An Employer’s Guide to Keeping Salary Negotiations Fair

Picture this: you’ve made it through the long process of sourcing, screening and assessing candidates for a role, and you’ve found the perfect person for the job. You extend them an offer, and they can’t wait to get on board. 

The only problem? They’re asking for a higher salary than the one you’re offering. 

Salary negotiations are a thorny topic, because they often benefit employers more than employees and can put certain groups of employees at a disadvantage. For this reason, many organisations have banned salary negotiations altogether. 

In this article, we’ll explore how you can keep salary negotiations as fair as possible — and hopefully land on a number that works for both you and your new hire. 

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First things first: Should you negotiate on salary with potential employees? 

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There’s no denying the fact that salary negotiations have historically benefited employers more than employees, simply because they come into the process with more knowledge. 

For example, if a company offers a candidate a salary of 50K even though they’re willing to pay up to 60K for their skills and experience, that candidate could be leaving money on the table if they don’t know that negotiation is an option. And, since women tend to be less likely to negotiate than men, this could cause big problems for your gender pay gap over time. 

On the other hand, leaving a small amount of wiggle room in your budget for negotiation could help you to land a top candidate that would otherwise go elsewhere, often for a difference of just a few thousand euros. 

We’re not here to say that all salary negotiation is unfair and should be banned outright. However, there is a right and a wrong way to handle negotiations if you care about pay equity and fairness — keep reading for our tips.

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Keeping salary negotiations fair and consistent: 7 tips

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Ready to learn how to conduct salary negotiations in a fair and equitable way? Let’s dive in. 

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1. Understand your market 

The first step in fair salary negotiations is establishing a reasonable starting point. That means that researching what other companies pay for similar roles is crucial. Plus, knowing your market well can make negotiation easier, because you’ll be able to back up your offers with concrete data. 

At the very least, you should explore data from job ads at other companies that are comparable to yours. Or, you could use self-submitted data from sites like Glassdoor and Indeed. The best option, though? Use a tool like Figures for real-time, accurate benchmarking data. 

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2. Use salary bands to set minimum and maximum compensation 

When you go into the negotiation process, you should already know the minimum and maximum you’re willing to pay for the role in question. And one way to ensure you always have access to this information is to use salary bands. 

A salary band is a set range that a company is prepared to pay for a given role, at a certain level of execution. So, if you’re hiring for a junior software engineer, you might have a minimum of €30,000 and a maximum of €35,000. 

Salary bands help to keep things fair because they ensure that each employee will always be paid within the range you’ve determined for their role and level — even if there’s a bit of room for negotiation.  

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3. Consider sharing salary ranges with candidates

If you want to take things a step further, consider sharing the salary range for the role with the candidate as soon as possible (e.g. in your job ads). This ensures everyone is working from the same starting point. It can also save time by eliminating candidates with unrealistic salary expectations early in the process. 

Plus, if you need an even more compelling reason to include salary information in your job ads, here’s a biggie: it will soon be a legal obligation in Europe. Once the EU pay transparency directive comes into force, employers will have to share at least a salary range with candidates before the interview stage. Starting this practice now could be a real competitive advantage since candidates prefer to apply for roles with a published salary range. 

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4. Avoid using past salary as a basis for negotiations 

In the past, it was common practice to ask job candidates about their previous earnings, and use this as a starting point for negotiations. But this only entrenches historical inequities and makes it harder for people who have previously been underpaid to catch up. Since certain groups (like women and people of colour) are more likely to be underpaid than others, this can also cause big problems for internal equity. 

What’s more, this practice is already banned in several US states and cities — and will soon be illegal in Europe too. If you’re still asking this question in 2024, it’s time to stop — both to ensure fairness and to comply with upcoming legislation.

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5. Keep the focus on total compensation

When it comes to compensation, salary is just one part of the picture. You should go into the negotiation process prepared to discuss all of the different ways that an employee would benefit from working for your organisation. 

This might include other financial rewards like signing bonuses, commissions or employee share schemes, and benefits like private healthcare coverage, company cars and personal development budgets. You should also stress other less direct benefits, such as flexible working arrangements.

All in all, the idea is to ensure the candidate has all of the information they need to properly assess what working for you would bring them — salary alone doesn’t tell the whole story.

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6. Consider the wider impact of each salary decision 

If you have the budget to meet a new employee’s salary expectations, it may not seem like a big deal. But you should always think about the wider implications on your company. 

First, think about how the employee’s pay will compare to existing employees in the same role. Bringing in a new employee (who may have less experience) on a higher salary can cause big problems in terms of morale and engagement.  Looking at the potential impact on your company’s gender pay gap (and other DEI metrics) is also a good idea. 

You should also think about the impact an employee’s starting salary will have on their future at the company. For example, if you hire someone at the very top of their salary band, they may be ineligible for raises until they’re promoted into the next band. This could cause issues with engagement and retention over time.

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7. Don’t be afraid to walk away 

Lastly, it’s important to be aware that some candidates will have salary expectations that simply aren’t in line with what you’re willing to pay. Even if the candidate is exceptional, we all have budgets to work with — and agreeing to a salary that’s way above the relevant salary band is just not going to work in the long run.

Sharing salary information with candidates as soon as possible can help you to avoid these tricky situations by making things clear to everyone from the beginning of the process. But if you do get to a point where negotiations stall, sometimes the best option is to politely part ways. 

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Salary negotiations in the pay transparency era 

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As we may have mentioned once or twice, a new EU directive on pay transparency is about to come into effect in Europe. This will have a big impact on how companies handle all aspects of compensation, including salary negotiations. 

First, employers will be obliged to share at least a salary range with job applicants before the interview stage, laying the groundwork for a fairer negotiation process. Also, employers will no longer be legally allowed to ask candidates about their salary history, which will effectively end the unfair practice of basing negotiations on an employee’s current compensation. 

Lastly, employers will have to be able to show that the criteria they use to make pay decisions are fair, gender-neutral and consistent. This may make it harder to justify paying one employee more than another based solely on their negotiation skills. 

In short, the EU pay transparency directive will introduce radical changes to the way companies handle compensation. In this context, many employers will be reassessing their approach to salary negotiations — or doing away with them altogether.

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The key to fair and competitive compensation

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Whether or not you enter into salary negotiations with new employees, the EU directive means you need to be sure your compensation systems are fair and consistent. And one of the best ways to do this is to create salary bands for each position.  

Salary bands provide a structured framework for all salary decisions — but still allow flexibility for negotiation if you need it. And, thanks to Figures, it’s never been easier to create a robust, scalable and custom salary band structure for your entire organisation. 

Want to learn more? Book a product demo to get started.

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