Tips for Negotiating Salary with Your Employees

Employers benefit from having both formal performance review and compensation review cycles. Many

companies have a semiannual performance review cycle. One of the two reviews often coincides with the

normal annual salary review while the other is used sparingly for special or off-cycle salary adjustments. This

formal process is helpful because it allows the employer to do the following:

- Establish a regular schedule the employer and employee can use to prepare for discussion and


- Communicate the employer’s commitment to engage in a negotiation.

- Minimize the number of off-cycle negotiations and adjustments.

- Set expectations about the employer’s important business objectives and the rewards that correspond

to meeting or exceeding those objectives.

Make Informed Decisions

Human Resources representatives and managers within an organization that has made thoughtful and well-

researched decisions regarding compensation rarely should be surprised by employees' attempts to renegotiate

salary. Several of the tools provided by can assist companies of any size in determining the market

conditions for its employees—both individually and en masse. With these tools, "Human Resources

and senior management can develop a compensation philosophy that will help conform its

employee base to the goals of the business.

In addition to compensation data that has been available from since 1999, has

released thousands of job-specific Manager's Guides.  Manager's Guides from can assist managers

in identifying and cultivating the skills and competencies that will enable employees to excel in their roles.  These

latter reports also will help a manager anticipate when an employee's skills have advanced beyond their current

role, which should prompt a manager to plan to promote the employee, increase his or her salary beyond the

norm, or lose them to a competitor.  If the aforementioned tips are followed and the available tools used, most

discussions around compensation should be constructive conversations that are anticipated rather than

combative conversations that are unexpected and unwelcome.

Ten Negotiation Pointers

1. Do not withdraw from an employee who initiates a negotiation.

2. Employees who approach employers to discuss compensation may be concerned about more than just

pay. Be sure to look for sources of dissatisfaction other than compensation—but do not ignore compensation.

3. Open communication generally helps build morale. Many employers find that bad news that is well 

communicated is much better for the environment than bad news that is not discussed at all.

4. When discussing salary issues with an employee, make sure it is a discussion with both parties talking.

Solicit employee input.

5. Discuss your views. Talk about recent performance and expected future performance, as appropriate.

6. Although many aspects of the employment arrangement are negotiable, most employees focus first on

cash compensation.

7. While cash compensation is an important element of the employment arrangement, other important

considerations include scope of responsibility, degree of autonomy or authority, and noncash compensation. Do

not ignore or underrate these means for satisfying the demands of an employee you seek to retain.

8. The section on benefits and perquisites can be helpful in framing a discussion of the benefits offered to

an employee.

9. Employers should focus on benefits and perks that are valued more highly than it costs to provide


10. Thank the employee for talking with you about the issues.

Performance Management as an Effective Negotiation Process 

Employers can negotiate effectively with employees when the process is based on performance

management. Employers can collaborate with their employees by communicating important business goals

and the rewards associated with achieving results.

The benefits of this collaboration are as follows:

- Employees know their employer’s performance expectations.

- Employees develop ownership for meeting or exceeding performance expectations. Both employer and

employees can agree in advance what the rewards will be depending on actual performance outcomes.

- Communicate a clear understanding of how employee performance will be measured in the coming


- Establish three to five reasonable, measurable goals with each employee at the beginning of the

performance year.

- Agree on what the salary increase and incentive award will be depending on actual performance


Preparing for a Salary Negotiation 

Employers face negotiations with employees in all aspects of the relationship, but two types of negotiations

are particularly important: the first occurs once, upon hire, and the second occurs at each subsequent salary

review. Assess the candidates or employees with regard to the following considerations.

- Competence

How capable are the employees in performing the job? Assess their ability to perform the specific functions 

of the job effectively by reviewing past performance, if applicable. Also consider whether they have the

experience, skills, and competencies you require.

- Compatibility

How well would they do the job here? Assess their ability to interact effectively with customers, suppliers,

and other employees. Also, assess their abilities to develop a positive impact on the desired results.

- Compensation

Will they perform the jobs for the pay levels we deem to be appropriate? Assess your organization’s ability

to attract and retain the caliber of talent necessary for business success within the job’s market range. Will they

be difficult to replace? Candidates and employees who review favorably against these considerations may

warrant higher placement within the pay range for the job.

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