Mutual Agreement - To Achieve a Win-Win Situation

Salary and Position -report by Xander, Joshua and Michelle, Horbes staffs.

(Hong Kong) Salary is a common negotiation topic in workplace, especially with today’s high turnover and rotation of jobs, 

Our story happened in Modern Tool Manufacturers. Market Director Steven is anxiously telling us about his pay raise. After two years he had joined the company as Assistant Junior Manager, he was promoted to the unit head. Even though it was an official promotion, yet the company did not reflected such decision on his salary, “They always said that I was young and lack of experience, blah blah blah…you know I really don’t think so, I think they just try to find some excuse to ignore me” Said by Steven. 

Such confusion has lasted for three years. Till today Steven are still not get his salary adjustment under his official title as unit head. His current pay is 30,000 HKD per month including performance incentives. However, comparing with the overall salaries of other department heads, he earned 5000 HKD lesser per month. And recently, the company has made a decision of cancelling the bonus for all employees above the supervision position. And such change made Steven even more irritated “I can’t stand on it anymore, I have already informed Bob that I need to talk to him on this”.

Reporter has also spoken to Steven’s supervisor, Mr. Bob, of how he is going to plan for this negotiation. “Well, clearly I have made a clear strategy, and I’m pretty sure in the end, we will achieved win-win situation” said confidently by Mr. Bob with his coffee in hand.

THE INHIBITORS IN THE SALARY NEGOTIATION

With focus on the Bob’s perspective

There is no doubt that both of the Bob and Steven can benefit from the win-win outcome in the negotiation. Before our group detects and identifies the effective negotiation tactics for Bob, our group has to find out the potential inhibitors in the perspective of Bob in order to help Bob to avoid those mistakes.

Inhibitor 1: FALSE CONFLICT

The concept of false conflict was mentioned by Thompson (2009) who was indicated to expanding the pie of negotiation, which means that people find the wrong conflicts or illusory conflicts between their interests and the other parties’ interests. Steven decides to require a big jump in salary. If the Bob only treats it as a simple and common requirement in salary, it cannot expand the pie due to the false conflict and wrong underlying interest. Whether Bob decides to increase salary or not, it will definitely lead a win-lose or lose-lose effect. Actually the salary is the surface contrary and the root of causes of conflict is that Steven feels unfairness in distributive justice comparing with other unit heads in the organization. Money cannot buy a respect and Bob should be more concerned about intrinsic incentives to match the true conflicts.

Inhibitor 2: FIXED-PIE PERCEPION

Thompson (2009) claimed that in most negotiation the interests were not completely opposite, in other words, it should not be only a win-lose game. Harvard Law School (2009) also argued that the mythical-fixed-pie mind-set will give people a wrong assumption that any gain of one party is at the expense of others. To raise salary definitely will increase the cost of Bob. If  Bob refuses to raise the salary that will lead to the win-lose or lose-lose outcomes due to the fixed-pie perception. In the short time, Bob saves cost which seems like that he is the winner and Steven is the loser. Yet, Steven feels unfairly treated and will put less effort, less organizational citizenship behaviour and even voluntary resignation to correct the perception of unfairness in accordance to Equity Theory (Adams, 1965). Bob should try to find out the mutual benefits between him and Steven.

Inhibitor 3: ENDOWMENT EFFECT

Kahneman et al. (1990) found that people will treat something owned by them more valuable than something owned by others due to the “loss aversion”. It is called endowment effect. Someone who suffers a loss will ask too much for the compensation (Harvard Law School, 2009). It is a “loss” for Bob if he decides to pay a higher salary to Steven. The loss aversion results in overvaluing assets from Bob. Thus, Bob tends to underestimate the performance of Steven or deliberately unconsciously increase the standard of the appraisal. The inhibitor of endowment effect can be corrected by the formal and unbiased appraisal system.

