Created by Dr. Andrea North-Samardzic, Deakin University

Created by Dr. Andrea North-Samardzic, Deakin University

Activity 3

Negotiating a bonus (Negotiation, Remuneration and Rewards)

Learning Objectives:

1. Understand and apply the planning process for a negotiation
2.Identify the different negotiation strategies
3.Analyse the strengths and weaknesses of a negotiation scenario
4.Recommend strategies to improve negotiation behaviour

It is one week later and you have your meeting with Jeff later in the day. You’ve done the performance appraisal so you know pretty much what Jeff will be arguing to obtain the largest bonus possible. Equally, he knows what your concerns are so you can guarantee he has prepared in advance. So you’d better do your preparation too.

You have up to $10,000 to give Jeff for his bonus. He doesn't know the exact amount but this is the ballpark figure of last year’s bonus so he would probably assume this. How much of this you give him needs to be well thought out because not rewarding someone effectively can impact on their motivation and therefore their performance. The last thing you want is a disgruntled employee.

You are a bit reluctant to give Jeff the full $10,000 bonus. He performed well but he didn’t meet all of his aspirational performance standards; though admittedly he achieved most of them. There is also the issue of his sometimes inappropriate comments to team members. You want to make sure that he knows this behaviour is unacceptable to the organisation and there are consequences. Whether this impacts on his bonus is your decision because no one else knows about this. Also the HR Director has intimated that keeping bonuses to a minimum this year would put the budget in a better position. Hmmmm. This requires some careful thought.

Planning a negotiation

Questions to ask yourself before negotiating:

• What are the main issues to negotiate? Make it about issues and not people. Issues can be reconciled.
• What are my interests, that is, why am I here? Try to focus on interests and not 'positions.'
• What are my goals, what do I wish to achieve?

Try to reflect on how the other party would answer these questions too.

Things to prepare

• What strategy do I want to take: integrative or distributive? What strategy do I think the other party will take?
• What is my frame? That is, how do I see the situation and how would I like the other party to see it? For example will the other part go into the negotiation like they're going into combat or will it be an open and collegial exchange?
• What are the potential roadblocks the other party may put up and how would I get around them? For example, will they try to play 'hard ball' and how will you try to soften the approach.

Key planning points

• BATNA - Best alternative to negotiated agreement. How strong is it for me?
• My opening offer
• Target point
• Resistance point. Remember that that resistance point is where you need to dig in your heels so consider this carefully.

Once you've noted these points, move on to 'Preparing for Jeff's bonus meeting.'

Preparing for Jeff’s bonus meeting

Interests

After thinking carefully you realise that you are here to reward Jeff for going above and beyond the performance standards for the year. The reward would also serve to encourage future performance.

Issues

The main issue to negotiate is the bonus. Be wary about going back into reviewing performance because you have already closed that meeting. Since you both agreed on the conclusion, if Jeff goes back to renegotiate his performance appraisal you need to steer him back to the subject at hand. If he disagreed with your assessment of his performance then he should have raised that at the time.

Goals

The goal is to ensure both parties are happy with the result and can continue a good relationship and improve future performance.

Teaching note: You need to make sure that both parties agree with these issues, interests and goals before commencing discussion of the actual bonus.

You have decided on the following amounts:

* Target point - $5,000

* BATNA - $7,500. You may not get the $5,000 because the other party can always throw a spanner in the works and catch you off guard with information.

* Resistance point - $10,000. Remember the resistance point needs to be further away from the BATNA.

* Opening offer - $3,000.

Question: Which strategy do you want to take?

Integrative

Distributive

Answer: Integrative. The distributive approach is playing 'hard ball.' This can damage an ongoing working relationship. The integrative approach is about the win-win and you have established in your goals that is what you want to achieve.

Negotiating with Jeff Transcript

You: Hi Jeff, come on in, take a seat. As you know, we need to talk about your annual bonus. The reason why we didn’t talk about your bonus last time was so I could reflect on our performance meeting. I wouldn’t have decided on your bonus without talking to you about your performance first and needed time to run the numbers.

Jeff: That makes sense. So….Can I assume I will be getting a bonus this year? Haha.

You: You have performed well so yes we will be giving you a bonus to recognize and reward your hard work and results. Unfortunately none of us have been able to receive the same level of bonus as last year. During the growth period, money is being put back into the company to ensure it grows profitably and not just in size.

Jeff: Ok I get that but I’ve been doing great work this year and I think that I deserve rewarding for it.

You: You have performed well. We like to acknowledge good work but we are not in a position to offer as much as last year. But this is something that is open to discussion. What amount would you be happy with?

Jeff: Well, I think $10,000 would not be too extreme…

You: I understand that you received $10,000 last year but we cannot offer you that for two reasons: first, we are not in a financial position to do so and two, while your performance has been good, it has not been at the same level as last year. This year, bonuses are around the 3 to 5 thousand dollar mark.

Jeff: Ok. Ok. I get that. But $3,000? C’mon!

