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Updated on Thursday, March 8, 2018
We’ve all heard stories about leveraging a new job opportunity for a higher paycheck, or jumping at new job opportunities in the hope that they’ll offer a better salary.
When this strategy does work in your favor, you may see your salary rise at a much faster pace than your colleagues, who might choose to wait in asking for a raise during the next annual review cycle. Just consider these stats: Workers who change jobs see a 5.2% pay increase on average, according to a 2016 study conducted by Glassdoor Economic Research. That is more than double the average 2% pay increase the typical employee earns each year, according to the U.S. Department of Labor.
You don’t have to necessarily take the new job to get the higher paycheck. You could try to use it as leverage to get a raise where you currently work.
Amy Gallo, a contributing editor at the Harvard Business Review and author of the “HBR Guide to Dealing with Conflict,” tells MagnifyMoney she has seen firsthand how this can work for some employees.
In researching her book, Gallo spoke with an employee who had a hard time convincing HR to give her raise. But when she received an outside offer a year later, “HR was much more cooperative since there was a counteroffer in hand,” she said.
So, what is it about the counteroffer that controls the collective purse strings? In general, it reminds the company of how valuable you are, because sometimes they end up forgetting, especially if you’ve been there for a while. The counteroffer also gives the employee more leverage and information to compare with their current salary.
In her studies around negotiation for the Harvard Kennedy School, Hannah Riley Bowles, a senior lecturer, found that when people used an outside offer to raise their salary, it legitimizes their request for a higher salary. Still, despite its potential huge payoffs, the counteroffer, as you can imagine, can also backfire.
Paul McDonald, senior executive director for global staffing firm Robert Half, advises against using the counteroffer to boost your salary.
“It can burn bridges with the other firm and may cause your boss to question your loyalty and interest,” McDonald said.
In fact, in this 2015 survey, Robert Half, also a national recruiting firm, found that nearly eight in 10, or 78%, of CFOs said they wouldn’t be pushed to make a counteroffer to keep someone from leaving — and with good reason. There’s always a chance that the employee will leave shortly after anyway if they aren’t happy in their jobs to begin with. The Harvard Business Review reported that people who received a pay increase from a counteroffer started their job search again within six months.
So what’s the key here? When is it OK to use an outside offer to get a raise, and when is it not OK?
OK: If you’re genuinely interested in another job.
Generally speaking, it’s OK to use the counteroffer to get a pay increase or promotion if there is genuine interest in the other job. Because, if you’re genuine about your motives – for example, being paid fairly or getting additional responsibilities that you might crave – then you’re merely reminding the company that you’re a valuable asset it needs to support professionally, personally and financially in terms of growth.
Not OK: You’d like to stay with your current employer and are just using the new offer as leverage for more pay.
Be cautious if you’re using the counteroffer only to get a raise or promotion with no intentions of leaving. This carries much higher risk, Gallo warns.
“It may damage the social capital you have in that organization,” she said.
Jared Curhan, a faculty director for the Massachusetts Institute of Technology’s Negotiation for Executives program since 2011, agrees that this can be a “very dangerous strategy” but adds he wouldn’t rule it out altogether.
“I would say that if you really value your relationship, then alluding to your alternatives outside has to be done delicately because that could really damage your relationship,” Curhan explained.
The bottom line: Of all the tactics you could use to negotiate for more pay, using an employment offer from another job can potentially get you the greatest outcome — but also carries the most risk.
If you decide you’re willing to take the risk and go to your employer with another job offer, here are some tactics you should keep in mind:
Stick to the facts
First, always wait for the final offer letter before you begin negotiating with your current employer, says McDonald, who adds this a common mistake.
Talk to people in your industry about trends they’re seeing and consider other negotiable terms that affect your compensation package, like bonus and equity.
By getting a realistic idea of how your company measures up with its competitors, you are more prepared and can even potentially negotiate for education programs, like through General Assembly and Dev Bootcamp, which could boost your income in the long run.
Don’t go into the negotiation with a “me versus you” mentality
“The conventional view in negotiations is that it’s a battle between two sides like a seesaw and when one goes up, the other side goes down,” said Curhan. “So you can’t go up without the other side going down.”
However, when you ask business executives to list out their four most important negotiations ever, says Curhan, they tend not to be negotiations that are win-lose. Instead, they were typically negotiations where both parties walked away feeling like they did a little better. They had expanded the pie, so to speak, before splitting it between the two parties.
For example, if an employee is using another job offer to get a raise, instead of using a “you versus me” mentality which could sound more like a threat (“Match my offer or I’m leaving”), Curhan suggests thinking about it like metaphorically moving to the same side of the table. By looking at the issue from similar viewpoints, you can now jointly work on the problem together. The employee is no longer pointing the finger and saying their boss is the problem. Instead, they might say something like this:
“I want to thank you for introducing me to this company and for the offer that you made. I have also been doing some research and I would love to be able to work here, but I also have to pay attention to the offers I’m receiving elsewhere. And through that, I want to be able to feel like I’m being paid a rate that’s commensurate with the market. And you perhaps have done some research on the market, too. Maybe we can pool our research on the market together, and can jointly come up with a fair rate of pay.”
Consider the other party’s interest
Often when we enter negotiations, we think about our points and arguments, such as the 10 reasons we deserve a raise. While that’s important, says Gallo, if you only focus on that, you’re setting the conversation up to be a me vs. you battle, which is what Curhan advised against earlier. Instead, you need to also be thinking about what your boss is up against. That’s how the conversation will become more of a collaboration where you’re aligned in terms of the strategy of getting you what you need.
So think about what that person needs to say yes to you, suggests Gallo. Think about their concerns.
“For instance, when it comes to pay increase, managers are often worried about equity,” said Gallo. In other words, if you get a pay increase, what does that mean for how you are paid related to others on your team? “You have to think about that from your boss’s perspective,” she added, so think in terms of how can you help them say yes.
Knowing when to walk away
If you’re not paid fairly and it’s just about the money, by all means, bring that data to your boss, says Gallo. But before you go, know the point at which you’re willing to stay or go. So, say you want a $20,000 pay increase — are you willing to walk if your boss offered you $10,000 instead?
Back in January, Alison Fragale, negotiation expert and professor of organizational behavior at the University of North Carolina, told MagnifyMoney that before going into the negotiation, you should always be able to answer three questions:
- What are you trying to achieve?
- What’s your walkaway point?
- What’s the alternative?
At the end of the day, using an outside company’s job offer to get a salary increase is a risky tactic that if employed tastefully, could work in your favor. However, make sure your intentions are noble. For instance, if it’s just about the money and you’re genuinely interested in the other company, and could potentially see yourself working for them, then have that conversation with your current boss.
However, if you’re going to your boss with the intent to strong-arm them to meet your demands with no intentions of going through with your threats, then using the counteroffer could get professionally dangerous for you quickly.
And maybe most importantly, think about negotiations as an alignment or a collaboration instead of a “me versus you” mentality.