Inhibitor 4: STATUS QUO BIAS

Status quo bias also exists everywhere in the decision-making. Status quo bias is related to a belief that people tend to pay more attention on the risk of change rather than the risk of failing to change so that they will be motivated to stay in the current situation (Samuelson & Zeckhauser, 1988; Ritov & Baron, 1990; Malhotra & Bazerman, 2008). Bob maybe considered that if Steven is paid higher enough, there will be a risk of change. In other words, actually Steven is not worth earning such a high salary in respect of his current experiences and skills. However, if Bob only rejects Steven’s request without any better settlements, the risks of failing to change will be still recurred, such as lower productivity, lower satisfaction and more absenteeism. Such potential risk will definitely impact on the organization, especially for unit head.

Inhibitor 5: POWER

As the statement of the Harvard Law School (2009), imbalance power in two parties in negotiation will be an inhibitor. In general, the Bob has higher power distance than Steven. Therefore, Bob may be suffered when he shows the follow behaviours. One is that Bob underestimates his employee and neglects to care about their appeals and benefits. Steven may be irritated by his immediate boss who never cares about him. The other is that even though Steven surrenders to his boss’ order currently under the pressure, he will be indignant and resentful because of his unwillingness. To avoid using power to negotiate with Steven, Bob should communicate with Steven sincerely.

Workable tactics

Overview

We had discussed all the tactics above which are not workable in our scenario, yet in order to achieve the negotiation into a win-win outcome, Bob has to clearly understand the overall picture first and gradually calm down Steven by implementing tactics. Bob needs to be more proactive in order to eliminate Steven’s inhibitors. Yet for Bob, it’s impossible to conduct a meeting in the beginning and start with “hey, let’s go to a win-win situation, how about that?” The negotiation is however needed to be strategic, therefore which maybe needs to combine with several meetings with employees to acquire more understanding of mutual interests of each party. And in this case, the progressive steps of negotiation would be very helpful of achieving such mutual goals.

Meeting 1: Initiation 
How to make a communication effectively forms a key objective of whether to make Bob’s first step successful. An effective communication should also start with a goal in order to make sure the gaining and holding the attention of each other (McCullough, 1984). Yet in our scenario, which might be slightly difficult because Steven may already have a negative perception towards his superior, therefore, he can be very pay-attention to himself but hardly pay attention to his boss. So we need to make sure that the trust between the boss and employee is positive. Furthermore Knowledge-based trust is grounded in behavioral predictability, and it occurs when a person has enough information about others to understand them and accurately predict their behavior (Thompson, 2009). Therefore getting knowledge of each other should be conducted during the first meeting.

Conversation One:

Steven: Boss, can I have a minute from you?

Bob: Sure, why not? Have a seat please, coffee? (Standing up and heading towards to the coffee station).

The proactive movement will help to refresh the existing negative perception from Steven. Pouring him a cup of coffee may also help Steven to relax and get ready for gaining attention from the boss.

(Bob passes the coffee to Steven and sit down, however this time Bob has to speak out first).

Boss: you know, after these long years you have worked for me, I barely have time to talk with you to understand you better, so, how about today we make an exception…let’s talk something beyond the work...how about I start first.

Perspective-taking

Information exchange will help the negotiators attempt to see the world through the counterparty’s eyes (Thompson, 2009). Therefore perspective-taking of the mutual parties are more successful to improve the quality of communication as the negotiation parties start to pay attention to each other. Through the effective communication mutually, the parties start to gain the information that they used to not be aware of, such as the boss gains more knowledge about this young and passionate employee who is caring more about his future, that could be money issue that he need to get marry soon so he could have a family? Or it could be other issues like he just wants to know whether he had already been recognized in this company. If he was already recognized, then the company should raise his pay etc. At the same time, employee could also gain knowledge about his boss, such as the adversities that the boss was faced, or something unexpected. All of such information exchange upon the perspective-taking would increase the level of understanding and the level of the trust.

Meeting 2

Mutual Interests and Priorities

Whether the trust level has relatively improved can reflect through the quality of communication, which can be assessed through Active Listening Model (Castleberry et al, 1999; Comer & Drollinger, 1999; de Ruyter & Wetzerls, 2000), the way that how the mutual parties respond to each other. After then, Bob will deepen through the level of negotiation by asking questions of interests and priorities in order to deeply acquire knowledge of what Steven’s needs. Meanwhile, Bob should also need to provide information about his interests after acknowledged Steven’s needs.

