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Professor William Maddux

Negotiations Workshop INSEAD Women in Business. Professor William Maddux. First you have to ask…. $312,339. $281,386. $111,000. $100,000. Salaries at 30 Salaries at 65. Lost income is $1,600,000. To negotiate or not to negotiate?. From Women Don’t Ask --Linda Babcock.

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Professor William Maddux

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  1. Negotiations Workshop INSEAD Women in Business Professor William Maddux

  2. First you have to ask…

  3. $312,339 $281,386 $111,000 $100,000 Salaries at 30 Salaries at 65 Lost income is $1,600,000 To negotiate or not to negotiate? FromWomen Don’t Ask --Linda Babcock

  4. Gender differences in negotiations • Women Don't Like to Negotiate • 2.5 times more women than men said they feel "a great deal of apprehension" about negotiating. • Men initiate negotiations about 4 times as often as women. • When asked to pick metaphors for the process of negotiating, men picked "winning a ballgame" and a "wrestling match," women picked "going to the dentist." • Women are more pessimistic about the how much is available when they do negotiate and so they typically ask for and get less when they do negotiate—on average, 30 percent less than men. • 20 percent of adult women (22 million people) say they never negotiate at all, even though they often recognize negotiation as appropriate and even necessary.

  5. Gender differences in negotiations • Women Suffer When They Don't Negotiate • In one study, eight times as many men as women graduating with master's degrees negotiated their salaries. The men who negotiated were able to increase their starting salaries by an average of 7.4 percent, or about $4,000. In the same study, men's starting salaries were about $4,000 higher than the women's on average, suggesting that the gender gap between men and women might have been closed if more of the women had negotiated their starting salaries. • Another study calculated that women who consistently negotiate their salary increases earn at least $1 million more during their careers than women who don't.

  6. Should women be more like men? • No! Unfortunately, the double standard persists • People don't accept the same behavior from women as from men. But this doesn't mean women that should just give up and stop asking for anything. • Women should ask for what they want in ways that feel comfortable to them and that society will accept. • By not seeming overly aggressive, women can actually remain tough on the issues they're negotiating—they just need to be gentle with the people involved. • Women have to worry much more than men about how they will be perceived when they ask for what they want and this puts an unfair burden on women. Unfortunately, however, that's currently the situation in our society.

  7. What is a Negotiation? • Negotiation is a decision-making process by which two or more people with different motives and preferences try to agree on how to allocate resources. • Debate • Convince another party of the validity of your position or interest • Arbitration/adjudication • 3rd party imposes settlement • May not be mutually acceptable

  8. Characteristics of negotiation • Parties typically believe that conflicting interests exist • Communication between parties is possible • Intermediate solutions & compromises are possible • Outcome not reached until accepted by both parties • Parties have incomplete knowledge about each other’s interests • Often pressure to get a deal

  9. Why are negotiation skills so important? • Negotiations at work • Your own contracts, raises, benefits, offers from other employers or to your employees • Clients, vendors, partners, competitors • Entrepreneurial ventures • Negotiations outside of work • Cars, houses, family/relationship issues

  10. Lessons in Negotiations: Camp David Accords

  11. Negotiation Ground Rules • Take 30-45 minutes to negotiate a deal • Point of the exercise: To get the best outcome for yourself as possible

  12. Negotiations Workshop INSEAD Women in Business Professor William Maddux

  13. Interests of the Other Party • Negotiators who discover interests of other parties get better deals whether the negotiation and/or issue is win-lose (distributive) or win-win (integrative) • The more you know about what’s motivating the other party, the more likely will find a mutually acceptable deal • Find out as much as you can, ask questions, gather information

  14. Different Types of Issues • “Distributive Issues” • Parties desire exactly opposite outcomes • Zero sum, competitive • When one party gains, the other necessarily loses • “Compatible Issues” • Parties desire exactly same outcomes • Cooperative • But can be used strategically • “Integrative Issues” • Issues are of differing importance/value to different parties • Can be traded

  15. Issues in Outside Offer • Distributive • Parties’ interests are opposed • (location) • Compatible • Parties want the same thing • (benefits package) • Integrative • Parties have differing preferences • vacation (M), promotion (M), salary (VP), bonus (VP)