You: I’m just letting you know the general ballpark we are all dealing with. So could you provide a revised number and why it’s fair. I want to reward you for your hard work. But you have to understand that everyone is tightening their belts.

Jeff: Ok, ok. I’m really not happy with $3,000 though, so I hope we can talk about a better outcome. I get that $10,000 is off the table. But I have done some really good work on the online training. The feedback was excellent. And I did create the new on-boarding system. So I think at least $7,500 is reasonable.

You: Well the on-boarding system was instrumental in your $10,000 bonus last year. This year, your main initiative has been the training which has had had excellent ratings.

Jeff: Yes it has.

You: But, we have to take into account your other outcomes and performance issues.

Jeff: What performance outcomes? In my performance review, you said that I was doing great!

You: Overall yes but on some of your metrics you did not perform as well as last year.

Jeff: Well I don’t necessarily agree with that.

You: In the performance appraisal meeting you agreed with me – I have your signature on the appraisal form. If you disagreed with how we both assessed your performance, it should have been raised in that meeting. And in your self-appraisal you did note that you had not performed as well as you had liked with the peer-mentoring system and a few other performance metrics.

Jeff: Uh…..well….ok, I mean…….Look, let’s do this properly. Grabs a paper and pen. *draws three numbers, $3,000, $5,000 and $7,500* You said bonuses are between 3 and 5. I said 75 hundred and from what you’ve just said it doesn’t sound like that’s going to happen. I don’t think $3,000 is fair.

You: And I want you to feel that you are being rewarded fairly.

Jeff: Good, so do I. So let’s talk numbers then. Can we say that we are talking somewhere around 4-7.

You: I’m happy with that. And I want you to be happy too. I am not trying to take money away from you.

Jeff: Yeah, yeah, I know, I know. So clearly, I want to be at the higher end of that. If 10 grand isn’t possible because it’s not possible for anyone, that’s fine. I just don’t want to think that people have better bonuses than me because I’ve done a great job around here. True, last year was a better year for my performance but I have been better than other people this year in my opinion. And I think my success with the training program merits recognition and reward. This is why I would be happy with a $7,000 bonus.

You: You make some strong points so I am happy to go above $4,000. However since not all of your metrics were at aspirational level, $7,000 may be a bit of a reach. In addition, we need to consider the feedback about your collegiality. It is important to not only be good at your job but be a good organizational team member.

Jeff: You’re punishing me for making some stupid jokes!?

You: No. I want to reward you in the future for going the extra mile with your colleagues.

Jeff: Fine. So what, $6,000?

You: Let’s not just focus on the numbers here. I want you to understand how we like to reward performance. Can you see why $7,000 would not be appropriate when we take everything into account?

Jeff: Well, I suppose so. But since it seems like every number I put forward you knock back so why don’t you tell me what you’re going to give me and I’ll just have to take it.

You: I did say that our bonus numbers are around 3-5 thousand.

Jeff: So what. $5,000?

You: Would you be happy with $5,000?

Jeff: Not really but if it is the best that you can offer.

You: I could go to $5,500 but that’s really the limit. Do you think that’s a fair outcome?

Jeff: Well that’s not as much as I hoped for but if it’s the highest amount being offered, then I accept it.

You: So let’s sign off on $5,500. When we’re in a better financial position, we achieve better outcomes and also, if you agree to work on your people management skills, we may have something better next year. Deal?

Jeff: Deal.

Reflecting on the negotiation

Question: What did you do well in your meeting with Jeff?

Answer:You found out expectations first. This helps you deal with facts and not justperceptions. You also had evidence to back up points, i.e. you used the performance reviewmeeting to keep the meeting on track and focus on current issues.

Question: What could have been improved?

Answer: You weren't completely honest with Jeff about the $3,000 to $5,000 ballpark. If Jeff finds out that you could have paid up to $10,000 and if anyone else received higher than him, your working relationship could be in trouble. It is also not a good approach to take if you are aiming for an integrative negotiation. You didn't take the time to map out issues, themes and goals. You didn't establish your win-win priorities before discussing numbers.

Bonus Motivation Theory Questions

Question: What theory of motivation did Jeff refer to in the negotiation?

* Herzberg’s two-factor theory

* Maslow’s hierarchy of needs

* Vroom’s expectancy theory

* Equity theory

Answer: Equity theory. Jeff talks about how he thinks he should receive a higher bonus due to better performance than colleagues. This is equity theory. When people compare themselves to others in terms of what outcomes they receive relative to inputs, this draws on equity theory. Employees want to be treated fairly. Perceived inequity produces tension within the individual and this motivates him or her to eliminate or reduce the tension by striving to make the balance equal.

Question: What type of motivation theory is it?

* Content

* Process

Answer: It’s a process theory. Content theories attempt to explain motivation in terms of factors that initiate employee behaviour. They give the manager an insight into employee needs and how these affect employee behaviour and attitudes at work. Process theories highlight thought patterns that underlie decisions of whether or not to engage in certain behaviour.

END OF ACTIVITY 3