Conversation Two

Steven: My expectation for our negotiation is simple. I need the salary increment so that I can realize that the company is recognized my contribution, therefore to my better performance for my future planning.

Bob: OK, very well. I also need disclose to you that Company is now facing challenges of marketing development, therefore by all means the company need to protect its core competence as the first priority. However, the success of the marketing development will surely increase the overall revenue and benefit all our stakeholders.

Steven: Oh, ok. I see.

Meeting 3

Achieving mutual agreement

Failed negotiation always due to the haggling over of a single issue, whereby in this case it looks like Steven is bargaining for the price, but the more importances are the future career expectation as presented from the previous conversation. Therefore, to make an integrative and multi-issue agreement would be the potential criteria of win-win negotiation (Lax & Sebenius, 1992).

Unbundling the issue

Indeed, the outcome of the negotiation can’t rely on the money only. Meanwhile, future perspectives of Steven will combine with the benefits to make the agreement more integrative. At the end, the single money issue has been unbundled into the welfare benefits and the future expectation.

Makeing offers: In package and equivalent value

Moving ahead into this last stage of, the communication quality of each party should gradually be improved. Yet, offer-in-package can help to capitalize on different strength of preference, therefore to make a trade off and reach a mutually profitable outcome (Thompson, 2009). Meanwhile making multiple offers of equivalent value can be effective even if the counterparties are not cooperative. The effectiveness of the multiple offers can actually make both parties satisfied at the end of the negotiation and evaluated more favorably by the other party. (Leigh L. Thompsn, 2009)

Conversation Three:

Steven: Boss, after all these meeting, I’m waiting for your decision.

Bob: Yes, after we have discussed for several meeting, and the management have already decided to make follower proposals:

1. We will increase the rate of your performance incentive to 10% based on your currently 5% incentive commitment.

2. Even company is facing challenge now, we have decided to send you overseas to receive some trainings, I understand that you are MBA now, however we need more specific and professional knowledge from you.

3. After you complete your training, you might have try on a new department of this company to get more hands-on practices, which means you can be transferred to other branches as senior director, and of cause, company will pay you traffic and housing allowance.

4. All your current benefits would not be affected by above changes.

CAPITALIZE ON DIFFERENCES

Thompson (2009) argued that the win-win negotiation not only can focus on the interests, but also can focus on the different valuation, expectations, risk attitudes, time preferences and capabilities. Therefore the differences in those items mentioned above will turned in more opportunities for two parties to achieve agreement.

Differences in Valuation

Differences in valuation indicate that there are the different preferences which will influence individual behaviours in the parties. Regardless of the effects of different personalities and cultures, the analysis will be unfolded from two parties’ goals or an end state based on the announcement of the Teleological Theory (Van de Ven & Scott Poole, 1995). What are the different goals in two parties? Obviously, the change of salary is not the end state purchased by two parties. For Bob, he prefers to consider the balance between the development of organization and the cost of employment. That’s why Bob rejected Steven’s request. According to Maslow's hierarchy of needs (Maslow, 1973), Steven prefers to achieve the higher level of needs under the stage provided by the organization. Thus, Steven wants to raise his salary in order to fulfill his needs of esteem and self-actualization. Even though the end states of two parties are different, it is clearly seen that there is an internal linkage between two goals. The successful organization should be built under the competitive human resources for both employee and employer’s perspectives.

Differences in Expectations

As mentioned by Thompson (2009), the negotiation includes uncertainty. The two parties involved in the negotiation will hold different beliefs in the respect of expectation. For Bob, he wants to reject the request of his subordinate in order to reduce the cost of employment. Simultaneously, the impacts of the loyalty and productivity of Steven will be considered for his decision. For Steven, the big jump in salary is expected after the negotiation.

