Tips for small business: Negotiating With the New Recruit Mike | May 7th, 2012

Last year, I wrote a couple of posts about the process of hiring new employees and what applicants can do to help. Recruiting and hiring can be one of the more painful aspects to running a small business, but job applicants can go far to ease the process for those doing the hiring and, at the same time, improve their own chances of landing the job.

Today, we take a short leap forward in the action. Imagine that you have gone through the process – sorted through the applications, identified attractive candidates, completed two or three (or four) interview rounds, and taken the time to contact the personal and professional references provided. Now you have made your choice and  that incredibly talented rock star you want to hire wants the job (yes!) and is excited to start. Now comes the part that many entrepreneurs dread: negotiating the deal itself.

Compensation negotiations differ from other types of negotiations, because the goal is not just to get the best deal you can possibly wrest from the other side, but rather to get the person you want and to turn them into a happy, motivated, and productive member of the team. This is not to say that you can’t  draw on your experience negotiating with vendors, suppliers, and investors, but bear in mind that the compensation negotiation is a different beast and your goals are necessarily different. Classic negotiation strategies include thorough preparation, defining specific objectives, setting a reservation point, and working to understand your negotiating partner’s objectives and reservation point. Compensation negotiations include all of that but also need to emphasize, trust, open communication, flexibility, and a willingness to let the new hire drive the conversation and find the deal that will make them happy.

Here, then, are five tips for negotiating compensation for your new recruit:

1. Define your goals but understand theirs.
One of the key principals in negotiation strategy is to comprehend the other party’s goals and gain an understanding of what they are trying to accomplish from their side of the negotiation. In compensation negotiations the deal you are making should not just include an economic goal, but also must focus on the objective of gaining (and retaining) a valued employee. To achieve this objectives, it is critical that you take the time to really understand this person; what are they looking for professionally and personally and how can you help them to achieve this? When signing on to a new job, the recruit’s goals will always include their salary requirements, but will also include other, sometimes less tangible, rewards as well.

2. Remember it’s a person.
Your approach to the process must reflect and accommodate the recruit’s humanity. This is not an outsourced service you are bargaining for, nor is it a house you are purchasing – it is a member of your team and (if you have done a good job in selecting them) someone who will bring energy, experience, skills, and countless other contributions to your business. What is important to them? Obviously salary is critical, but what about work hours? Child care? Vacation time? Take plenty of time to understand what drives this person; ask good diagnostic questions, listen closely to their answers, and be sure to ask about this when you make those calls to their references. If you can achieve a good understanding of what is driving the recruit, you can effectively use this process to gain trust. Then take time to consider the ways you can create an offer which represents the ‘total’ package that will meet their needs and satisfy their negotiating goals

3. Consider the alternatives.
One of the first rules in negotiating is to assess your alternatives should the deal fall through. The “Best Alternative to a Negotiated Agreement,” or BATNA, is what will drive the decisions you make during the process and can help you to develop your reservation point. Is there another candidate whom you like? Does the position need to be filled today or can it remain vacant? Consider carefully how far you are willing to go before your BATNA becomes preferable to a negotiated deal. Also remember that the person you are recruiting has their own BATNA and if you can learn what that is, you have a meaningful advantage in reaching a deal. It is imperative that you not share your BATNA and you should assume that the recruit will protect theirs as well, but the more you can learn about it, the better your assumptions will be during the course f the negotiation.

4. Stay in the zone.
In any negotiation, there is what academics sometimes call the “zone of proximate agreement” or the “positive bargaining zone.” If you picture a Venn diagram, with one circle representing the deal that is acceptable to you, and the second circle representing what is acceptable to the new hire, it is the overlap of those two circles that embodies the ultimately successful offer. In other words, a space exists in which both parties can be happy with the outcome. One tactic that can be very effective in expanding that space is to craft multiple offers, or even “ala carte” menus of deal elements that the recruit can select from. This is a great strategy that can help you to better understand what makes them click, but also to let them know that you are working hard to make them happy with the outcome; the most successful negotiations will always end with both parties satisfied that they achieved their goals and got what they wanted.

5. Create value for both of you.
You read often about the fabled “win-win” negotiation, but most negotiators have no idea what this means. Win-win does not mean that a compromise was agreed to or that an even split of the resources available was reached. A true win-win is achieved when there is no money (or other resource) left on the table for either side and that all creative opportunities to reach the deal were taken advantage of. Work hard with your recruit to build trust by identifying areas of common agreement; make multiple offers to diagnose what is truly important to both sides; build in meaningful and achievable incentives; and work to stay within the positive bargaining zone to achieve a successful outcome.

Creating real and meaningful value in a negotiated agreement is the goal, whether it is a deal to buy 50 tons of a commodity like aluminum, or to craft a creative compensation agreement for a new and valuable team member. Keep in mind that it is not just money and benefits that make up a great package, but other less tangible elements that will make your new employee happy, productive, creative, and effective!

Photo: net_efekt

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  • Scott T Whitaker

    Either of you guys might have written this, but the negotiations part sounds like Mike using his Kellogg course to full capacity. Love the topic. Needs to be recurring..

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