The Negotiator

(1) Background & Synopsis of Negotiation 

Background

Peter is a young single man, MBA qualified from School of Management. He works in this company for 5 years, first two years as Assistant Junior Manager in Marketing Division and after he was promoted without obtain any significant award. Since 3 years he receives only nominal nature raises even if he takes the same responsibilities and same role of the other managers who raise their financial positions.

The Modern Tool Manufacturers is a multinational company based in Hong Kong and it provides a very attractive 1-year Management Training program where young talents go through four 3-month job rotations to different departments to obtain skills and experience. At the end of the program, they will be assigned to specialize in one department.

           

Synopsis of the Negotiation

Peter enters the office of his employer, Jim, in demand of a raise following the new company policy denying him a bonus for his work this year. Peter has been earning HK$5,000 less than his peers doing the same job. Now he thinks it’s time for things to get even.

Peter: I’ve been working here for 5 years and have been loyal ever since. I have made contributions and taken responsibilities way out of my league and delivered spotless performance. I think we need to review my remuneration package to reflect this, especially my bonus or the lack of it.

Employer: I understand your situation but there’s nothing I can do. This is a new company policy that I have no control of.

P: OK you may have no control over the bonus but you can certainly give me a pay raise of HK$5,000. I’m not asking a lot but I just want to be treated fairly. I’m doing the same job as other managers but I don’t get the same compensation.

E: I’m not sure we can do that but let me think of something I can offer you.

Now the employer shows Peter 2 packages as follows:

Package A (proposed by Employer):

- Flexible hours (more days off) but no working from home

- Increase insurance coverage to your dependent family

Package B (proposed by Employer):

- Stock Options (Stock becomes yours 2 years from now)

P: It sounds good but I deserve more. The increased insurance coverage doesn’t quite apply to me, as I’m not married yet.  Why don’t you give me flexible hours and stock options? But for the stock options, I’m not sure if I have enough influence power to push the whole company to perform. I was thinking of a package myself so that the pay gap between m (Houba & Wen, 2004)y peers and me can be closed.

Package C (proposed by Peter):

- An immediate HK$ 2.000 pay raise

- A pay raise of HK$3,000 after 2 years of proven capability & performance

E: I see where you’re coming from, but I can’t comply with your wishes because it is too much to offer an inexperienced employee like yourself. I see the potential in you and I believe you can go further in your career and more reward with the third option I’m offering here.

Package D (proposed by Employer):

- Mentorship from Chief Marketing Officer

- Priority to choose the best Management Trainees (MT) to enhance your team upon their graduation of the 1 year program

- Stock Entitlement for proven capability and performance in training 4 MTs in the first year & the stock will belong to you at the end of the second year after completion of training of another 4 MTs.

If you can deliver the results, I’m sure you will get more monetary reward than a pay raise of HK$5,000 per month. I consider this a win-win outcome for you and the company.

P: That sounds like a challenge and I’m up for it.

E: I will schedule a meeting with the HR Talent Management Team to go through the details ASAP. I will keep you updated.

(2) The reasons why Packages A, B & C don’t work.

Package A (proposed by Employer):

- Flexible hours (more days off) but no working from home

- Increase insurance coverage to your dependent family

Package B (proposed by Employer):

- Stock Options (Stock becomes yours 2 years from now)

Package C (proposed by Peter):

- An immediate HK$ 2.000 pay raise

- A pay raise of HK$3,000 after 2 years of proven capability & performance 

In terms of trust and relationship building,

Knowledge-based trust creates a dependent atmosphere and enhances commitment among negotiators (Thompson, 2009). The lack of knowledge-based trust is clear in this case. Even though Peter has been working in the company for 5 years, the employer is still not aware of his marital status or long-term career goals. This can be seen from his proposal of increased insurance coverage that are not applicable to him and the short term increase in benefits, such as flexible hours as presented in Package A. It goes to show that there is minimal communication and trust building in this working relationship or the lack of it.

No identification trust can be identified, as the Employer did not even ask Peter directly on his preference or priority. He did not once take Peter’s perspective and think about what the young and well qualified want from his career but assumes that Peter wants monetary reward only. The lack of “emotional connection” makes the quest for win-win result difficult (Thompson, 2009).

In terms of negotiation tactics,

(a) False conflict

This negotiation creates a “false conflict”, because the two parties believe that “their interests are incompatible with the other party’s interests when, in fact they are not” (Thompson, 2009). The interest in this case is the pay raise. Employer thinks Peter is only looking for a pay raise while he considers there

Peter suggested Package C because he has not been treated fairly by his employer the last couple of years as he has taken on the same responsibilities as his fellow colleagues. He wants to get recognized for his consistent contributions and be seen even with his peers.

(b) Fixed pie perception

As pointed out in the above point, both Employer & Peter assumed they were in conflict in terms of salary increment. Peter was trying to maximize the pay raise increment to as far as HK$5,000 to be on equal terms with his peers while Employer was trying to steer away from it by mentioning benefits that do not require upfront salary increment, e.g. insurance, flexible hours and stock options. Both of them are focused on slicing the pie but not expanding the pie.