Differences in Risk Attitudes

The differences in risk attitudes will affect the negotiation. The Bob can be catalogued into a risk-averse person. When Steven asks for increasing the salary, the Bob hesitates about that thing because of the risk of increasing salary, such as loss of bargaining power and the incompetence. In terms of Steven, he is a head in Marketing Division which is a special department. Stevens in Marketing Division can earn a lot of money by commission rather than a higher basic salary. The requirement of increasing basic salary means that Steven is a risk-averse person because he wants to lower the risk in the future earnings.

Differences in Time Preferences

Obviously, Steven is more impatient than his boss. He has been asking for increment for several times. As a young middle manager who has MBA qualification and more than five years working experiences, he can easily find another alternative in the job market. However, Steven in the Marketing Division is not irreplaceable because of the nature of the job. Bob can find another staff in the job market if the current employee requires a too high salary. It means that the Bob has more bargaining power than Steven so that Steven can be more inpatient in the negotiation.

Differences in Capabilities

The negotiators have different capabilities and skills. Bob tends to be good at negotiation but he has few management skills. He can win several times in the past negotiations but fail to completely convince his employee that his decision is right and proper. That is why finally Steven cannot make a concession again for unfair treatment which triggers to an intensive situation between two parties. In terms of Steven, he has good professional skills and capabilities in marketing but also few skills of negotiation.

Win-Win outcome
It might take some times to achive the win-win situation

Scenario One: 
The offers made by Bob is actually over the expectation of Steven. After all, Steven was surprise of these offers that made by his boss, and he accepted the offers as he has completely satisfied. As for Bob, he doesn’t have to worry that much as he maintained the current remuneration packages.

Scenario Two:
In case Steven will still in consideration, Bob will add some more terms on him, which is if the overall revenue that generated by your marketing department has generated over 3% per month. There will be extra 5% incentive made for you based on your current basic salary. In which, Bob is still maintain the stability of the salary, and Steven will earn more if his department is performing well.
 

Conclusion

Win-win is the expected situation for every negotiation. By expanding the pie, both parties can be satisfied and resources will not be wasted. Especially for salary negotiations, when the win-win situation is achieved, employees can be engaged and employers can keep employees who have good performance. However, win-win situation can be difficult to achieve. Therefore proper strategies definitely can help to expand the pie and reach the win-win situation. As in our case, through good negotiation strategies, both two parties are winners and are satisfied with the outcome.

Reference 

Adams, J.S. (1965). Inequity in social exchange. Adv. Exp. Soc. Psychol. 62:335-343

Castleberry, S.B. Shepherd, C.D. and Ridnour, R.(1999). Effective Interpersonal Listening in the Personal Selling Environment: Conceptualization, Measurement, and Nomological validity. Journal of marketing theory and practice. 7.

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de Ruyter, K. Wetzels, M. (2000). Customer equity considerations in service recovery: a cross-industry perspective. International Journal of Service Industry Management, Vol. 11 Iss: 1, pp.91 – 108

 Harvard Law School (2009). Special Report: 5 Common Negotiating Mistakes And How You Can Avoid Them. Program on Negotiation. Retrieved from http://geoffsharp.atomicrobot.co.nz/wp-content/uploads/2010/03/Five.pdf

Maslow, A. H. (1973). A Theory of Human Motivation. Psychological Review, 50, 370-396.

Malhotra, Deepak K. and Bazerman, Max H., Psychological Influence in Negotiation: An Introduction Long Overdue (January 28, 2008). Harvard Business School NOM Working Paper No. 08-058.

Ritov, I., & Baron, J. (1990). Reluctance to vaccinate: Omission bias and ambiguity. Journal of Behavioral Decision Making, 3(4): 263-277.

 

Samuelson, W. F., & Zeckhauser, R. (1988). Status quo bias in decision making. Journal of Risk and Uncertainty, 1: 7-59

Thompson, L. L. (2009). Win-Win Negotiation: Expanding the Pie. In L. L. Thompson, he mind and heart of the negotiator (3 ed., pp. 74-95). Upper Saddle River, New Jersey, USA: Pearson/Prentice Hall.

Van de Ven, Andrew H & Poole, Marshall Scott (1995) Explaining development and change in organizations. Academy of Management Review, 20 (3) July, p. 510 – 540.