How do you deal with employees' unrealistic pay expectations?

Question

I have someone who came into an entry level trial position. They do not (yet) have the normal qualifications expected for the job, though they are working on this. We put them through a probation period to see how they got on and we were happy there could be a good fit for the role so we offered a permanent position. The problem is, when we offered the position, they responded they wanted a higher salary figure that I feel is unrealistic for their current experience and qualifications. They are expecting a salary that is only marginally lower than other people who are fully qualified and have many years experience.

They are quoting the salary level of a friend in another company they feel is in a similar role.

a) The quoted comparison salary seems extraordinarily high to me but I have no idea or way of knowing if it is genuine or if the friend is really at the same level this person is.

b) This person is nowhere near the experienced people we have in either ability or qualifications and it will likely take them a few years to get there.

How do you best negotiate on this without hurting their feelings?

Update to clarify my concern: I feel their pay expectation genuinely REALLY is unrealistic for this location, I don't think they will get what they are asking for anywhere around here with their current level of skills & qualifications

Secondly, another reason I think I can't give what they are asking for is: if they did get what they wanted and it became known to the other more experienced team members (there's no way to guarantee people won't talk about their salaries), I fear it could cause those other team members to become disgruntled that someone so relatively junior is earning close to their level.

But how do you negotiate/discuss in a way that will avoid them becoming disgruntled? The last thing I want is for them to reluctantly accept our offer only to become a disgruntled team member.

Answer 1

They wanted a higher salary figure that I feel is unrealistic for their current experience and qualifications. They are expecting a salary that is only marginally lower than other people who are fully qualified and have many years experience.

They are quoting salary level of a friend in another company they feel is in a similar role.

a) I have no idea or way of knowing if the quoted friends salary is real or if the friend is really at the same level this person is and

b) This person is nowhere near the experienced people we have in either ability or qualifications and it will likely take them a few years to get there.

How do you best negotiate on this without hurting their feelings?

I have always felt that being direct, honest, and open avoids most hard feelings.

Your offer was based on the value you place on the position, and the potential you see in the individual to (eventually) fill the requirements of the position.

Don't get into a comparison war with a friend's salary. Unless this friend currently works for you in an identical position, what some friend makes at some other company isn't relevant for what you want to pay for the position, so don't bother discussing it.

Point out that you value this individual based on his/her performance so far, and that you believe eventually she/he will grow into the position, but that right now they don't have the qualifications and experience that would warrant the salary he/she is seeking.

Talk about the kind of career growth you see in this position, and the benefits your company provides.

Finally, decide if you can offer any more than you already have, or if your offer is firm. Then be ready to deal with the response.

Thoughtful honesty should never hurt people's feelings.

Answer 2

Personal anecdotes and then answer.

Anecdote 1

When I graduated college, I had an internship that offered me a permanent position. When my boss called me into the office, and offered my a rate that was lower than I expected, I told him I'd have to think about it (not what he was expecting).

I did some research and talked with a career counselor, and came back with a counter 10% higher than the original offer, with market rates to back it up.

My boss accepted my counter and I started at the higher rate.

Anecdote 2

A few years later, I interviewed with another company and they offered me a position that was essentially a lateral move compensation-wise. I countered with a higher requested salary, and they noted that their offer was firm based on my experience. They didn't budge and I didn't take the job.

Answer

You need to determine if your rate is low, or if your offer is firm, and communicate that. You as the boss don't have to offer any proof or reasoning, it's a take-it-or-leave-it situation.

I suggest researching glassdoor.com to find the market rate for your area. If the potential employee's counter is valid and within the range for the market rate, I don't see why agreeing to it, or meeting that person somewhere in the middle between their rate and yours, would be a bad step to take.

If their counter is too high, all you have to say is that the offer is firm. You can't blame a person for trying to get more--that's what negotiation is about.

