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Employer’s Guide to Salary Negotiations

Salary negotiations can be delicate situations and require a great amount of strategy to achieve optimal results. It's a balancing act between reaching a conclusion that will please your employee and staying within the guidelines of your budget. People do it every day, but it doesn't make this process any less difficult or important. It can often be a make it or break it situation for your employee as your attentiveness and flexibility could determine if they're starting a job hunt or if they have an increase in workplace morale. With it being such a sensitive subject, it's important that you go in prepared and know how to tactfully negotiate a raise with your employee.

Why Negotiations are Important

Just as you will learn about your employee from how they handle their salary negotiation, your employee will also learn about you. Though the conversation is centered around money, your employee is finding out if you value, trust, and respect them. Undercutting a good employee will show them that you don't value their work, and this can actually cost you more in the long run when you're having to spend time and money on the hiring process. Apart from what offer you give your employee; they're also looking to see how you react to their request. Your reaction will determine if they feel respected and trusted. Don't forget, it's not just words and money that talk – it's also in your body language and how you respond when they ask to partake in a conversation that may not be your favorite. Respond with respect, understanding, and a willingness to work something out.

Start with Some Perspective

When an employee asks for a raise, it's important to break down the raise monthly instead of yearly. For example, if an employee requests a $10,000 raise, you may draw back at this number. Why do they want a $10,000 raise? Break it down. That's $800 extra monthly, which after taxes turns into approximately $500 extra. That's enough to put towards loans, rent, a car, and other similar necessities. That's not enough to sponsor lavish vacations and fancy cars. So, when an employee comes to you requesting a raise, break it down and consider if what they're asking for really is too much.

Salary Negotiation Tips

  • Know Your Stuff. Know what the average pay for your employee's position is depending on experience, schooling, etc. This can help you know how your offer stacks up to other companies in your area.
  • Do the Math. Crunch some numbers before meeting with your employee. Determine what is the highest you can go, and then decide what your starting offer will be. Don't forget – don't start with your highest number or else you have nowhere to go in the negotiation process. 
  • Odd Numbers are Good. Though the tendency is to want to offer $5,000 or $10,000, try offering a more specific number like $3,200 or $7,600. This shows that you have put time and effort into determining what you can offer your employee. It's not a random number, it's something you have thoughtfully developed and offered. 
  • It's Personal. When negotiating raises, take your employee's personal life into account. It's personal to them as they have families to feed, moves to make, or they may even be continuing their education. Though it shouldn't be the sole decision-maker, your employee's personal life should be considered. 
  • Don't Over Explain. Some explanations are good, but the more you try to explain yourself, the more your case weakens. Give a brief reason for your offer and then leave it at that.
  • Allow Breathing Room. You ultimately want your employee to be happy with what you two come up with. Don't try to trap them – give them the space to consider what you offered and make sure it's something that they will be happy with. Buyer's remorse could decrease employee morale and you want to come out of this with a happier employee. Give them a day or two to think it over.
  • Too Hot, Too Cold, Just Right. Much like the story of Goldilocks and the Three Bears, you have to find the perfect balance for you and your employee to be happy. Don't under-offer, don't over-offer, come in with just the right number and see what happens. A happy employee is a good employee!

The Bigger Picture

As you negotiate, keep the big picture in mind. What does this employee offer to your company? Is it worth looking for a new employee? Are they really asking for too much? Take a step back and do your best to reach a conclusion that leaves you and your employee happy. For more advice on employee negotiations, contact Stellaris!

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