company may be able to negotiate a lower salary because of its brand identity and inherent benefits, such as an employee discount at a retail outlet, all companies need to consider their salary negotiating strategies. It’s especially important for new businesses to stick to their budget, so it can be vital to determine what value, aside from a great salary, can be extended to new hires.

Does a salary negotiation occur only during the initial hire?

Definitely not. Throughout the course of your relationship with an employee, there will be times that they may earn or seek out a higher salary. At these times, you may need to renegotiate their salary, taking into consideration:

• The employee’s performance during their time at the company
• Company growth that would allow higher pay to be offered to team members

How long should an employer wait to offer a higher salary?

Interestingly, it’s easier for a new employee to ask to negotiate their salary than an established employee, with new candidates asking 5% more often. It’s important to remember the value of your established employees and keep their morale high by offering salary increases periodically and after notable achievements. Typically, it’s a wise move to offer your loyal employees a salary raise once a year. While the figure may vary slightly depending on the industry, across the board the average is a 3% salary increase per year.