At the same time, if you have no intention of being able to reach that person's desired salary within a reasonable timeframe, please don't lie and say "accept this rate and we can work towards your desired salary after you prove yourself". If the range is outlandish, say so.

Answer 3

Of course he's asking for more money, that's how negotiations work. Focus on how you determine someone's salary. He asked for a raise, so he needs to be prepared for some level of disappointment. You can't control his feelings getting hurt if you decline his offer.

This person is nowhere near the experienced people we have in either ability or qualifications and it will likely take them a few years to get there.

Be honest and direct about where this person is, but also, let him know what is required to get to the salary level he suggested. He may disagree with your assessment, so make sure you've looked into this carefully.

Using one other person's salary as a data point, is not a valid argument. You could probably look through job postings with lower salaries than what you're offering (If not, maybe you do not offer competitive wages?).

Answer 4

I worked with an individual like this in a previous job, let's call him Simon M.

While Simon initially wanted the same salary as the programmers etc, despite not having the same skillset, our employer at the time was able to appease him by appealing to his ego and giving him two big monitors.

I imagine the same thing may work in your situation as well, ie offer alternative perks instead of a higher salary.

Answer 5

The friends may be in a place with higher cost of living, and starting salaries may have been adjusted to reflect that. Or the company they're joining may be less stable -- a startup, for example -- and they're being paid more because they're taking the risk that they may be looking for a job again relatively soon. Or they may be more experienced, or that employer may simply be more desperate for the skills, or... No two jobs are identical, no two humans are identical.

You aren't obligated to change your offer because they want more, and there shouldn't be hurt feelings if your offer wasn't insultingly below market rates. If this really is your best offer before you'd decide they're too expensive and go looking for someone else, say so. Of course, if they feel it isn't good enough, they may go looking somewhere else. So you do need to look at both what you can afford to offer and what's being offered elsewhere. Unfortunately, I don't know how to get current competitive salary information except to try numbers and see how many people take the offer. There may be industry salary surveys you can track down, but those are likely to be half a year out of date on average.

It may be sufficient to explain to the employee/candidate exactly how they need to improve, and how they can improve, to get to the next pay grade. You should be providing that kind of feedback and direction in any case, to build your employees' skills and their value to you.

Answer 6

Negotiations can be a tricky thing, and sometimes people have entirely unrealistic expectations that you simply can't fix. Typically this comes from people just starting off their career and go... programmers entry level make... and completely miss that location, market, etc are all HUGE factors in what "average" is.

I know someone like me who gets paid more

What someone else gets paid has little to no relevance to the negotiation at hand. Did this person apply to that company, get an offer, waiting to accept that offer based on your choice here... if not than how is their friend's success relevant?

The average pay is higher

This has "some" relevance, but only in two primary factors.

First, in your market, in your region, at their experience level what is average? If you're simply below that likely your employees will eventually figure it out and as spots open up in those companies you'll lose people to those companies.

Second, if other companies hiring for that role offer significantly more, retention will be very challenging as people figure that out. Sometimes you really have no choice but to accept retention issues if the role isn't worth as much to you, but if you low ball employee retention gets messy.

I can get a better offer elsewhere

Fine, go do it. No seriously if I'm offering you 50K and someone else is offering 75K for the same work you'd be stupid to take my offer. (we're assuming all things equal here)

I've actually said almost those exact words to people. "Oh, you could get paid more at Name of company? Then you should go do that. Unfortunately this role just isn't worth that much to us here."

What is reasonable and "fair"

This is ultimately what should be the driving result of negotiations. Both sides need to do their homework here.

You need to know well in advance what sort of return you'll expect having this person in your office. This gets extremely tricky to calculate in some industries but the short version is what revenue does this person generate, what expenses does this person mitigate, and ultimately at the end of the day how much of your profit would this person generate? (It get's WAY more complicated than that with nuances)

Once you know where all the money works you can safely say, this role will make me ~amount of money you can only justify paying the person less than this amount by a fair margin. (because as a company I hire people to make more money, otherwise my money can be put to better use else where)

If you figure this all out and what they are asking falls within the "profitable by a fair margin" range than what they are asking is realistic and fair. (of coarse many companies will pay as low as they can get away with) but we're talking maximums here not minimums.

