Michelle Alarcon

Negotiating Compensation

What recruiters must know about effectively negotiating compensation during the hiring process and minimizing turnover. Would Maslow agree?

August 16, 2007
by Michelle Alarcon, Esq., MBA

The best talent comes at a higher price. Is this cliché true for people services? Is there a solid correlation between salary and competency/skills or is salary fixed by skills of the negotiating parties? What do finance recruiters have to know and what are the factors they have to consider during this phase? What is the recruiter’s role in salary negotiations?

If these sound like issues that you and your colleagues are wrestling with, then read on.

Finance and accounting recruiters and employers must adhere to the first rule in hiring: Keep focused on your goal of hiring the best and the brightest. Negotiations must not be concerned about getting your best candidate at the lowest price, but on finding a match between their needs and what your company can offer. Consider the cost of losing the “best” candidate because the salary offer turned them off; or losing them after hire because you exaggerated certain aspects of the job and compensation during negotiation.

Three Negotiation Tips

There are three key points to know during the negotiation phase:

  1. Know your candidates well.
  2. Know your company’s work environment and culture.
  3. Know its unique compensation package even better — base pay, benefits and incentives.

After years of analyzing employee salaries, it still surprises me that there is little evidence correlating a worker’s salary with his or here competency and success on the job. The reason? Compensation is a very personal issue. Workers have different needs in various stages of their lives and careers. Some employees will work equally hard for less pay and vice-versa.

  1. Know your candidates well.

    At what stage of their lives and careers are they now? One philosopher who could help management in this area is Abraham Maslow. He theorizes that lower needs have to be met first before higher needs are satisfied — the lowest being the need for food, clothing and shelter, and the highest being the need for self-actualization. What this means is that some people value things other than money if they are financially secure. This includes the work environment and other nonmonetary factors such as a nice office, job involvement, recognition, a fun workplace, etc. I had a secretary who was the wife of a prominent lawyer and wanted a job not for the money, but to get out of the house. What she was looking for were new friends, a nice title (such as assistant to the VP, instead of secretary) and challenging tasks. The entire monetary compensation was meaningless to her and she told me that she never cashed her paychecks for months.

  2. Know your company’s work environment and culture.

    For those who are at the later stages of their career, find out what motivates these candidates in seeking new employment. What factors would differentiate your firm from their previous ones? Then focus on this. How important is each factor to the candidate? A good probing interview would provide you with this information. Salary at this stage may have very little to do with the candidate’s motivation. A person could have reached the highest level of competency at his or her career and may be considering a change — a new environment, new challenges, etc. Assess their needs and negotiate fairly, emphasizing the things that the company can offer which you believe are most important to them.

  3. Know its unique compensation package even better.

    During negotiation, include the three different components of compensation: Base pay, benefits, and incentives — monetary and nonmonetary. Finance and Accounting recruiters must know why the company offers particular benefits and incentives and leverage each one to match that what is of value to the candidate of choice. Some recruiters focus solely on the base salary without considering the importance of the other two. Money is always important, but it may not be the sole motivator. And, if candidates receive similar base pay offers from other firms, recruiters must know how to leverage and sell the company’s benefits and incentives package very well. If all else is equal, the work environment may be the deal maker.

    Considering the greater majority who are concerned with the monetary aspect of compensation, one guide for recruiters in negotiating effectively is the motivation theory of pay. What makes people happy with their compensation? Equity theory states that people are happy if their pay is comparable to those of similar jobs inside and outside the organization. Here, candidates set their salary expectations by benchmarking how other companies pay for the position they are applying for. Once hired, they may probe into the salaries of their counterparts within the organization. Expectancy theory says that some people are happy regardless of how their pay compares to others if they see that they are paid according to their contribution to the firm. Here, recruiters must consider the type of person they are dealing with — how do you find out? Ask such open-ended questions like “How should a company value your work?” or straight questions that probe on how they feel about other people’s salaries.

All’s Fair in Negotiating and Recruiting

Fair negotiation does not try to short change a potential employee by offering the lowest possible salary, especially if you sense the candidate may be desperate due to a life or career situation. Eventually, once they’re out of this temporary bind, they may leave if they believe they are not being compensated fairly. The cost of turnover is much higher for the organization. Consider the candidate’s potential value based on the experience she brings and her possible contribution to the work environment and the company’s bottom-line. Companies with an organized compensation structure have minimum and maximum pay ranges. Starting salaries typically go between the minimum and the mid-range. If this is below the salary expectation of your best candidate, highlight the benefits and negotiate some incentives package — again know your candidates well and find out what is most valuable to them.

What if you still cannot match your best candidate’s compensation requirements? Do you just let go and allow this person to work for the competition? This is where negotiation skills come in, but be very careful about this — remember, you are not selling a product that customers can return if they are not satisfied. You are selling your company in exchange for their services, which may be more detrimental if the employee is disgruntled because she accepted your offer based on some skillful negotiating tactics that overemphasized aspects of the company that are not realistic. Give a realistic job preview to avoid costly turnover. Don’t make promises of future compensation such as huge potential bonuses and salary increases that may be hard to fulfill, or exaggerate the workplace atmosphere as fun and exciting if it is not. Your company will stand a good chance that this person will leave, which is a more costly thing. So, a hard rule to accept is to let go if it seems impossible to meet the candidate’s honest requirements.

Again, salary negotiation is about assessing the worth of the candidate to the company and matching their needs with what the company can offer. It’s not about getting cheaper labor. Prudent firms that understand the high cost of turnover follow this concept seriously.

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Michelle Alarcon is an attorney and an assistant professor and program chair of management at Hawaii Pacific University. Visit her Web site.