7 Tips for Employers in Salary and Raise Negotiations

Negotiating employee salaries and raises is as much art as science, often creating tension and challenges for hiring managers and HR personnel. There’s a reason why compensation consulting is such big business and is a core service offered by almost every major consultancy firm, professional employer organization (PEO), and others in the HR services space.

Effective salary and raise decisions can help a business be profitable and efficient, rather than stuck in financial inefficiencies. While nothing can beat expert advice from trained compensation advisors, here are seven tips and strategies to help employers navigate the complexities of salary and raise negotiations effectively.

Understand the Value of Fair Compensation

To start, before even embarking on salary or raise negotiations, it’s important to understand where these negotiations fit into the bigger picture. It can be all too easy to get lost in the idea of “winning” the individual negotiation rather than aligning the experience with the business’s larger goals. The desired outcome shouldn’t be to pay the least amount possible any more than it should be to pay more than everyone else in the field.

Instead, it should be to pay exactly the amount necessary to attract top talent and retain and engage employees for as long as they continue contributing value to the company. Salaries and total compensation play a major strategic role in employee engagement, retention, loyalty, morale, and productivity; and the final outcome of any negotiation should be understood as supporting those key issues, regardless of where they end up financially.

Aim for Win-Win Scenarios

Following directly from the previous point—that it’s more important that compensation drives organizational success than meet an arbitrary dollar number—a successful negotiation is going to be a win-win situation, not win-lose.

“There are three parties that should come out of the salary negotiation feeling good: the candidate, the hiring manager and the recruiter,” Amy Ala, a Seattle-based recruiter, told the Society for Human Resource Management (SHRM). “We should all come out of this process feeling … like we did a good job, made a great placement and hired the right candidate.”

For employers, the primary goal should not be to minimize costs but to ensure the compensation package attracts and retains top talent while aligning with the company’s financial health and strategic objectives.

Articulate Your Organization’s Salary Strategy.

If salary plays a key strategic role in workforce strategy, it only makes sense to develop a formal strategy and plan around compensation. This can be easier said than done, however. The intricacies and complexities of salary setting strategies are exactly why so many companies hire outside consultants to help them with compensation planning.

Indeed, salary planning itself involves a wide-range of domain-specific concepts, such as: 

• Target percentile: How much you pay employees compared to market rates.

• Compa-ratios: Short for comparative ratio, this expresses how much you pay employees relative to the mid-point of the salary range. 

• Salary differential: The difference between two job levels by comparing the mid-point of the two salary ranges

Don't hesitate to consult subject matter experts, like a PEO for help. 

Conduct Market Research

Well-informed negotiators are savvy negotiators. Before even stepping into the room or exchanging an email with a worker or job candidate, make sure you have a clear-eyed view of the compensation landscape first. This includes:

• Identifying Industry Benchmarks: Research industry standards and salary benchmarks to ensure your offers are competitive. Use tools like salary surveys, industry reports, and online databases.

• Understanding Regional Differences: Consider geographical variances in cost of living and typical salary ranges. Compensation that’s competitive in one region might be insufficient in another.

• Articulating Role-Specific Factors: Different roles require different skill sets and levels of experience. Ensure that salaries reflect the specific demands and qualifications required for each position.

Only with an understanding of these issues can company negotiators know if an employee demand/request is reasonable or not. This kind of background knowledge is key to making smart decisions and expertly responding to the employee’s side of the negotiation.

Build Your Negotiation Skills.

"Negotiation is an underrated skill for HR," Lois Baar, an attorney in Salt Lake City and a member of the College of Labor and Employment Lawyers, told SHRM. She’s right: it’s hard to get any negotiation right, much less a salary or raise negotiation, if the people involved don’t have the requisite skills. Even HR and hiring managers can be outmaneuvered if the employee is a more practiced negotiator than they are.

Baar argues that HR in particular can play a valuable role in serving as intermediaries in difficult negotiations in order to promote win-win outcomes where both employees and business leaders/hiring managers are happy. But that requires knowledge and skill in this domain.

Evangelize (and Negotiate) Your Total Benefits.

Ala says employers need to spend time educating candidates about the total rewards the company offers. “If you work for an employer that offers more than a base salary, that has to be covered as well,” she says. “Long-term comp, stock options, cash bonuses, benefits, relocation expenses, all kinds of things can factor into overall rewards.”

Those added factors also present valuable opportunities for negotiation that many companies overlook or bypass. One survey found that nearly nine out of every ten companies are happy to negotiate base salaries but fewer than half are willing to negotiate bonuses and only a third are willing to negotiate benefits!

In fact, offering improved benefits can be much more cost effective over time than relying on salary increases alone. A willingness to negotiate benefits also creates opportunity for competitive differentiation; if competitors aren’t willing to negotiate X, but you are, you automatically gain an advantage in the competition for new talent.

Handle Difficult Conversations with Professionalism

Always approach difficult conversations calmly and respectfully. Emotional reactions can derail negotiations and damage professional relationships. Instead, focus on finding mutually beneficial solutions rather than dwelling on problems. Collaborative problem-solving fosters a positive negotiation atmosphere.

"Often, a major obstacle in negotiations is the reluctance to be the first to compromise,” says Ralph Mabey, an attorney, law professor and mediator in New York City. “I handle this by saying separately to each party, 'If the other party agrees to X, will you agree to Y?' This approach makes it safe for both parties to compromise. You can use it when mediating differences among others as well as when you're a direct party to the negotiation."

In order words, meeting halfway can lead to a satisfactory outcome for both parties.

Negotiating salaries and raises is a critical aspect of talent management that requires a thoughtful and strategic approach. Employers should aim to create compensation packages that are fair, competitive, and reflective of the value employees bring to the organization. By emphasizing empathy, transparency, and flexibility, employers can use these negotiations to foster strong, trust-based relationships with their employees.

Ready to optimize your HR operations and boost business productivity? Consider partnering with CoAdvantage, a nationwide Professional Employer Organization (PEO). With our comprehensive and cost-effective HR solutions, including but not limited to: HR administration, HR technology, workers' compensation management, and tailored health insurance packages. From payroll to compliance and risk management, we've got you covered. 

Let us handle the complexities of HR management so you can focus in growing your business. Fill out the form below to discover how CoAdvantage can support your company's success!