Salary negotiation
As a manager
One of the most common things employees seek advice for is salary negotiation. There are countless blogs, articles and salary calculators available for candidates and employees. But how should you approach the topic of salary negotiation and raises as a hiring manager and employer? In the following, we provide salary negotiation tips from a manager's perspective.
Content:
- Salary negotiation is a sensitive topic
- Know and understand the "house rules" of salary negotiation
- Other factors you can negotiate in the total compensation package
- A clear agenda and thorough preparation
- Offer transparency in the salary negotiation
- When you negotiate salary in a recruitment process
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Perhaps the most important thing to remember is that there is power imbalance in a salary negotiation. While the salary negotiation has no personal consequences for you as a manager, a salary increase can be life-changing for your employees.
Many companies typically have a specific time of year when salary reviews are held. Fortunately, this gives you plenty of time to prepare for the salary negotiation – both the practicalities of what you can offer each employee, but also how to approach it as a manager and as a person. But you should also be prepared that some employees may request a salary discussion at other times, or even the salary negotiation in a recruitment process. Hence, it's a good idea to have the basics in place.
Companies approach the framework for salary and benefits very differently, and preparing for salary negotiations starts with understanding all aspects of the total compensation package you can offer your employees.
Many companies have a set salary band for a given position and thus an internal limit on salary negotiation and raises. Perhaps you don't feel you can attract and retain the right candidates within the given framework, or maybe a tight budget is a natural limitation – in which case, it's important to know and consider what else you can offer your (potential) employees. Because the answer isn't always a higher salary. In fact, our What Workers Want 2024 report shows that 44% of employees would even consider taking a pay cut for more flexibility in their working life.
More time off
More vacation days or fewer hours per week is, in a way, a salary increase (one paid day off equals a 0.4% salary increase). While this obviously means the employee is working less, it doesn't necessarily mean a 1:1 reduction in productivity. One of the most common arguments for a shorter working week is that productivity doesn't necessarily decrease accordingly because employees are more energised and focused during the time they actually work.
Greater flexibility
Flexibility comes in many forms; flexible working hours, working from home, part-time, compressed hours, etc. In our recent What Workers Want survey, we found that 75% prefer a hybrid working model, 64% prioritise work-life balance in their job search and only 16% wouldn't consider changing jobs for greater flexibility.
Education and training
Another thing that employees prioritise is their career development. It's naive to think that your employees won't eventually change jobs. But our research shows that as long as you offer them challenging projects and opportunities for development, they're more likely to stay – and better educated (and challenged) employees are also more valuable to you.
Other employee benefits
For most employees, it's salary, flexibility and career development which really matter. But other benefits can sweeten and enhance the overall salary and compensation package. These can range from free phone and internet access to paid lunches and access to professional networks. However, it's important to remember that many employee benefits are taxable to the employee. Therefore, it's especially important to thoroughly research what employees are actually asking for.
Many employees find it difficult to ask for a raise. Get ahead of them and plan a salary discussion that is separate from the performance review. And make it clear to the employee that salary will not be discussed in your performance review – it's a conversation which should be solely about the employee's development.
This gives both you and the employee time to prepare. If it's a junior employee, help them with what they should prepare for a salary negotiation; arguments and results that they believe illustrate why their work has increased in value. This makes it a better experience for the employee, regardless of whether you can meet their expectations or not.
When it comes to your own preparation, you should especially analyse the following with the employee:
- Have they added value, increased productivity or saved the company money?
- How does the employee react to urgent tasks or unexpected changes?
- Have they taken on extra responsibility? For their development, work tasks and more experiences colleagues.
- Have they learned new skills?
Finally, just as the employee is researching what their salary should be compared to others in similar positions in the industry, you should also research what someone with their skill set typically earn. You can usually do this with trade unions, unemployment insurance funds and recruitment agencies. The latter will often have insight into the current salary levels in companies similar to yours.
Transparency around what you offer your employees and candidates is a necessity. Everything you invest in employee well-being and skills development is meaningless if the perceived value to the employee is not correspondingly high. Likewise, transparency about why you might not be able to offer the desired salary increase is also important, otherwise it will feel like you don't value them enough.
Therefore, be honest about what a raise requires, what expectations you have for their work and development, and what paths there are to a potential promotion. If you tell the employee that there's no room for a pay rise due to a limited budget or similar, you're simultaneously smothering their ambitions at your company and increasing the risk of them seeking a pay rise by changing jobs instead.
A salary negotiation with a candidate will always be a little different than with an employee. You're selling a job to a candidate, whereas with an employee you're rewarding performance. Therefore, there are also some points you need to research and consider in the recruitment process:
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Job description, skills and experience: What skills and experience can you afford to ask for in the salary range you have available? There's no need to waste your time or the candidates' time. Especially if you rarely hire anyone for a given position, it's a good idea to seek advice from a recruitment agency that specialises in your field. They know the market, your competitors' salary levels and candidate expectations.
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Candidate background and motivation: Does the candidate have experience in your industry? What is that industry knowledge worth? Do they come from a competitor that you know offers a higher salary than you can? Here it's important to consider what you can offer instead; try to understand why they are looking to leave their current employer.
Be careful not to promise more than you can deliver. Recruiting and training new employees is expensive, and they'll be out the door just as quickly if you don't offer the expected flexibility, training or opportunities for advancement. Similarly, it's important not to go for short-term wins by offering a higher salary than you might be comfortable with just to fill a position. It's more damaging in the long run when you have nothing more to offer in future salary reviews or when there is a significant pay inequality within the team.
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