Salary Negotiation

What salary negotiation is

Salary negotiation (التفاوض على الراتب) is a dialogue between two parties, an establishment and an individual, to settle what the individual receives in return for work and the benefits that go with it, until the two agree. It appears especially at hiring, when the establishment puts forward a sum and the candidate asks for another, and it may also take place with a current employee at a promotion or a change of role. It is a management practice with two sides: the side of the establishment, which sets limits and looks for agreement, and the side of the candidate, who presents a value and asks what fits it.

The definition is confined to the practice: how the dialogue runs, what it is about and how each side conducts it. It gives no ruling on the amount of pay and no legal rule on what may be agreed. It sets out only the arrangement of the dialogue that the parties may follow.

What is actually negotiated

It may be assumed that salary negotiation is a negotiation over one number. In reality the package is made of elements, and each can be agreed separately:

• Fixed pay. The monthly sum that recurs. Its effect continues on the budget of the establishment and enters comparisons among colleagues.
• Variable pay. The part tied to a result. It may be an element the two sides negotiate when the fixed pay has no room. Its detail is in variable pay.
• A single payment. A sum paid on joining, an instrument that closes a gap without raising monthly pay. Its detail is in signing bonus.
• Elements other than pay. The role, the start date, the place of work, the pattern of working time and the path of growth.

Seeing that the package has several elements opens solutions for both sides that holding to the monthly salary figure alone does not open. The establishment may be unable to raise the fixed pay but able to offer another element, and the candidate may accept an element other than the one requested if it offers something equivalent.

How salary negotiation differs from neighbouring concepts

Salary negotiation resembles other concepts in hiring and pay in wording, and it differs from them in the role it plays:

• The document. A job offer is what the establishment presents to the candidate after selection, and it is a document with its terms. The negotiation is a dialogue that comes before its final wording or follows its first version, and so alters what it contains.
• The circumstance. A counteroffer is made by an employer to an employee who has announced a resignation, in order to keep the employee. It falls at a moment of departure, whereas salary negotiation falls at a moment of agreement before joining or at a change of role.
• The instrument. A signing bonus is an element a negotiator may use, and it is not the negotiation. The dialogue is the negotiation, and the bonus is one of the things it may end in.
• The reference. A salary range midpoint is a point that the establishment places in the grade of a job and measures against. It is a frame within which the negotiation takes place, and it is not a dialogue in itself.
• The data. A pay survey supplies market figures in aggregate, and either side may rely on it in its argument. It is information and not a dialogue.

How the establishment prepares

Before the dialogue begins, the establishment prepares by asking questions that fix its limits:

• Where is the range of the job? The lower and upper limits of the grade, and the midpoint.
• What authority does the negotiator hold? Up to what sum the negotiator can agree without referring to a higher party, and what needs approval.
• Which figures support the position? What the establishment has found in the market, and what it pays those who hold comparable jobs inside it.
• Which elements can be adjusted? The fixed pay, the variable pay, the single payment, the role or the date.
• What is the effect on colleagues? The pay agreed with a new candidate is compared by colleagues with their own, and internal pay equity deals with that.

The position of the establishment may weaken when it enters the dialogue without clear limits. The establishment may give in the dialogue what it withdraws afterwards, or may refer the agreement to a higher party, and the candidate’s time and trust are lost. If the candidate begins to negotiate on the basis of information about the market, it may help for the establishment to hold a documented analysis and not impressions.

How the candidate prepares

What follows is a suggested order in practice and not a binding rule, and it varies with the job, the establishment and the market:

• Knowing the market. Looking at comparable ranges from reliable sources, while noting that a published figure may not match the job in its details.
• Stating the value. What the candidate actually adds in skill, experience or an earlier result that can be described through events.
• Ordering the priorities. Which elements matter most in the candidate’s situation. The candidate may prefer a higher fixed sum, or flexibility in working time.
• Identifying alternatives. What the candidate will do if the two sides do not agree. The position of a candidate with no alternative may be weaker than that of one with an alternative. This is a hypothesis about negotiating behaviour and not a uniform ruling.
• Setting a minimum. A sum or package below which the candidate will not go, decided before the dialogue and not during it.

The dialogue may go better when a request is put with a reason drawn from the candidate’s value or from the market and not as a bare demand. A calm wording that asks about the room for agreement may open the door more than the wording of an ultimatum.

