5 Mistakes to Avoid When Setting and Negotiating Salaries

Just as there are plenty of best practices when it comes to setting and negotiating salaries with new (and newly promoted) employees, there are also some major pitfalls that you will definitely want to avoid.

Small mistakes are of course inevitable, but major ones can not only cause quality candidates to walk away, they can actually harm the reputation of your organization over the long term.

Here are some examples of the types of mistakes you want to avoid.

Negotiation Mistake #1. Refusing to negotiate.

Salary discussions are just that, a conversation. When you make an offer, there’s an excellent chance that the candidate will try to negotiate. Unless the role is grant-funded (in which case your hands may genuinely be tied), you should do your best to engage with your top candidate in good faith. If you’re already at the top of your salary range, you may be able to offer something else, such as seniority, vacation time, or a relocation bonus.

The biggest mistake occurs when employers become offended by candidates who try to negotiate, insulting them or withdrawing their offer altogether. Even if the request is totally out of line with reality, it’s best to remain courteous in your refusal. Candidates often end up working with competitors, and your reputation in the industry may shift based on their impression of you.

Negotiation Mistake #2. Lowballing.

While you should expect your candidates to negotiate, this doesn’t mean you should start out with a number that is so low as to be insulting. You’ll want to offer something that is slightly lower than what you expect to settle for, but well within the range of a reasonable pay rate.

Would you be embarrassed for the candidate if they chose not to negotiate? Then your starting offer is probably too low.

Negotiation Mistake #3. Basing your offer on their previous salary.

In general, a candidate’s previous salary should have little to nothing to do with the offer that you make them. There are numerous reasons why their previous salary might have been low: they were at a nonprofit or other low-paying field, they were underemployed, they were undervalued at their previous workplace, or they were living in a lower cost of living area.

This has become such a problem in hiring that asking about pay history is illegal in eight states. In general, you’ll only want to take a candidate’s current salary into account if you are actively trying to recruit them from a position and an employer they enjoy. In most other cases, focus on the skills and qualifications they bring to you, not how they were valued elsewhere.

Negotiation Mistake #4. Treating internal and external hires differently.

There are so many cases of employees needing to leave their organization before they can return and get paid market rates that they even have a name: boomerang employees. This phenomenon is a direct result of misguided practices that limit the salaries of employees who are promoted from within the company while compensating external hires based on fair market rates. If you have any interest in retaining loyal employees over the longer term, treat each salary negotiation as though the candidate were coming to you from a competitor.

Negotiation Mistake #5. Basing salary on a feeling or a hunch.

Many hiring managers decide to “go with their gut” when it comes to determining what a candidate is worth. The reality is that this method of making salary decisions is rife with bias—often unconscious—that perpetuates pay discrepancies between different groups and classes of people.

It can help if you put together some sort of rubric for assessing candidates and their potential value to your business, and if multiple people can be a part of assessing a given candidate. This can reduce bias and introduce a modicum of objectivity to the process.

A salary is a tool.

You use pay to recruit top-notch employees, encourage growth and performance, and inspire loyalty. And like any tool, it can be used masterfully or poorly, and even deliberately misused. Curious about how to set the perfect salary? We’ve got plenty of information on that topic available for free. Or we can help you with finding both the right employee and the right salary for them. Get in touch to learn more.