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Negotiating a New Hire's Salary

Filed under Managing the Workplace. Fact checked on May 24, 2012.

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If your prospective new employee wants more money than you're offering, you may want to consider whether he or she is worth it, and negotiate by making a counteroffer.

You've gone through the long hiring process, and now it's time to make a job offer to an applicant that will include the salary that comes with the position. It may be the first time that firm dollar figures come up in the hiring process or you may have already discussed the salary for the job in the interview, in which case the job offer is confirming the salary information.

You should be confident based on your research of what other companies are paying that the salary or wage you want to offer the person you're hiring is competitive, so what happens if the candidate wants more money? How can you negotiate with the applicant to mutually agreeable terms? The steps to consider as you decide how to handle this situation are first deciding whether the candidate is worth more than you're offering and how to make a counteroffer.

Is the Candidate Worth More?

If you offer an applicant a job, and it turns out that this person wants the job but also wants more money than you're offering, you've got some hard decisions to make.

The first thing to do when this situation arises is find out exactly how much the candidate wants. Always be sure to ask for this. It may turn out that your offer wasn't too far from what the candidate wanted, and you may decide that the extra little bit is not a problem.

What if your offer is way off? The process gets a little trickier if the candidate wants a lot more money than you can or want to pay. There are different approaches to take, depending on what you want to do, but first you must decide whether you want to pay more.

If the possibility exists for paying the candidate more, but you're on the fence about it, use these questions to help you decide if the candidate is worth the extra money:

  • Does the candidate possess skills that you cannot find anywhere else? If this candidate has skills that far exceed what any other applicants had, and they are skills that you desperately need, paying extra or negotiating may be the best course of action.
  • Is the candidate currently employed elsewhere? Employed people are not as willing to take a job for less than they want as unemployed people. If you really want this person, you may have to pay. If, however, the person is making a lot less (or is unemployed), he or she may just be trying to inflate the salary as much as possible but would be willing to take less.
  • Do you see potential growth in the position you're hiring for? If you see the position growing from its present duties into something that will require additional skill and responsibility, you may be getting a deal by agreeing to pay more. Once the applicant starts to take on those additional responsibilities, you'll be getting your money's worth. In fact, you may even be getting away less expensively than you would had you tried to hire someone for the position after the growth took place.
  • Were there other applicants who could adequately fulfill the position? If there were some "close seconds" in your applicant pool, you have a lot more room to maneuver. You may be able to get one of those applicants to take the job for the money you're offering.
  • Do you get the sense that the applicant will be a long-term employee? While there's no sure way to predict, if you get the sense that the applicant will be a long-term asset, paying a little more up front may be the best thing to do. If, however, the applicant seems to think of the job as a stepping stone to bigger and better things, think twice about meeting the applicant's demands.
  • Do you need to hire someone right away? If you need someone right away, the applicant may have you over a barrel. The process of negotiating may eat up a lot of time. Decide how long you're willing to let the position remain unfilled in choosing your course of action.
  • Do you have other employees whose salaries will be diminished by offering a candidate more? If you have an employee who has worked for you in a position for two years and makes $15.00 per hour, and you hire someone new in a similar position for $15.00 per hour, you'll create problems for yourself with the senior employee whose years of service and additional experience will not be rewarded with pay that's higher than a newcomer's. This problem is sometimes caused by inflation and is known as pay compression. Don't assume that your employees won't talk about pay among themselves — it's illegal for you to forbid them from disclosing how much they make.

Once you've answered some of these questions, you should be in a better position to decide if you'll pay more, if you'll try to negotiate, or if you'll refuse to meet the applicant's demands. Remember, whenever you negotiate anything, the person who's willing to walk away from the deal is in the stronger position.

Making a Salary Counteroffer

If, after you've determined that your candidate is worth more, you decide to try to negotiate with a candidate who has asked for more money by making a counteroffer, consider the following suggested strategies:

  • See if the candidate would be willing to accept additional benefits in lieu of extra pay. Perhaps additional vacation days would be an attractive alternative. Depending on the benefit you offer, additional benefits could cost you less out of pocket than a higher pay rate. (However, keep in mind that federal laws contain nondiscrimination rules that may prevent you from offering one employee more benefits than you offer to other employees in similar jobs.)
  • Consider keeping the wages you offered the same, but reducing the number of hours you'll require the person to work. That may make the wages per hour more in line with what the candidate wants.
  • Offer to give the candidate the extra money in increments, subject to performance appraisal.
Example

You offer to pay your top candidate, Wally Wantsalot $12.00 an hour but Wally wants to start at $14.00 per hour. You can offer to increase Wally's wages to that level over a year's time in two six-month increments, provided that his performance meets standards that you put in place from the outset.

  • Agree to pay more, but add additional responsibilities to the job that may allow you to cut costs from somewhere else.
  • Offer the candidate stock options in your company instead. (Obviously, this only works if you're incorporated and want to undertake the administrative burden of offering stock options.)
  • Offer the candidate a commission, a gain-sharing incentive, or a bonus in lieu of extra pay. If the candidate accepts, he or she will be even more motivated to do a good job.
Example

You can offer your prospective hire 15 percent of the increase in net profits over a specific time period. For example, if your business's net profits increase $5,000 over a four-month period, the employee's gain would be $750.

You may also want to consider making a counteroffer by employing a combination of these strategies.

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