8 steps to negotiating your employee's salary

So you believe you have found the perfect candidate for the job. You're sure this person can deliver transformative results in a short amount of time. She is definitely a performer. You've decided to extend her an offer.

You crosscheck salaries on Salary.com and PayScale to make sure you deliver a package that's competitive and ready for her signature. Heck, you even feel the salary is a bit out of your comfort range, because you really want to hire this person. As far as you're concerned, the company just extended her a great offer that she couldn't possibly refuse.

And then she refuses it.

She even has the audacity to counter your offer, requesting $10,000 more in base salary. What do you do?

Salary negotiation seems to often occur in $5,000 and $10,000 increments (anything greater usually means someone has not done his or her homework). Don't think too hard about it--people just like even numbers. And because most people make less than $100,000 a year, adding $10,000 to their salary changes that first number, and therefore feeds their sense of accomplishment.

When someone asks for a $10,000 increase, they're asking for about $833 more per month, or roughly $500 or so after taxes. Think about that for a second. While you're focusing on the $10,000 number (on top of what you see as a great offer), you're not realizing that ultimately the bump equates to a monthly car payment and groceries for the candidate (or employee, if this is about a raise).

Talented people become jaded when managers or potential employers over-negotiate a simple $10,000 increase. Unfortunately, knowing when to negotiate a $10,000 increase is difficult. So in any given salary negotiation, you need to be able to play what I like to call the $800 Game.

The game is very simple. You need to decide if you're willing to risk losing a performer over an additional $800 in salary per month. Here are the rules as I see them: 

1. Don't lowball and expect to negotiate from there.

If you're not starting the negotiation process from a competitive offer, you're putting the candidate in a position where he or she has to look like the "crazy one" asking for $20,000 more in salary. Some people won't even do this embarrassing step and will move on to another opportunity.

2. Calculate a competitive offer within $10,000 of your best offer.

Once you come to your target salary, consider adding $10,000 to it until it feels just too rich. You want to make sure that the salary you're going to present is no more than $10,000 below what you think you ultimately can pay. People want to feel like they've negotiated their salary, and that counteroffer is likely going to be inside of $10,000 if everyone has done his or her homework.

3. When the $10,000 counteroffer comes, play the game.

Your top candidate just asked for enough money to make a really nice car payment and buy Life cereal, essentially $833 before taxes. If your salary bands and budget can support the counteroffer, you need to find a good reason why you wouldn't agree to this increase. Are you willing to potentially lose your best candidate over $800? Remember, if you just agree to the bump the negotiation is essentially over.

4. Strongly consider just agreeing to anything under $5,000.

Barring tight salary bands within your company, or a tight budget, overnegotiating this dollar amount is risky. If you do the math, the candidate is basically asking for enough cash to make a sizable grocery purchase each month. You have bigger things to focus on.

5. Never present an offer that's too close to the next $10,000 tier.

As mentioned earlier, most people make less than $100,000, so seeing that change to their first number feels great. If you make your $68,000 offer $71,000 instead, you'll probably avoid the candidate counter of $75,000--which would leave you to decline the increase and look like the bad person.

6. Get off the even numbers.

It's just a sad fact that many people counteroffer increases with not much logic. I've always appreciated when someone presents me with a counteroffer that's "$73,000" and not "$75,000." It just makes you feel like they've thought the offer over. I might even give them $75,000 to show I really want them! The same is true when you present offers. Not using even numbers makes it more uncomfortable for people to play the $800 Game, and salary negotiations become more precise and rational.

7. Avoid looking stingy, and learn to spot greed or naivete.

Over-negotiating causes candidates to feel like you're stingy, so it's important to have your best offer within negotiation range so you can spot candidate greed when you see it. It's a shared responsibility between you and the candidate to know the competitive salary market. If you know a counteroffer pulls you far outside of the competitive market, proceed with caution. In some cases, you could be dealing with an inexperienced salary negotiator, and you don't want to punish the person for being naive. But you do need to educate the person, and that could be difficult.

8. Don't just give away money, or over-explain increases.

No good candidate needs a lecture as to why you're agreeing to a $7,000 increase in an offer. If you're OK with the bump, simply agree to the terms; moving toward closing should be your priority. That being said, informing the candidate that you're agreeing to an increase because the offer still falls within your salary bands and the competitive market shows her that salary increases are made thoughtfully and always on your terms.

Remember, your number-one goal is to get a signed offer from a top performer, quickly. You need to think hard before you let $800--or even worse, a car payment and groceries--get in the way of building a great company.

Credit: Don Charlton