The Value of Employment Counter Offers

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Imagine you are at a garage sale and make a $40 offer on a chair with no price tag. The owner immediately responds with an enthusiastic “sold!” This occurrence is likely to cause you to ponder more advantageous counterfactuals where your initial offer was less than $40. The seller’s eager acceptance of your offer might also cause you to reassess your estimate of the chair’s value.

Now imagine a similar scenario where your original bid led to a heated negotiation, which resulted in a settlement price of $45. While you ended up paying more in this second scenario, you would likely be more satisfied with your purchase and potentially increase your perceived value of the chair. This seemingly counterintuitive result is well documented in the negotiations literature.

But how does this translate into the workforce? This article is the result of a survey conducted with hiring decision-makers to determine just that. The main research question was how employer perceptions of value, loyalty, and personal likeability are affected when a candidate responds to an initial salary offer with a counteroffer. Other issues addressed were how variables such as gender, tactic utilized, amount of the initial offer, and amount of the counteroffer affect employer perceptions.

While there is no research explicitly addressing these effects on new-hire counteroffers, this survey’s results are consistent with existing negotiation research on counterfactuals. The literature suggests that when your first offer is accepted, it causes you to consider alternative scenarios where you were able to get an even better deal by using a lower initial offer. Conversely, when a first offer is met with resistance, you are likely to be more satisfied with the end result.

Our research found that, on average, when a candidate responds to an initial salary offer with a counteroffer, the end result is an increase in employer perceptions of value, a slight increase in perceptions of loyalty, and no change in perceptions of personal likeability. Furthermore, among male employers, these positive perceptions of value and loyalty were even more significant (perceptions of personal likeability remained unchanged).

“Our research found that, on average, when a candidate responds to an initial salary offer with a counteroffer, the end result is an increase in employer perceptions of value, a slight increase in perceptions of loyalty, and no change in perceptions of personal likeability.”

Because of the significant asymmetries of information present in the job interview process, when a candidate can confidently make a counteroffer, this likely provides a great deal of information to the employer about the candidate’s abilities. Employers may interpret this simple act as demonstrating that the candidate’s abilities are greater than initially thought. This explains the seeming contradiction of how paying the same person more money results in a perceived increase in that person’s value.

Surprisingly, these positive effects not only remained when controlling for the gender of the candidate who made the counteroffer, but female candidates actually received higher positive responses in all three categories (value, loyalty, and personal likeability).

In order to gauge the effects of what role the counteroffer amount played, this survey had the hypothetical candidate request either a 3 per cent or 8 per cent salary increase. This provided a very peculiar result. Overall, there was no difference in employer perceptions. However, this was the result of averaging the positive perceptions from male employers and negative perceptions from female employers. Because the majority of hiring decision-makers are male, this former result is likely more relevant than the latter.

Although this survey did not measure the results of a candidate asking for an extreme salary increase (such as 20 per cent), it does illustrate that requesting a moderate increase is likely more advantageous than requesting a small increase. While this may initially strike the reader as counterintuitive, upon closer inspection, this result should be expected. After all, if employers are impressed when a candidate has the confidence to ask for a small increase, perhaps they are further impressed when a candidate has the confidence to ask for a larger increase. It would be interesting to see future research into just how high a candidate’s counteroffer can be before it results in negative perceptions from the employer.

This survey also analyzed the end result of how high employers would be willing to go based on a candidate’s counteroffer. Controlling for all other variables, candidates who asked for a moderate increase ended up with a higher final offer than those who asked for a small increase. This confirms the general negotiations principles of “be first” and “be high.” And again, this came at no negative cost to the candidate’s perceived value, loyalty, or personal likeability.

It is important to note that this survey was conducted in late 2018, when U.S. unemployment was less than 4 per cent. This “sellers’ market” for labour could in part explain the findings. Conversely, during a period of high unemployment, when employers have numerous quality applicants for each position, a candidate who responds to a job offer with a counteroffer may be more likely to be viewed negatively.

The only item negotiated in our survey was salary. This is an oversimplification because other issues would be up for negotiation in a real-world setting (vacation days, bonus schedule, health care, expense account, etc.). Research suggests that the more issues involved in a negotiation, the less satisfied the parties feel about the end result. This is likely due to more issues resulting in more counterfactual thoughts, which cause the parties to reflect on various, more advantageous possible outcomes.

Although it is beyond the scope of this article, it is interesting to note the role gender played in the final offer a candidate received. Each response was coded with a five-point scale where one is the employer refusing to budge from the initial offer, three is the employer meeting halfway, and five is the employer giving the full amount of the counteroffer. Controlling for all other variables, a male candidate’s counteroffer resulted in a score of 3.38, while a female candidate’s counteroffer resulted in a 2.56. The results were even more disparate among male employers. There, a male candidate’s counteroffer resulted in a score of 3.85, while a woman’s resulted in a 2.28. This means that with male employers, when the initial offer is $90,000, a female’s counteroffer will, on average, result in $2,200 less than a male’s.

This more extreme result from male employers is likely more relevant because the majority of employers in America are male. These gender disparity findings call into question the claim that the gender pay gap is explained by the higher propensity of males to engage in negotiations. Furthermore, this finding is consistent with research that shows that even when females do negotiate salary, they receive less of an increase than their male counterparts. Finally, this also points to a potential self-perpetuating stereotype: Men are more emboldened to ask for more money because they have had more positive experiences doing so in the past.

It is also important to note that this gender disparity should not be interpreted as advice for women to renounce the practice of responding to an initial salary offer with a counteroffer. To the contrary, employers who received a counteroffer from a female candidate not only increased the amount they were willing to offer, but also increased their perceptions of the candidate’s value and loyalty.

The authors of this article caution against using the results to justify an employer policy of issuing “low-ball” first offers in an initial salary-offer context. The effectiveness of such a strategy was in no way tested in this survey. A low-ball strategy could result in missing out on quality candidates because they are likely receiving other offers and may only bother engaging in a salary negotiation with potential employers who have demonstrated they value the candidate the most.

The nuances of job interviews and salary negotiations are often shrouded in mystery, which is why it is important for researchers to help shed light on the process. A more even playing field will emerge when employers and employees are more informed on these issues. This is especially relevant when it comes to gender disparities.


RESOURCES:

Charles E. Naquin, “The Agony of Opportunity in Negotiation: Number of Negotiable Issues, Counterfactual Thinking, and Feelings of Satisfaction,” Organizational Behavior and Human Decision Processes 91, no. 1 (2003): 97–107.

Barry Gerhart and Sara Rynes, “Determinants and Consequences of Salary Negotiations by Male and Female MBA Graduates,” Journal of Applied Psychology 76, no. 2 (1991): 256–262.

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