(c) Illusion of transparency

Peter can manipulate the employer to think that the employee would work harder in order to receive the promotion till the HK$ 5,000, but in truth, all he needs to do is work as he has been doing for the last three years. This is thereby only a win for the employee and a loss for the employer because he does not receive anything from the extra cost he has to provide. (Thompson, 2009)

(d) Compromise & delay

The benefits from offering stocks to the employee are that the employee is more engaged in the overall performance of the company, because he has stocks that depend on the performance of the company. If the performance goes well, he will make more money. If not, then he will find himself on the losing side. That is why the employee will be highly motivated to make sure he receives most value possible.

From Peter’s point of view this kind of solution will not be able to raise his financial position in short period as he expected, but after two years of hard work, as shown in Package B. Another problem with Package B is that, Peter has not been given extra resources to influence the company’s performance even after he has been given stock options. This will create a lack of motivation and trust on Peter’s part towards the company that is counterproductive.  This results in a lose-lose situation – both Peter and the company’s performance is compromised.

(3) Negotiation tactics that work

The Package Deals

The negotiator was trying the “door-in-the-face” technique, by offering two extreme packages that he knew Peter would not accept, and one unsuitable package from Peter, that Peter knew the corporate would not accept (Malhotra & Bazerman, 2008). After three rounds of unsuccessful negotiation, the negotiator presented Peter with the win-win package.  The company offered Peter the following arrangement:

• Mentorship program for Peter, which will be a good opportunity to executive level
• Peter will have to train four management trainees (MT) per year, however, Peter gets to choose the MTs to be in his team.  After the graduation of the MT, Peter makes the first round of selection and recruits the graduates to be permanent personnel of his team to increase productivity
• Stock options from the company, which he can cash 2 years from now 

The package included more than single-issue offer, for the reason that it does not permit the negotiator to make trade-offs between the matters (Thompson, 2009). By having multiple offers, the negotiator widens the bargaining zone.

Interest and Priorities

In order to reach the agreement, the negotiator became an active listener to increase trust and cooperativeness.  To shift the situation from a “win-lose” situation to a “win-win” situation, both the organization and Peter took perspective of the other party, and understood each other’s concerns and priorities.  According to Wertheim a Win-Win situation involves active listening, effective communication and preparation (Wertheim, 1996).  The ultimate goal of Peter is to have a clear career path, which he can climb up the corporate ladder.  Moreover, Peter desires to enhance his leadership skills, which could effectively develop his human ability.  According to Three-Skill Approach of leadership (Northouse, 2010), in order to become successful leader, the individual must achieve different level of technical, conceptual and human skills in different management settings.  If Peter is moving to top management, he has to develop his conceptual and human skills, while there will be less demand on his technical skill. The goal of the corporation is to develop their people, therefore, it can increase the performance and productivity of the company.  The company wants greatly motivated individuals that is devoted to the organization, and needs trainers to coach the new blood to high quality MT. 

           

Un-bundle and Re-bundle

Un-bundle: $5000 increment, time differences

Re-bundle: stock option, insight and knowledge from top executive, staff development           

Win-Win Situation

Benefits of the employee:

• Get the most intelligence MT graduates to join his team to enhance productivity
• Therefore, he can have time to get the insight and learning of the conceptual, high level decisions
• Other MT graduates of other departments will be his source and expansion of his connection
• Possible career path to senior level
• Stock options which eventually will be worth more than $5,000 per month

Benefits of the employer:

• Do not have to give out the $5,000 right away
• Peter can help with training the MTs, since not all managers are willing to include MT in their team, due to extra time and efforts that they have to put in
• Develop Peter to be the next executive in-line
• Increase the value of the company

(4) Analytical approach to finding a Win-Win Situation

Value and Expectation Differences

The value difference between the employer and employee is based on the fact that Peter wants to raise is salary immediately, expecting a valuable compensation for his work and an equally treatment as others managers, while the company tends to preserve Peter’s role as a valuable asset, who represents, after five years of work and promotion, a good resource for the company.

If we need to bring out the best solution on the table, we think of “some Potential Positive Outcome and Potential Negative Outcome” (Wertheim, 1996).

As we offer Stock Entitlement for proven capability, we concern about increasing motivation and trust towards the company, increasing performances and group loyalty of the employee who will be prone to take care of economic trends and positive results about company. Equally, the company reduces the risk of talent turnover, increasing the possibility to growing performances because of satisfied and motivate employee. For the concern of potential negative outcome of the conflict, this proposition avoid that “the careers can be side-tracked and relationship ruined” (Wertheim, 1996) because Peter used to be able to build trust and relationship within the company creating more value on the team-work.

About the Management Trainees (MT), the priority to choose the best trainees would helps Peter to select the most brilliant figures helping him to collect excellent skills and know-how remembering that “Smart people are more important than good ideas and if you give a mediocre idea to a great team they will make it work or throw it away and come up with something that works” (Catmull, 2008).

