Should Your Salary Program be a "No Negotiation" Zone?

An interesting new wrinkle is making its appearance in the broader pay transparency/pay equity movement: the elimination of salary negotiation in the hiring process.  Social networking and news sharing company Reddit Inc. made news recently when interim CEO Ellen Pao announced that it will no longer negotiate salaries in its recruiting process. 

In a recent Wall Street Journal interview, Pao said this about the change:

Men negotiate harder than women do and sometimes women get penalized when they do negotiate. So as part of our recruiting process we don’t negotiate with candidates. We come up with an offer that we think is fair. If you want more equity, we’ll let you swap a little bit of your cash salary for equity, but we aren’t going to reward people who are better negotiators with more compensation.

A recent NPR article on Reddit's decision also shared the story of another company -- far from Silicon Valley -- which has taken a similar step.  Elevations Credit Union, based in Boulder, CO, publishes its salary levels for each job title online, effectively eliminating (according to HR head Annette Matthies) salary negotiation during hiring or promotion.

Reactions to the "no negotiation" movement appear to be mixed.  Noreen Farrell, Executive Director at San Francisco based Equal Rights Advocates, says:

Too often, applicants or employees do not know what others are being paid, so they are at a disadvantage as they try to advocate for themselves. I think ending that kind of one-side negotiation is important and I applaud Ellen Pao’s willingness to test an out-of-the-box solution to a real problem impacting women and people of color in the workplace.

Shirli Kopelman, professor of management and organization at University of Michigan's Ross School of Business notes that while Pao's intentions are "noble," it's important to remember that negotiation is about "creating value and identifying opportunities together that are win-win agreements" and wonders how removing the possibility of negotiation might impact these opportunities.

Blogger Tim Sacket weighs in with an HR point of view, expressing the concern that such a move will negatively impact an organization's ability to bring in top talent:

Yes, we have inequities in salaries.  Having non-negotiable salaries can help these inequities, but this isn’t a solution. The reality is organizations need flexibility to negotiate salary, especially when it comes to attracting hard-to-find talent. Organizations that take a hard stance on this, will lose in the talent attraction game.

Is this a "flash in the pan" -- here and in the news today, gone tomorrow -- or will it gain traction, bringing the question of eliminating salary negotiation to our doorsteps?

I wrote not long ago about the facts that (1) pay transparency is coming, and (2) its coming will change the way compensation is designed and pay decisions are made.  There's evidence to suggest that transparent pay systems drive managers to pay everyone the same, avoiding differentiation that favors high performers/high potentials because those decisions can be hard to explain and defend.  For this reason, I hypothesized, pay transparency could spell the end of merit pay as we know it today.

In the same way, I find it conceivable that the movement to transparent pay systems could eliminate salary negotiations -- or at least significantly reduce the circumstances where it is permitted.  For the simple reason, again, that the resulting pay variances will be hard to explain and defend.

What we'll be left with, as the transparency movement continues pushing us to saw off and file down the rough edges of our pay practices, is something smoother and more defensible.  Which could be both good and bad, with consequences both intended and less so.

Closing thought: Wouldn't it be interesting to examine whether any correlations exist between willingness/ability to negotiate and certain positive individual attributes and outcomes?  In a manner where we could neutralize gender differences?  I'm wondering about factors such as individual performance or potential (in the 9-box sense) or demonstrated drive toward self-directed learning or creativity.  Before we push down this particular road, if we do, I'd like to see some evidence to support the notion that this is indeed a behavior we should be stamping out rather than trying harder to encourage in any disadvantaged populations.

Your take?

Ann Bares is the Founder and Editor of the Compensation Café,  Author of Compensation Force,  and Managing Partner of Altura Consulting Group LLC.  Ann also serves as past President of the Twin Cities Compensation Network (the most awesome local reward network on the planet) and is a member of the Advisory Board of the Compensation & Benefits Review.  She earned her M.B.A. at Northwestern University’s Kellogg School, is a foodie and bookhound in her spare time. Follow her on Twitter at @annbares.

Comments

[Darcy]

I don't think taking away the ability to negotiate from either the employer or the candidate makes sense. But I do understand why people are looking at this. Not only can it be more difficult for some to negotiate due to background, personality traits, etc.; there are some who view woman who negotiate negatively while admiring that same behavior in men. While I don't think this is the ultimate answer, I'm glad the discussions about how to fix this have started.

[Ann Bares]

Darcy,

So good to hear from you - always great to have Cafe alumni weighing in!

I'm in your boat - another issue fraught with complexity, with no easy answer, but experimentation and discussion are the way we figure our way through these things!

[Dan]

Darcy and Ann - I'll go one step further, in that, there is no answer to this issue. There needs to be diversity in pay due to the diversity of people's experience, education, knowledge, skills, abilities, certifications, performance, etc., in my opinion. Oh, and I'll bet the house that if, or when, Ellen is being further considered for the CEO position, and if she is worth her weight in salt, that there is going to be some negotiations on pay and incentives, or will she just except that the BOD will come up with "fair" pay?

[E. James (Jim) Brennan]

A narrower band within which negotiation is permitted makes much sense, if supporting data permits it. Especially when the position requires the exercise of negotiating skills and the employer is less than omniscient about the value of the talent sought.

