How To Approach Salary Negotiation: 5 Tips for HR Leaders
Half (50%) of employees are currently struggling to make ends meet, and most (73%) feel they deserve a raise for their current job responsibilities, according to our recent compensation report.
A lot of salary negotiation advice is directed toward employees and candidates: how, when, and why to ask for a raise. What can feel like a simple budget line item for a business can be a life-changing conversation for an employee.
But these conversations about employee compensation and benefits are critical employee retention strategies. HR leaders must understand how to approach these conversations to ensure employees feel considered, cared for, and respected. Even when a raise isn’t financially feasible for your organization, pay transparency can improve employee engagement and morale, and help you retain top talent.
Below, we share our five salary negotiation tips every HR professional should know. Learn how to streamline your compensation process, improve employee satisfaction, and retain your top talent with BambooHR.
Why Is Salary Negotiation Important?
An employee’s starting salary is something you’ll discuss during the recruitment process. Ideally, you’ll have conversations about their compensation again at regular intervals.
It’s worth noting that compensation is an employee’s base salary plus any fringe benefits like health insurance, paid time off, employee stock options, and more. Salary negotiation, then, is a very specific part of your compensation planning conversations.
Employee compensation conversations are both tricky and incredibly important. Considering salary is a top reason employees leave, it’s key to retention. So, how do you get it right?
1. Know and Explain Your Total Compensation Package
Learning how to handle salary negotiations starts by understanding all aspects of your total compensation package. Once you understand your organization’s compensation and benefits strategy and the overall budget, you can answer this crucial question: How much can you realistically negotiate salary? A limited pay range doesn’t have to be the end of the conversation—if you address the concerns that led the employee or candidate to start the negotiation.
The answer doesn’t always have to be a higher salary. Companies have a lot of leverage with their total compensation package, and there are creative ways to approach compensation that can help employees feel satisfied. Having a comprehensive HR compensation strategy in place before you start negotiating salaries and job offers will help streamline these conversations. It can also help to improve your ability to keep employees happily engaged.
So, what can you offer as part of a valuable total compensation package?
- Flexible PTO options or additional PTO days
- Flexible work schedules
- Remote work or hybrid work options
- Relocation packages
- Commuter benefits
- Health and wellness benefits
- Tuition or continuing education benefits
- Child or dependent care support
Creating a valuable HR compensation strategy relies on understanding what types of compensation matter to your employees. Not every benefit matters to every employee, but you can tailor your approach to meet their preferences. Once you understand their needs, you can communicate the value of your total compensation package to both employees and prospective candidates, whether or not they’re asking for a higher salary.
2. Be Honest and Transparent About Salary
Be clear and upfront about salary expectations, and show employees how your company can help them grow. Share with them a clear path to promotion and what types of salary increases can be expected as they grow in the company.
When you explain the “why” behind your decisions and do your best to meet reasonable requests, you can help employees feel heard and respected. Pay ranges align to the role and its responsibilities, not to the person filling it. Show them your market research and why you landed on a specific number.
Because of longstanding taboos against discussing other people’s income, it can be hard to get everyone on the same page regarding fair compensation. Employees rarely understand the reasoning behind salary decisions and often don’t know how their salary matches up with others on their team.
Even if a salary negotiation with a current employee or candidate doesn’t match the salary they’re requesting, you can still overcome many other reasons employees might want to leave.
Again, be transparent about how the entire compensation and benefits package relates to the company’s mission, purpose, and culture. While it may not be as strong a driver as pay, it will help you explain why and how specific salary decisions are made.
What Is Pay Transparency Law in the US?
In the US, employees and candidates have the right to ask about and discuss their salary with other people. As a company, you legally cannot discipline or harass them for doing so. They’re well within their rights to discuss pay differences with other employees, and it’s a good idea to be transparent with them up front regarding pay brackets and expectations.
3. Leave No Question Unanswered
The end goal of a successful compensation conversation is to clarify expectations so the employee or candidate can make a fully informed decision. Transparency on your end goes a long way toward this understanding, but you’ll also need information from them to fully align on their future employment.
Here are some areas you may want to research in preparation for compensation negotiations so you can stop misunderstandings before they start:
Job Title & Description
Include a salary range for better pay transparency and better job descriptions. They should list the qualifications you want, and reflect the compensation expectations candidates have for the qualifications you require.
Candidate History & Expectations
Consider where candidates are coming from. If they’re coming from a company known for offering salaries at the high end of the salary range, while your HR compensation strategy sticks to the middle, you’ll likely run into a disconnect between what they expect and what your company can offer.
Employee Needs & Values
Understanding what’s important to your employees—and how you’ve linked what they value to their compensation—will give you a solid starting place for a salary discussion. Tools like employee satisfaction surveys help you proactively adapt your compensation plan and other policies to grow in the same direction as your employees.
Why People Leave
Some employees may simply decide to walk away. That’s OK; if their employment with you isn’t meeting their needs, it’ll be challenging to keep them engaged and motivated. But deciding to part doesn’t have to be the end of the conversation. You can work out the details to minimize hard feelings and leave the door open to the potential of a boomerang employee.
Learn from your exit interviews. Ask about their decision to leave, including what made them want to go, the offer that convinced them to leave, and how you can improve your workplace for future employees.
Evaluating your approach to salary negotiation and preparing for a variety of outcomes can help you feel confident going into the discussion, so you aren’t caught off guard. By critically thinking through these factors, you can stay on the right path for salary negotiations and expectations.
4. Understand Your Constraints
Employees don’t just want money now; they want a career that promises more in the future. And, short-term wins, like giving an overly high salary to a valued employee or candidate, could cause detrimental long-term problems for your company like employee dissatisfaction, issues with pay inequity, and a struggle to sustain above-market salaries.
Knowing where to draw the line on salary negotiations ensures you can provide competitive staying options while keeping the company’s overall objectives squarely in place. If a raise isn’t feasible, consider whether other areas of the total compensation package can be adjusted. A reserved parking space, wellness benefit, or extra PTO might be in order.
How Do You Politely Counter-Offer a Salary Request?
The key when counter-offering—or declining—a salary request is to take adequate time to consider it and do your research. It’s a good idea to reassure them of their worth, that you’re aware of their needs, and present them with a thoughtful solution. You need to be transparent when explaining why you’re not able to offer what they’ve requested—if budget constraints leave your hands tied, then say so, rather than leaving them to question their value or abilities.
5. Keep the “Human” in Human Resources
One of the most important salary negotiation tips is ensuring employees feel heard and respected. The key to this is to continue to act like a human being. Be real, candid, and empathetic during compensation conversations. Pairing your words with a consistent, positive employee experience helps drive this home.
Even if employees and candidates don’t get the higher salary or they choose to walk away from a job offer, they’ll remember how your company handled the conversation. Being human can make the difference between re-energizing an employee or seeing them leave, a candidate choosing your company over similar options, or scathing and glowing reviews from former candidates and employees.
Bonus Tip: Use HR Software to Prepare for Salary Conversations
As with any job you want to excel at, you need the right tools in place to help you succeed. When deciding how to handle salary negotiations, having a good HRIS tool can go a long way. You’ll need a tool that includes the necessary data to help you prepare for salary conversations, including:
- Employee satisfaction
- Compensation and job history
- Employee demographics
When you gather all this information in one place, you’ll be able to sit down and talk with employees, with empathy leading the conversation and data backing you up. Get started with BambooHR.