My other employees only get paid...

This also is only partly relevant... it's relevant only if what's being asked is fair and reasonable when considering the return on investment of hiring this person is significantly more than you're paying your people. If that's the case than you are paying below what is fair and that's good for your company, but sooner or later others will offer more and your retention will suffer.

On the other hand paying this person more isn't a good idea since it'll upset the others and potentially cost you jobs as well. (same reason, just different triggering event)

How to tackle reality

Ultimately we have one of two possibilities here.

A. what this person is asking is technically fair and reasonable based on expected return on investment.

B. what this person is asking is not fair or is unreasonable based on the expected return on investment.

and ultimately which of these two scenarios it is winds up being irrelevant in your current negotiations... In both cases your best bet is to stick to the ranges common at your employer and accept there is a strong possibility you'll fail to retain this person. If you're lowballing them they are perfectly justified going else where, if you're not lowballing them they'll either accept it or they'll move on.

Long term negotiations

This is not a one time occurrence, there will be many others like this person in your future. You need to have a good idea what people are REALLY worth to you. You should make sure your people are paid / treated well enough to maintain a reasonable employee retention, without exceeding your cap. (where the sweet spot between good retention and the cap is varies greatly based on company, location, your employees, etc.) If you go too low you risk possible running loss. (one person leaves which leads to others leaving, chain reaction) if you go too high that's lost profits. (which is good for the economy but bad for the company)

Answer 7

The main point is: you FEEL their pay expectation genuinely REALLY is unrealistic for this location. It may not be the case. Maybe the other company will not find that money unrealistic.

The point is, your company do. And your company won't pay him that money. Be honest about it, because it's actually the case. Just say your company won't offer him more than XYZ, because she won't pay him more than XYZ.

Then it's his decision: either to accept XYZ, or try luck somewhere else.

It's better not to say "you're not worth that money" because if he gets offered that money, he can blame your company for using 'psycho tricks to lower self esteem to trick people to accept low wages'. If you just say "we can pay XYZ", it's the objective fact and should actually not hurt anyone's feelings. The person involved is free to interpret it as he wish, either as "I'm not yet worth that money" or "That company is not worth me". Or to accept that offer.

Answer 8

You provided the answer within your initial question:

I feel their pay expectation genuinely REALLY is unrealistic for this location, I don't think they will get what they are asking for anywhere around here with their current level of skills & qualifications

There is a fundamental economic dynamic at play here that almost everyone can "feel" but most people don't quite understand. What you are reaching at is the (Subjective) Marginal Revenue Productivity Theory of Wages, developed by Carl Menger and Eugen Böhm von Bawerk during the period of thought known as the "Marginal Revolution" (~1850-1900ish) where the Marxian Labor Theory of Value was proven fallacious (The LTV is fallacious because it attempts to explain the human concept of value and failed do so)

At any rate, there is a very robust explanation of the theory in Walter Block's "Labor Economics From a Free Market Perspective: Employing the Unemployable"

The loose definition of the theory is

The marginal revenue product of labour MRPL is the increase in revenue per unit increase in the variable input

To provide my own paraphrasing to the theory (sticking to the currently relevant parts), there is nothing 'special' about labor. It is a service provided by the laborer with the businesses he works for as the purchaser of that labor. As such, the price for all labor is subject to the same clearing process as any product and the natural focus for any consumer(in this case, the business) is to maximize the return on their budget dollars. As is the natural course of things, the only truly acceptable price for any product is "zero" but negotiating with free actors means that with everyone trying to optimize their costs to "zero", the only way to effect a trade is for each party to pull away from their optimal expectations and give up something of value in exchange for something of greater perceived value.

