A constant theme in the lives of my coaching clients is the difficulty of conducting transactions when stakes are high and value is difficult to ascertain. This frequently comes up in the context of compensation negotiations. Most of my clients are leaders of growing companies who are almost always hiring one or more senior execs--sometimes in order to fill a new role, and at other times to upgrade a position with someone more capable. And occasionally I work with people navigating a transition who find themselves on the other side of this process.
The figures involved in senior-level compensation packages may be large and complex, but ultimately they're still just prices, and when we're involved in a negotiation it's essential to give some thought to the psychology of pricing. Prices are always laden with meaning, and compensation figures carry the additional burden of putting a value not only on our labor, but also, in a sense, on ourselves, which inevitably involves subjective assessments of our own worth and that of the value we create. Complicating matters further is a cultural divide that I've come to think of as list-price vs. haggling.
In a list-price culture, there's a high degree of transparency and very little flexibility. An opening offer may not be take-it-or-leave it, but there's relatively little gamesmanship in the process. There may be some room for negotiation on the margins, but the basic requirements necessary to close a deal are clear and straightforward, and it's reasonably obvious when the two parties are sufficiently close to reach agreement and when they're not.
In a haggling culture, the opposite is true. There's very little transparency and a great deal of flexibility. Opening offers are never take-it-or-leave-it, and gamesmanship abounds. Everything is up for negotiation, and the basic requirements necessary to close a deal are uncertain and highly dynamic. It's rarely apparent whether the two parties are sufficiently close to reach agreement, because their currently stated positions may bear little relation to their actual willingness to reach a deal.
Our identification with one culture or the other derives from many potential sources--our nationality, community, family of origin, formative experiences, and professional training, to name just a few. We may also change sides in different contexts--we don't necessarily always employ the same approach. But in my experience most people have a basic tendency toward one culture or the other that asserts itself in compensation negotiations, largely because of the strong emotions that these experiences typically evoke.
In some situations, the setting itself determines the culture of the transaction--for example, in the United States it's expected that used car purchases will involve some back-and-forth, and even list-price people who resist haggling will be unlikely to accept the initial figure proposed by the seller. But compensation negotiations for senior execs can be much harder to decode. When a leader is contemplating how to craft an offer for a candidate, and when a candidate is determining how to respond, it's typically the first transaction between these two parties, and they may know very little about the other's transactional culture. And when the two cultures collide it can make an already-difficult process even more challenging.
The fundamental issue is the different way each culture communicates meaning through prices. In a list-price culture, the opening offer is an information-rich signal, and it will be closely aligned with the leader's assessment of the candidate's value. In a haggling culture, the opening offer is much less meaningful and may say very little about the candidate's value to the organization; that information will be conveyed slowly and strategically over the course of the negotiations.
So what can we do? First, it's essential to understand our own cultural tendency. While we may be more flexible in certain situations, in compensation negotiations it's likely that we revert to one or the other. We also need to learn as much as possible about the other party's tendency, which will inevitably involve drawing conclusions based on incomplete information. The key here is to insure that we're neither exaggerating on the basis of stereotypes nor ignoring potential signs that may be meaningful clues. Before we act on the basis of these conclusions, it's important to clearly understand where they're coming from--we need to analyze the data we've observed, our interpretation of that data, and the theories and beliefs that underpin our interpretations.
We then have to make a provisional assessment of whether we're dealing with someone who shares our cultural tendency, and this will inform our opening move and initial responses. The first few interactions in the course of the negotiation will tell us a great deal about the accuracy of this assessment, so it's critical to be looking closely for any information that might support or challenge our view. In short order we'll learn whether the other party shares our cultural tendency, and if they do, the situation is simplified tremendously.
But if they don't, then we need to more clearly understand the implications of conducting a negotiation across this cultural divide and the potential surprises that await us. When a list-price leader meets a haggling candidate, the leader may be surprised by a seemingly outrageous counter-offer, and the candidate may be surprised by the leader's rigid inflexibility. And when a haggling leader meets a list-price candidate, the leader may be surprised by the candidate's apparent lack of responsiveness, and the candidate may be surprised by the insultingly low opening offer. With this heightened awareness, we can better identify and manage the emotions that inevitably come up in response to these unexpected developments--our own and those of the other party--making it much more likely that we'll reach a successful outcome, either by closing a mutually satisfactory deal or by accurately concluding that a deal isn't possible.
For Further Reading
Negotiating with Your Own Side
Photos: Prices by Skidflints. Handshake by OXLAEY.com.
