How To Negotiate Pay Rise Requests In A Cost Of Living Crisis

Everyone’s asking for a pay rise. Times were tight before but now inflation has gone through the roof and they’re all asking for more. But in the meantime, you’ve got less room to give a rise because your input costs have gone up and the last thing you want to do is increase your own prices.

Pay rise negotiations are (relatively) easy to manage when the economy is growing and business is doing well but we’re now in a perfect storm, squeezed on all sides, and they’re much harder to deal with. So what can you do?

Stay focussed on what’s important 

Well, firstly, always stay focussed on the important things. Good negotiators know that you don’t focus on the stated positions, you focus on interests, your strategic objectives, and, for any company, the most likely interests are increasing profit and market share. Anything that adversely impacts these will be a bad outcome, anything that positively impacts them will be good. This, as always, will be your guiding principle.

Pay as little as you can and they work as little as they can

Now, most businesses take a very tough approach to pay rises and try to pay as little as they can. But if you pay as little as you can, your staff are going to work as little as they can. Of course, they are. 

Or worse, they will leave, taking all that knowledge out of the door and it will cost a large chunk of their salary to replace them. What’s more, the good ones will go to your competitors so you will be losing any competitive advantage and increasing theirs. 

Remember your guiding principle? Paying as little as you can doesn’t help. You want a successful business and, for that, you need to sell a good product or service. Your product or service is built by your staff so you need good staff. And, for that, you need to pay above-market salaries. The biggest companies in the world – the Googles, the Apples – pay above-market salaries. You might counter that they can afford to but they can afford to because they do.

Treating them well saves you money

Does that mean you have to give your staff everything they ask for each time they ask for it? No. You see, they should be focussing on their interests too and that is usually to be treated well.  

Now being treated well might mean giving them their rise or it might not. At the very least, it means taking the request seriously and addressing it properly. Gary Noesner, ex-Head of the FBI Hostage Negotiation Department, said “Listening is the cheapest concession we can make.” It will probably save you a good few per cent straight away.

And it means being demonstrably fair. Fair with respect to the market so use independently-sourced market surveys for making your decisions; and also with respect to other colleagues, if you’re telling staff you can’t afford to pay any more whilst the SMT are all getting nice bonuses, that won’t cut it.

Which, in turn, means transparency. Show them the books, teach them how to read the books. Treat your staff like adults. If your pipeline is really that bad, they will understand that now is not the time. As long as you respond fairly when the pipeline recovers.

Ricardo Semler of “Maverick” fame allowed his employees to write their own salaries. He found they frequently gave themselves a pay cut when business was poor. This approach grew his business from $4 million to $200 million annual revenue within 20 years. Trust. Netflix says they have no clothing policy but still nobody comes to work naked: people respond well to trust. 

If people are treated well, they will work harder, they will work better, they won’t want to leave, and others will want to join.

It will actually mean you can pay less than your competitor should you decide that’s in your interests. And should you not, you can afford to because your staff are working harder and better.

It is not zero-sum, everyone can win

Pay rise negotiations go wrong because people see them as zero-sum – that any extra the employee earns is at the expense of the business – but this is never the case.

We can avoid it being zero-sum by bringing in extra variables to the conversation. It is not just base salary, we can consider bonuses, performance-related pay, flexible hours, working from home, free gym membership, all kinds of benefits, and being creative to solve the equation. They need to be appropriate: don’t give free gym membership to someone who hates the gym but for someone who loves it, it could be the thing that is cheap for you to give but of huge value to them.

And, interestingly, it is often the intangible variables – being appreciated, being trusted, working in a nice atmosphere – that are the most valuable. Seeing it like this, it is the opposite of zero-sum: anything extra the business earns benefits the employee and anything extra they earn benefits the business.

About the author: Simon Horton is the author of Change Their Mind: 6 Steps to Persuade Anyone Anytime, published by Pearson, priced at £14.99 and available from and in all good bookshops.

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