As a result, the MT selection priority does help him to get great influence and more power in the company, choosing an effective group structure and building trust among collaborators (Riley, 1996).

Mentorship from Chief Marketing Officer enables our employee to increase his vision at a managerial level having the chance to attend Board meeting, presentation and semester with senior management developing a vision of long-term change (Riley, 1996).

Differences in Risk Attitude

Risk-seeking negotiators are more likely to “trade off issues in a win-win fashion” (Thompson, 2010). Peter is young and well qualified manager with a proven record of success. He would not have problem looking for another job if negotiation falls through. And so he affords to be more risk seeking and is comfortable enough to accept Package D even though it may take longer & more effort for reward to materialize and when it does, it may be in a bigger fashion too in a way that benefits both himself and the company. As such he will gain knowledge and experience transfer from the top executive, more capability in his team from better performing MT graduates, increased productivity for the team and eventually the company can have a higher productivity and more chance to reap more profits. It’s the ideal win-win result.

Time Preferences

In 1748 Benjamin Franklin met a young tradesman and said the following to him: ”Remember that Time is Money.” The opportunity to alter when something is due is a very powerful tool in a negotiation. The package offered by the Employer has this element embedded in it. The relative time preferences of the both parties play an important role on the relative bargaining weights and the conditions for each of the two cases (Houba & Wen, 2004). Peter believes he has been treated unfairly by the corporation, and would like instant gratification by receiving a pay rise. This is due to the fact that he has the same workload as his colleagues, but earns HK$ 5.000 less pr. month. The Employer uses Peter’s ambition to climb the latter of the career, to his advantage by introducing the time difference. By offering him the opportunity to be mentored by an executive, and the possibility to choose the best MT’s, he would have received a great advantage in becoming an executive director. This is an excellent way to delay the gratification of Peter, and in the same time, makes him a motivated and better employee while adding value to the corporation.

Capabilities Difference

Without a doubt, Peter is an asset to the organization.  With his MBA qualification and years of working experience in the company, Peter is less fungible.  Although Peter is intelligent and good at what he is doing, he does not have experiences in senior management, due to lack of opportunities.  For example, Peter has the technical skills to get his daily work done; however, he is lack of the expertise to manage adverse situations, which top executives encounter regularly.  Senior management has the conceptual skills, which Peter can learn from.  On the other hand, the corporation needs trainers to develop its people on implementation of the day-to-day work.  With difference on capability, the company has conceptual knowledge to offer to Peter, while Peter has human and technical capabilities, which the organization needed, in order to maintain an equilibrium business environment.

Bibliography

Catmull, E. (2008, September). How Pixar Fosters Collective Creativity. Harvard Business Review , pp. 64-72.

Houba, H., & Wen, Q. (2004, November). Different Time Preferences and the Maximal Wage. Tinburgen Institut .

Malhotra, D., & Bazerman, M. (2008). Psychological influence in negotiation: An introduction long overdue. Journal of Management , 509-531.

Northouse, P. (2010). Leadership: Theory and Practice (5th ed.). Thousand Oaks, CA: SAGE Publications.

Riley, R. (1996). Putting the pieces together; Comprehensive school-linked strategies for children and familes.

Thompson, L. L. (2009). Establishing Trust and Building a Relationship. In The Mind and Heart of the Negotiator.

Thompson, L. L. (2009). Win-Win Negotiation: Expanding the Pie. In The Mind and Heart of the Negotiator.

Wertheim, E. (1996). Negotiations and Reselving Conflicts: An overview. College of Business Administration, Northeastern University.

***Extension:

Human skills: according to skill approach of leadership, human skill is important across all management levels (Northouse, 2010).  In fact, compare to technical skill and conceptual skill, human skills is the only skill that remains essential throughout supervisory management, middle management, and top management.  When a person is in supervisory level, technical skill and human skill are significant for leaders.  In contrast, conceptual skill and human skill are more critical for effective top management leaders.  All three skills are equally important for middle management leaders.  The skill approach of leadership points out that in order to be an effective top manager, the individual must develop all three skills, while human skill is most crucial along the whole way.  Training MT is an excellent way to develop human skill that is needed for a leader. Therefore, I disagree with the comment that “Peter is taking a lot of risk because he puts his own future on the performance of others.”  Firstly, Peter went to the boss and demanding a $5000 raise is a risky move on its own, since all employees are highly fungible, however, the more abilities and capabilities that a person has, the more negotiation the person able to leverage.  Secondly, there will be no team, if it is a one-man-band.  Somewhere along the way, a person needs to develop human leadership skills.  More importantly, in order to become a successful leader, the individual needs to view the human development as one of the objectives in his/her career life.  In a lot of multinational companies, one of the company’s values is “value your people” or “teamwork”.  It is important for managers to tie the assigned goal from top management to their personal goal.  By doing this, they can generate more intrinsic and inspirational motivation.

Reference: Northouse, P. (2010). Leadership: Theory and practice (5^thed.). Thousand Oaks, CA: SAGE Publications.