A hypothetical example with figures

Take a hypothetical establishment whose range for the job runs from 10,000 to 14,000 a month, with a midpoint of 12,000, in one currency unit throughout the figures. It offered the candidate 12,000 a month, and the candidate asked for 15,000, which exceeds the upper limit of the range by 1,000.

Suppose the establishment cannot go beyond 14,000. After a dialogue it offered 13,000 a month with a sum of 12,000 paid once on joining. The increase over the first offer is 13,000 minus 12,000, which is 1,000, and 1,000 ÷ 12,000 × 100 ≈ 8.3%. The new pay is 13,000 ÷ 12,000 × 100 = 108.3% of the midpoint.

To compare the two sides in the first year: the candidate’s request is 15,000 × 12 = 180,000, and the establishment’s package is 13,000 × 12 + 12,000 = 156,000 + 12,000 = 168,000. The difference is 180,000 minus 168,000, which is 12,000, and 12,000 ÷ 180,000 × 100 ≈ 6.7% of the request.

In the following year, however, the single payment does not recur, so the package of the establishment becomes 13,000 × 12 = 156,000, and the difference is 180,000 minus 156,000, which is 24,000. That is 24,000 ÷ 180,000 × 100 ≈ 13.3%. This shows that a single payment closes the gap of the first year and does not close the gap of the years after it, so the candidate does well to know it before accepting, and the establishment does well to state it. The figures are hypothetical and are set out to illustrate; they do not represent an establishment or a market.

Negotiation with a current employee

Negotiation may also take place inside the establishment, when an employee is promoted, when a role changes or when the employee asks for a review of pay. The position differs from that of a new candidate in that the establishment knows the employee’s performance from its own experience and the employee knows the establishment’s limits, so the dialogue runs on wider information from both sides. On the other hand, the dialogue carries the weight of an existing relationship: the employee may fear that the request will be taken as dissatisfaction, and the establishment may fear that the request will become a precedent among colleagues.

It may help for the establishment to have a published rule for review, because an employee who knows when pay is reviewed and by what criterion may turn to the rule and not negotiate on every occasion. What is not arranged inside the rule remains a dialogue between the employee and the manager, within what the manager’s authority allows.

The effect of negotiation on acceptance of an offer

Candidates’ acceptance of offers is affected by what happens in the negotiation, and it may show in the offer acceptance rate. If the acceptance rate is low, it may mean that the first offer is far from what candidates accept, or it may mean other causes such as the deadline or the role. The figure alone does not prove any of them, so it is examined together with what was adjusted in each case: the pay, the date or the role.

The candidate’s experience of the dialogue is affected too. A slow or vague reply may be taken as lack of interest, while a clear reply that explains the limits may leave a good impression even where the two sides differ on the figure. A candidate may accept an offer below what was wanted on feeling heard, and may refuse a higher offer on feeling the opposite.

How negotiation becomes a problem

• Treating it as a contest. A dialogue in which the other side is regarded as an opponent may end in an agreement that one side regrets, and the relationship begins with a wound.
• Hiding limits that are later discovered. If the establishment promises what it does not hold, or the candidate hints at an offer that does not exist, the position may come out later and trust may suffer.
• Concentrating on the figure alone. Equivalent elements may be lost in the dialogue, and the package is not used to the full extent it can bear.
• Candidates differing in terms without a reason. That may create unexplained differences between colleagues in the same role, the effects of which may show when pay is compared after a time. Pay transparency may reduce such differences, to the extent that the establishment publishes rules and ranges.
• Leaving the agreement spoken. We suggest that what was agreed be written into the final offer, because what is not written may be understood by each side in the way that suits it.

Is negotiation a fault in the candidate or in the establishment?

Negotiation in itself indicates nothing about either side. A candidate’s request to adjust an offer may be a legitimate question about what fits the candidate’s value, and an establishment’s adherence to its limits may be faithfulness to an internal balance. What is judged is the manner of the dialogue: whether it was conducted honestly and clearly, and whether it ended in an agreement that both sides understand.

Salary negotiation remains a tool of dialogue and not a tool of conquest. It allows the establishment and the candidate to meet on a package that suits them both, and what is agreed rests on the limits of the establishment and on what the candidate asks and offers together.

This is an explanation of the concept, not legal advice.