How to negotiate a pay settlement with your employees

Negotiating with your employees is a tough task. Many businesses are currently faced with the prospect of instituting pay freezes for the second year running, and others are bracing themselves to offer below-inflation pay rises.

According to a survey published this week, the majority of workers took a real-terms pay cut last year. This is a tough sell for businesses. Last week’s BBC strikes perfectly demonstrated the dangers of poor communication between management and employees. So how can you come to a successful arrangement with your staff, while avoiding the wrath of your employees?

1. Be open and honest

In salary negotiations, honesty really is the best policy. Be open about what you can afford to offer, and what you think is fair. In the current economic climate, many employees are more willing to compromise on pay. They understand that times are tough – but you need to explain the position in which your business finds itself. If you are suggesting a pay freeze (which, remember, will amount to a real terms pay cut) you need to have a pretty good explanation if you want to keep your employees on side.

2. Listen to your employees

Listening is a key element of any negotiation process – and yet it is frequently forgotten. If you are to come to a mutually acceptable agreement, you need to be prepared to listen to your employees’ needs.

Regardless of the outcome, employees are significantly more likely to accept a less generous pay settlement if they feel that their concerns have been taken seriously – even if you cannot give them everything they want.

3. Have a baseline

You need to have a firm baseline position before starting negotiations. This will be your fall-back – the position above which you will not move. It is important that you decide on this figure before you meet with your employee. Remember, though, that negotiation is a process of compromise – so you might wish to consider starting below this figure and working up.

4. Be consistent

It is vitally important that you give each of your employees the same treatment. If you institute pay freezes for some but give inflation-linked settlements to others, there will be trouble. Do not kid yourself into thinking that they will not find out – they will, and this will be disastrous for morale. The worst possible outcome is for employees to find out that they are taking a pay cut while management are being treated more favourably. This should be avoided at all costs.

5. Understand your obligations

It is not uncommon for employees to have obligations under a previous contract. For example, you may have pledged to offer a minimum of an inflation-linked rise each year for a certain number of years. It is, of course, vital that you understand and fulfil these obligations. If you fail to do so you risk putting yourself in breach of contract.

6. Consider non-salary offers

The headline salary is not the only thing on your employee’s mind. If you cannot offer an attractive salary settlement, have a think about employee benefits. Can you extend existing benefits, or offer new ones, in lieu of a salary hike? Small businesses are in a particularly strong position to offer popular but affordable benefits like flexible working.

7. Remember the value of your staff

Finally, it is important to remember that your employees are your most valuable assets. Without them you do not have a business. You should therefore try to be as flexible as you possibly can when it comes to pay settlements. Listen to their concerns, and try to fulfil their needs wherever possible. Your business will be significantly more productive if you have a happy workforce that feels it is valued.

Negotiating pay settlements can be a difficult and time-consuming process. But by remaining open and honest, and sensitive to the needs of your employees, you can increase your chances of coming to a mutually acceptable agreement.

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