Negotiating Employee Compensation

It's no secret that there's a work force shortage. If your key employees are demanding better compensation and benefits, you're probably frustrated. You know it's a seller's market and you can't afford to lose good people. More important, you can't afford to meet unreasonable demands and stay in business. So what do you do?

First, compare your salary levels and benefits package with those of other companies in your market. Meeting market compensation levels is a basic necessity, not an option. A competitive compensation package is what all employees expect today. From that point, the negotiations continue for even bigger and better perks to complete the package.

Second, develop your internal negotiating skills. You already know the importance of negotiating with your customers and suppliers, and it's equally important to negotiate within the company itself. Instead of bemoaning the fact that employees often focus on their take-home pay and don't understand their total cost to the company, explain it to them. Give each employee an annual statement, showing his or her actual cost to the company,salary, benefits, dollar equivalents of vehicles, time off, prorated insurance (including workers' compensation and general liability), and all other employee-related expense categories.

As you evaluate total compensation, you may decide to replace some perks with straight cash salary increases. For example, you may provide a vehicle worth $6,000 to $8,000 per year, but your employee doesn't agree with this range of values. Replacing the company-owned vehicle with a salary increase provides the employee with a fixed measurement of value, and it also provides the company with a predictable expenditure. The company no longer provides a vehicle,along with its unpredictable, unexpected costs,and your liability exposure is also reduced.

Third, refuse to be coerced by threats of resignation. If an employee receives another job offer, you might be tempted to match it and keep the person in whom you've made a substantial investment. The reality is that matching an outside offer is no guarantee that the person won't use the same ploy to continually renegotiate his or her "contract" (the NBA syndrome). Research indicates that most employees who use this strategy leave within six months to a year, even when the company matches the competing offer.

Fourth, never allow yourself to be drawn into discussions of fairness, or comparisons with other employees in your company. Although you can never prevent your employees from comparing their salaries and perks, you must keep such information confidential. The most effective way to avoid legal problems, or the "he gets a nickel more than I do and I work harder" discussions is to evaluate each person against goals the employee helps determine. Employees who participate in their own career development take ownership of the results, and are more likely to measure their rewards against their own efforts, rather than comparing themselves to peers.

Are these magic solutions? Unfortunately not. People are your most valuable asset, but also the most likely to know their own value and demand better treatment. Employees who understand their real cost to the company, measure themselves against their own potential and reject pressure tactics may not be more loyal, but at least they will know where they stand. And ultimately, clear communication with your employees is critical to keeping overhead levels in line and profits up. EC

NORBERG is a management instructor with the NECA Management Education Institute, a former subcontractor, and past president of two national construction associations. She can be e-mailed at

About the Author

Denise Norberg-Johnson

Financial Columnist
Denise Norberg-Johnson is a former subcontractor and past president of two national construction associations. She may be reached at .

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