The success of such restricted diversity policies is of course contingent on the wealth of the employer. The more generous the overall pay levels of the enterprise, the more feasible such changes can be. The lower their pay structures, the more good talented candidates will reject their paltry offers. If they can initially offer handsome rates, few will be disappointed at any constraints on negotiating room.

[Jules]

Most recent negotiation I've know about was interesting. We were hiring 2 temps, a gentleman and a lady. The gentleman negotiated and the lady didn't. He got partial of what he wanted but now that they are both working, we realized that, her work was of better quality and value. Does this mean they went back and fixed the comp? Nope, he is still overpaid (based on the value that he brings).

Was it her fault for not negotiating? Maybe. Is that fair? Probably not. Is someone doing something to fix it? Nope. Personally as a comp person, I would have not let that negotiation to fly. Mostly because I know specifically how much the job is paid and we shouldn't be paying more then the range it was intended. But again, I can only recommend and ultimately, it's TPTB's decision. Worse, they are suger coating and making excuses for his incompetence.

My pet peeve, paying extra when they are not even at full competencies. I guess I am a Scrooge.

My question is, in your respective organization and experiences, when you see a disrepency like this, do you go back and fix it or let it ride? Are we (compensation/HR people) part of the solution or part of the problem?

[Ted Weinberger]

Ann, the issue of pay negotiations between employer and employee has profound implications for those of us in the compensation field. Notwithstanding what may, in fact, be the broader pay transparency/pay equity movement, I can make an argument for the employer determining salary rates at point-of-hire for many jobs as not being subject to negotiation, but allowing for negotiation in establishing individual incentive plan arrangements. Regarding salary offers for new hires, it may well be that the employer can reasonably estimate the economic return from having any beginning employee perform the given job, and can set a single rate in recognition of this likely value. Since the at-hire performance value to the employer is not likely to vary significantly across potential job candidates, regardless of differences in their credentials/ qualifications, there is no upside to opening up the starting salary rate to negotiation.

On the other hand, there is justification for a negotiation process in fashioning an individual incentive plan. In particular, I believe the effectiveness of these incentive plans would be enhanced by facilitating a “bargaining exercise’ between employer and employee over the exchange of payout amounts for levels of results produced. Plan success often depends on inducing the employee to expend the necessary effort toward achieving performance outcomes. Unless the employee perceives a fair exchange of reward for effort, they are likely to reject the plan. It is in the interest of both parties to reach an acceptable agreement (i.e., an optimal compromise) on the incentive arrangements, rather than simply having the employer unilaterally design the plan and implement it on a “take it or leave it” basis. As compensation practitioners, it would behoove us to serve as the intermediary (i.e., “go-between”) for these negotiations between employer and employee. Please see my (shameless self-reference alert) 2011-Q4 article in WorldatWork Journal on “Side Agreement Facilitation: An Intermediary Role for the Compensation Professional”. Great blog.

[Ann Bares]

Dan,

Great point - and I'd be willing to make that bet as well!

Jim,

Agree that a narrower defined band for negotiation may make sense. And yes, hard to deny that there could be a link to employer wealth/affordability.

Jules,

Thanks for sharing your very interesting and relevant example - good food for thought. I'm sure there are cases where we are as much part of the problem as the solution - but hard to contribute to the solution when we only discover these situations after they are a fait accompli!

Ted,

Interesting proposition to consider - thanks for sharing the reference to your article here for readers who'd like to learn more.

[Chris Dobyns]

Wow, lots of activity and discussion for a Friday.

My prior employer had a no-negotiation policy, which seemingly worked well - although on my first exposure to this policy more than 20 years ago, I was pretty young and naive (now I'm just old and naive . . .). Back then, the policy was driven less by gender differences, and more out of concern for disadvantaging the inexperienced new college graduates (and their relative negotiating skills), and the more experienced careerists. So, whether that was to correct for inability to negotiate or unwillingness to negotiate, maybe that policy was (unwittingly) ahead of its time.

Was the employer disadvantaged, by how many folks we "lost", by not negotiating? We didn't hire huge numbers in my 10 years there, but I looked at my records, and out of the 211 folks I developed salary offers for, 198 of those were accepted (I was one of five comp folks on staff). Admittedly, some of those acceptances came in at literally the "11th hour" - on the assumption we actually would negotiate (we didn't).

And I'm not sure that pay transparency (at hire) will obviate pay differentiation (post-hire), since there's some belief that as "big data" becomes more prevalent, pay transparency may just be being confused with greater awareness of what constitutes competitive pay levels - and more universal availability of that information for employers and employees.

[Ann Bares]

Chris,

Thanks for throwing in - interesting experience and great insights. Good point about the eventual convergence of pay transparency and "big data." We may end up at a place few of us anticipated. But that's the fun, right (she said, trying to sound convincing....)?

[Tony Bergmann-Porter]

While nothing in what we do is ever "case closed" I think I've covered this waterfront before...

http://www.compensationcafe.com/2014/11/possible-direction-for-21st-century-rewards.html

[Ann Bares]

Thanks for the reminder, Tony. Yes, please all click through and read/re-read Tony's guest post for a thoughtful and detailed treatment of a lot of what we're discussing here.