Negotiating an Offer, Freakonomics Style

 

I really enjoyed Freakonomics. Great read. SuperFreakonomics was pretty good, but the lesser of the two, I think.  And it is interested how often something from the books will come back in another for.  For instance, in reading a blog post from James Altucher this weekend, this bit struck me…

 Stephen put on his Freakonomics hat. We didn’t pay our bill and we packed up our backgammon set and began walking out. “Lets let the manager set the price of the bill for us.” At the door, the manager came up to us. Stephen said, “look, we mostly finished our meal but now we don’t feel so well, given the mouse thing. What do you suggest we pay for this meal?” Stephen’s theory was that if the manager was good, he would have us pay nothing, even offer us incentives to come back.

What caused this discussion?  Go read the post and see.  It’s not really relevant here, though it is a good story.  But it reminded me of the passages in the book regarding negotiations, as well as the “set your own price” business model that is becoming more prevalent.  In short, letting people pay what they think is fair often results in them paying more than what you would have charged them in the first place.  People are weird, but often more fair than you would expect.

What I love about this approach is that it is so counter-intuitive, and very much against how most people react in a similar situation.  When dealing with poor service/food/product, many people sit back and wait for an offer.  If you look at this strictly as a negotiation (“What should I give you and what should you give me?”) most people are happy to open with their demands (usually more than is realistic), and hopefully get something close to them.  But Dubner’s approach is a little different.

“What do you think we should pay?”  Not “what are you willing to give us” or “here’s what we are willing to do.”  A simple question.  By stating the facts on your end and putting the onus on the other party to determine what is proper given those facts, it removes much of the pressures of a one-on-one zero sum negotiation.  It let’s the other party take care of you without caving to demands, while at the same time not boxing you into a corner.  You still have the option of responding with, “Interesting.  I would have expected to pay…”

It works in HR as well.  The sticky part of talent acquisition is often salary negotiation.  Sure, we have databases and comparables to guide us, but in the end we have to reach an agreement between a couple of people.  I’ve always been a believer that once you have found two people who want to work together, the rest should be details.  So wouldn’t you want that details bit to go smoothly?

So here’s the Freakonomics approach:

As the candidate: “I have X years of experience in this field, and Y years of training doing the things you needs.  Here are my credentials, my results, my education, and my current compensation package.  What do you thing would be a reasonable expectation on my part for an offer package?”  This allows you to discount your current package if you are looking to make a big step up, and can shift the emphasis away from your value and onto the job’s value.

As the recruiter: “This is the position, how it matches your background and experience.  Our expectations are X for timing and for productivity, our benefits package is Y.  So, given that information (as well as other potentially relevant variables), what would you expect as a reasonable offer to a candidate of your stature?”  Package discussions have usually been going through the candidate’s mind since the recruiter said “the range is from X to Y, depending on the candidate.”  (And, of course, all they only heard Y.)  It lets you refocus on their fit for the job and what would be reasonable, not necessarily their demands.

Of course, this only works in some situations, and it puts a lot of value in being the person who opens the discussion.  But given how awkward that first round can be, it’s a tactic that might just help you get the conversation off on the right foot.

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