  16. Distributive Issue • Parties desire exactly opposite outcomes • Zero sum, competitive • When one party gains, the other necessarily loses

  17. Compatible Issue • Parties desire exactly same outcomes • Cooperative • But can be used strategically

  18. Integrative Issues • Issues are of differing importance/value to different parties, Can be traded

  19. Integrative Issues • Issues are of differing importance/value to different parties, Can be traded

  20. How to get to the optimal deal? • Agree on compatible issues • Or use strategically • “Logroll” tradable issues • Give away issues that are of lesser importance in exchange for issues of greater importance • Take as much of the distributive pie for yourself as possible

  21. A compromise solution • Manager VP Joint • Salary Raise 800 2000 • Benefits 800 800 • Vacation 2000 800 • Promotion 1600 600 • Bonus 600 1600 • Location 3000 3000 • Total 8,800 8,800 17,600

  22. An optimal solution • Manager VP Joint • Salary Raise 0 4000 • Benefits 2400 2400 • Vacation 4000 0 • Promotion 3200 0 • Bonus 0 3200 • Location 3000 3000 • Total 12,600 12,600 25,200

  23. Leaving Money on the Table • By just compromising on all issues, you leave 7,600 points on the table (3,800 for each person) • This is value that could have been created via effective negotiation, but was not • “Logrolling” integrative issues allows you to create more value that can then be claimed

  24. 3 Key Negotiation Principles: • Aspiration/Target • Ideally, what would you like to get? • Best alternative to negotiated agreement (BATNA) • What’s your alternative if don’t get a deal? • Reservation price • What’s the worst deal you’re willing to go before walking away?

  25. Aspiration/Target Price • Set an aggressive but realistic target price! • 3 important reasons • If you don’t ask for it, you can’t get it • Allows you room to make concessions & reciprocate • 1st offers have a large impact on final outcome

  26. Anchoring and Adjustment HeuristicWe do not adjust estimates sufficiently from an initial anchor. Example • Wheel of Fortune and car mechanics • Real estate agents anchor on list price • First offers in negotiations Managerial Problems • Anchors set reference points (framing effects) • 1st Impressions create “lock in” effects: “High potentials” and “halo effects” • Changing decision may be difficult in general • Most problematic in rapidly changing environments • We often escalate our commitments

  27. Impact of the First Offer • So, make the first offer and anchor in your favor • Favorable anchors yield better outcomes, even when other party knowledgeable • Anchor should be aggressive, not outrageous • Know the available range, ask for the most favorable number; be prepared to justify! • Focusing on your target throughout the negotiation leads to better outcomes for you

  28. Effective consent rates, organ donation:Explicit consent (opt-in, gold) & presumed consent (opt-out, blue).

  29. When should you not make the 1st offer? 1) If you have little/no information about bargaining zone • 1st consulting job… 2) If it would be inappropriate to do so • typical job negotiation

  30. When should you not make the 1st offer? 3) Bidding/auction situation 4) If negotiation is very unstructured 5) If you are in a very low power position

  31. What if the other side makes the first offer? • Focusing on the following can eliminate the first offer effect • Information inconsistent with the opponent’s first offer • Opponent’s alternatives • Opponent’s reservation price • (Galinsky & Mussweiler, 2001, JPSP)

  32. Reciprocity • Psychologically, we have a need to meet others halfway • Successful negotiation requires reciprocity • High anchors give you room to reciprocate • ‘Playing the game the right way’ encourages other party to give you what you want • People expect reciprocity in negotiations

  33. BATNA(Best Alternative To a Negotiated Agreement) • Your BATNA is your greatest source of power • Means you don’t necessarily need an agreement on the current deal • Gives you the power to ‘walk’ • Rule of 3 • Counterparts’ perceptions of your BATNA important • Do everything you can to improve BATNA before you negotiate.

