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.

5 Ways to Reduce Waste in Your Recruiting Processes

Talent acquisition is rewarding, but can be a painful process for both the recruiter and the applicant(s).  Here are some suggested methods for cutting waste and improving the overall recruiting process…

1)  Online applications.  Most companies are either in this game or going there, but many that use an application tracking system also have paper applications.  In some cases, they require both.  Not to mention the redundancies of having a CV or resume, then the online application, then the paper application.  Don’t waste you applicant’s time with rework, and don’t waste your own in dealing with reams of unnecessary paper.

2)  Incentives your externals the right way.  The best system I’ve seen offers their external recruiters a bonus payment if the first candidate they present is hired.  This gives them incentive to really learn the culture and position to give you a great candidate the first time.  If you think of the wasted time and money in looking at multiple candidates, it’s a small price to pay.

3) Cut your interview to offer time.  Sometimes the bottlenecks are simple ones to reduce, once you realize that time is not a free resource.  One team I worked with waited until the end of the process (meaning post-acceptance) to perform the background check and drug screening.  It added 5-10 days to the end of the process.  The cost for each round of checks was about $50.  Once I asked them if the position added more than $10 per day of value, it became an easy decision to move it.  Now they perform those checks on the final three candidates just before the last round of interviews.  Results don’t come back until after the interviews and (generally) the decision is made, but the delay in getting the offer and acceptance in greatly reduced.

4) Create a pull process in staffing.  Recruiters will tell you there is a limit to how many searches that can do at once before you start to lose quality.  Ten seems to be the average.  If you are using an online talent system, hold the requisitions back until one of the ten they are currently working is closed out.  This also allows you to track your staffing levels and know if you have the right number on the team, too many, or not enough.  Speaking of which…

5)  Centralize your staffing team.  Just like a call center, shared staffing resources allow you to handle the peaks and valleys of demand across your business without over- or under-worked people (as well as often needed fewer recruiters overall).  Rather than have a staffing person for each location/department/business leader, build a central team that can take requests from across the business and triage them for best responses.  Within that team you can still have specialists as needed, but you reduce your risk of losing an expert recruiter because their knowledge can be more easily shared. 

And the unnumbered bonus tip is, of course, get really good at talent retention and development.  It will help keep the recruiting needs to a minimum, which is the best way to reduce the waste in the first place.

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