Weighing Trade-offs in Negotiation
Comparing Apples, Oranges, and Maybe a Lemon Thrown Into the Mix
A quick word first
Thanks for visiting The Jazz of Negotiation! When you have a chance, check out the About page to see the aim of this publication and learn how it can help you become a more effective negotiator. (Photo by Diego Marín on Unsplash)
Putting a price tag on intangible issues
I like the adage, “Not everything that can be counted counts, and not everything that counts can be counted.”1 It certainly applies in negotiation.
I thought of it recently when a Jazz reader (call her KL) asked, “How should I convert non-financial items into dollars?” She explained that she often looks at other jobs with higher pay than she gets now, but she worries about “the risk of being less happy, because of some unknown.”
Great question! Salary is easy to measure but can you monetize happiness (or the lack of it)? The answer is yes, at least to a degree, provided that you ask yourself the right questions.
First of all, I can’t imagine any amount of money that could compensate a person for feeling miserable. So, let’s dial back a bit and imagine that the downside isn’t quite that bleak. The downside could be longer hours, more stress, or a tougher commute. Intangibles like that still can matter a lot.
Let’s see how a three-step, pre-negotiation routine might help KL—and others in similar situations—identify their trade-offs more clearly.
Step one: Establish a benchmark deal
Start by reviewing your nonagreement alternatives. What’s the best thing you can do if you can’t reach agreement (your fallback or so-called BATNA.2 For KL, it is the status quo, sticking with her current job. The better your walkaway is, of course, the pickier you can be. Correspondingly, if your options are poor, you may have to accept less than you’d like or feel you deserve.
For a benchmark, KL should imagine an offer from another company that would present with a hard choice. It would have to be something that’s better in some respects (likely higher pay) but not so good in others (namely, the uncertainties that worry her).
If she’s currently getting $85,000 with standard benefits, let’s say that an offer of $100,000 with the same benefits might put her in flip-a-coin territory. Call this Package A.
That shows implicitly that it would take a $15,000 raise just to tempt her to go elsewhere. It’s the compensation for running the risk of being less happy. And that’s just her bare minimum. Naturally, she’d like to get more, maybe much more.
This is just a start, though. Don’t stop here.
Step 2: Identify other packages of equivalent value
But what if the top salary the competing company would offer was $90,000, not a penny more. End of story? No.
KL should imagine at least two other hypothetical packages, different ways of structuring a deal, that overall are no better, no worse than either the status quo or Package A. Maybe having the freedom to work from home would make up for a somewhat lower salary. That’s Package B.
And she should stretch her thinking further by figuring how big a bump would be needed if this other company wanted her to move out of state. It might have to offer still higher pay to even tempt her. To get an enthusiastic yes from her could take much more. (Package C).
Comparing different packages, all of equivalent value, reveals the subjective importance of intangible, sometimes interconnected factors. Financial compensation is an important factor when job hunting. But so is the nature of the work, the attractiveness of the locale, and cost of living there. The more packages you compare, the clearer your priorities will be.
Step 3: Anticipate change
These assessments should be sketched in pencil, subject to revision depending on what you learn while you’re negotiating. When KL sits down to with her perspective employer, her interest taking a new job may grow and her worries, abate. If so, the weight she gave to emotional factors may shift (though still be important). As new issues and alternatives arise, her initial trade-off analysis would give her a solid foundation from which to work.
External circumstances may change as well. KL’s initial assessment was based on her assessment of her BATNA at that time, sticking with the status quo. What if in the midst of negotiating with the new company, her current employer gives her a promotion—and a pay increase to go with it? That would improve her BATNA significantly, in respect to both money and status. In turn, that would elevate her baseline, and with it, what it would take for another company to lure her away.
A bonus
Your baseline merely establishes the floor, of course, the absolute minimum that you might accept. Your aspirations often should be higher, sometimes much higher.
Use the same multi-package comparison to set a stretch goal. This time imagine a great outcome, a longshot to be sure, but not utterly implausible. And as before, figure out different ways that it could be structured—better in some respects/not as good in others—but overall, equally attractive.
Hard work? Sort of. But well worth it and there’s an added reward.
Scrutinizing your trade-offs will open up your thinking the same way that warming up before a match helps a tennis player be both limber and focused. Research shows that negotiators who prepare by assessing various possible solutions generate additional ideas when they sit down to negotiate with other parties. Amped-up creativity on your part will expand the proverbial pie to everyone’s benefit.
Housekeeping
Just by signing up for Jazz of Negotiation, you’ll get free access to a full article, plus a shorter post, delivered by email 50 weeks a year. Paid subscribers get additional content: Q and A threads, videos, and from time to time, short exercises, with more to come.
This quotation is commonly attributed to Albert Einstein, but credit may be due in fact to William Bruce Cameron, author of Informal Sociology.
BATNA is short for your Best-Alternative-To-A-Negotiated-Agreement, in other words, your fallback.