  34. Reservation Price • Reservation Price is your “bottom line.” The worst deal you are willing to accept • Reservation Price is BATNA +/- preferences for different choices • If you prefer this deal, reservation price may be lower than BATNA • If prefer another deal, reservation price may be higher than BATNA

  35. Creating Integrative Agreements: Increasing “Joint Gain” • Ask questions • Build trust and share information • Give away some information • Reciprocate • Build trust & rapport • Take the perspective of the other side • *Add additional issues • Logroll issues

  36. Negotiations Toolbox • Interests of parties are the key to getting a deal • Anchor negotiation in your favor • Know your BATNA, improve as much as possible before negotiating • Know your reservation price, but do not reveal it • Look to create more valuable agreements if there is integrative potential • Ask questions, share information, use reciprocation, build trust, add issues to the table • Logroll integrative issues • Look for compatible issues, be ready to fight over distributive issues • Always Negotiate!

  37. Negotiating a Job: Preparation • Know about the company • What are their interests • Use the Web, the library, ask around • Know the labor market situation • How many are they planning to hire? • How tight is the managerial labor market in their industry? • What are other grads in your area being offered? • What is the typical deal for people in your position in the industry? • What are the regional impacts on a deal (e.g., costs of living)? • What is their reservation price?

  38. Employment Package • Prepare a planning document and develop a scoring system • Carefully think about your priorities (Financial, stability, location, independence, mental stimulation, personal growth, low stress) • Identify the least acceptable deal to cover your interests! • Identify missing issues • Identify issues that are compatible • Identify trade-off possibilities • Review your sources of power to build confidence. • Remind yourself of the reasons you deserve your target offer!

  39. Employment Package • Be creative in considering all the forms of compensation that you could get (remember that some of these forms may be of high value to you but low cost to them!) • Base Salary • Signing Bonus • Annual bonus (individual and group) • Relocation expenses • Stock Options, Retirement Options • Tuition reimbursement, Housing assistance • Paid Leave: vacation, sick days, training/conferences, holidays • Insurance: health, disability, life • Care Plans: child, elderly, parental leave

  40. Job Negotiation Strategies • Always negotiate! • Even if offer ‘non-negotiable’ • Even if BATNA is unattractive • There are ways around this

  41. Job Negotiation Strategies • Do not negotiate until you are prepared to say yes if they meet your target price • “I’ll except the offer today if the contract includes….” • You are most powerful before you say “yes” • Emphasize how elements of counter-offer display commitment to firm • Use interests strategically • “I’m very flattered and interested, but I have some questions and want to be sure I have all the information so that I can make a long-term commitment that will be mutually beneficial.”

  42. Tough Questions • Probing for a low anchor – Questions about current/former salary • If it is an extremely high anchor, okay to reveal • If it is below your target price, politely explain that old salary is irrelevant because have a new skill set and better credentials • Ask them to make you their offer • You can avoid letting their offer anchor the negotiation through preparation and focusing on your target price!

  43. Tough Questions • Probing for a BATNA/RP?Recruiter asks about your other offers • Use objective standards instead of BATNA • What other graduates of your school are being offered • What other companies in the industry are offering • What other companies in the region are offering • First Offers – Recruiter wants you to make the first offer • Take advantage of the anchoring effect – be optimistic, but realistic

  44. Tough Questions • Recruiter says giving you the salary, bonus you are asking for will disrupt the internal wage structure • Focus on your unique qualities, especially the value of your education • Point out that hiring from outside instead of promoting from within produces higher salaries because of transaction costs • Recruiter says cannot justify wage package now • Negotiate a review in 6 months instead of a year • Negotiate a bonus contingent on your performance • Propose to trade for another issue (tuition reimbursement, mortgage loans)

  45. Tough Questions • Recruiter says something is not negotiable • Do not ask “Is this issue negotiable?” Instead, say, “I have some questions about the moving allowance, can we talk about this?” • If they insist something non-negotiable, find out why • Ask if something can be traded for the non-negotiable item • Recruiter wants to negotiate one issue at a time • Suggest that there are a number of elements to your decision and you would like to know what they are offering on all • Counter offer with a package deal

  46. Final Thoughts • Ask for what you want! (If you don’t ask, you can’t get it) • Negotiate for yourself as if you were negotiating for someone else • Add issues to the table • Get things in writing • Know when to stop negotiating and accept the offer • Keep the long-term relationship in mind • Be comfortable with your negotiation style.

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