As part of that negotiating process for a business, the "perceived value" of adding an additional worker to the production process is known as the marginal revenue product. If you generate $10,000/day revenue with 100 workers, and you expect that adding a 101st worker will result in $10,400/day revenue, the marginal revenue product of the 101st worker is $400/day and his labor must be purchased for less than this number in order to justify the expense of hiring him. Again, this is trading something of value (his wage) for something of greater perceived value (that $400/day of additional revenue)

All wages tend towards this number, because if someone is capable of contributing $400/day of revenue productivity to a production process and his pay for this productivity is below this value, competitors have free margin to burn to draw him away and add to their own production process. And note that it is the competitor offers that actually determine one's wage. In a market where the second best offer does not rise to match a laborer's Revenue Productivity, the "winner" of the auction for that laborer's productivity need only provide a modicum above the second offer to price them out of the contest.

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If the sklll supplier attempting to negotiate with you has a second offer (or you believe he is capable of getting an offer from a competitor in the range that he expects) then the decision is on you whether or not to attempt to retain him.

If you feel (as you have expressed) that this individual is incapable of gaining a competing offer to his expectations, then you really are working from within your own budget expectations, risk assessment, and future outlook for their growth potential...which are things that only you can place an adequate value upon; they are your values.

There is no such thing as a "pay scale." There is no such thing as a "pay range." There is ∆MRP and there is an auction process for labor, just as there is with every product.

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With this grounding, you merely have to be honest.
1) Analyze the comps he provided for his justification 2) point out the cost of living adjustment between the locations 3) point out the skill differential between your organization's expectations of ability and his current status

and then decide if you're willing to put out a carrot for him to chase.

Perhaps lay out a plan for him to get where it is that you expect someone to be at to be able to issue the demands he has made. Then, simply make a counter offer as high as you're willing to go, and make that an honest maximum.

I hope that helps clarify your concerns.

Answer 9

They are quoting salary level of a friend in another company they feel is in a similar role.

This is completely irrelevant, since the friend could have more experience than the interviewee.

a) The quoted comparison salary seems extraordinarily high to me but I have no idea or way of knowing if it is genuine or if the friend is really at the same level this person is

Companies usually pay salaries that are relevant to the job and area/location. For my field: Silicon Valley pays mobile app developers around $150k anually. For Chicago this is $80-$100k. In my country it's around $55k. This is based on supply, demand, experience, but also on expenses. Some areas are more expensive to live in than others, so you will get paid more there (i.e., average Manhattan salary for i.e. lawyers and bankers is 500k anually).

Unless the person is so experienced and valuable to the company, he has no reason to ask for an unreasonable amount. If he can provide offers from other companies that are higher, you could compete with them by raising your initial offer. While a person works at a certain position for a longer period, he/she gets more experience and therefore can ask for a higher salary. Since this is not the case, he's probably bluffing in order to get paid more.

Answer 10

I once hooked up a friend with a job interview, and upon consulting with the interviewer afterwards learned that my friend - in response to the compensation question - said "Look up what the average salary is for this position in our state. That's what I want." This person was entry level and in no way qualified to be making as much as they were asking for (and were going to require 3 months of training in order to really be able to do that job).

My other friend (the interviewer) came back and offered what they asked for -20%, knowing that this person was currently making less than half of that offer amount. Of course my friend took the job because they aren't an idiot and recognize that the opportunity to be paid to learn is going to get them much further than sticking it out for that extra 20%, which they were never going to earn without it.

I would take the emotion out of the entire scenario and offer this person what you genuinely feel they should be paid while in the scope of your budget. Expect to negotiate up about 5% if you have to. If they really aren't qualified and need the experience, they probably already know that and are just hoping you'll offer them more.

Also, isn't it kind of inappropriate to be like "Well, I know that X employee makes _______ a year." Honestly I might be against hiring this person if they were asking for way more than they were worth and already digging around the salaries of other employees. Seems like a potential red flag for other not so great behavior to come.