Employee Relations: How to Handle Contract Renegotiations
It is always fun and exciting to hire and bring on new talent to your team, but it can be a lot of work as well. The most tedious part of the process is the initial act of contract negotiations. But once that step is complete, you’re in the clear…right? Well, not always. As talent grows within your company, they may want to conduct contract renegotiations.
While the process itself may be a detour from your daily tasks, it is also indicative that your team members want to remain at your company and are prepared to grow there. However, understanding that fact doesn’t make the process itself any easier for you as a human resources professional. Previously, we discussed how to handle difficult negotiations with new hires. Now, we’re going to walk you through the process of contract renegotiations with strong talent.
Why talent may want to renegotiate
There are numerous reasons why your employees may want to renegotiate their contracts. To help you understand what to expect, we’re going to mention some of the most common reasons first.
- They have taken on more responsibilities in their role. When employees develop their skills and earn the trust of management, it is likely that they will begin to accept more responsibility, even if it isn’t listed in their contract. Of course, from an employee perspective, you want to be paid for all that you’re doing at your job. This request is fairly reasonable most of the time. For human resources professionals, this reason is a good sign that your leadership team and your employees are doing well in their roles, so there is a benefit here for all involved.
- Competitors are willing to pay them more. Talent acquisition is competitive and companies that are growing are looking for top talent, which you may currently have. If your company’s competitors are making offers to your talent, it is both a good and a bad thing. It means you have intelligent and hard-working people on your team, but it also means employees know exactly what they’re worth if they leave your company. If there are other offers on the table, it makes your job a bit harder.
- The pay and benefits no longer suit their needs. This reason is going to vary from person to person. Perhaps your employee is moving to a new home or is starting a family. Whatever the reason, people’s lives outside of work change, and thus, what they need is going to change.
There are numerous other factors that could play a part in your employee wanting to renegotiate their contract. For instance, maybe they heard that a team member in a similar position has a higher salary or they saw higher salaries listed on Glassdoor’s salary index. It is also possible that they will not tell you why they’d like to renegotiate in the first place.
The above reasons are to help provide you with perspective, or it may be a reason worth bringing to your supervisor. Now that we understand the why, let’s discuss the how.
Approaching the renegotiation
When in doubt, the best thing you can do in any situation is prepare. Once the employee has put in their request to renegotiate, you’ll want to take the following steps:
Do your research
When an employee wants to renegotiate, it is safe to assume they are preparing to argue their case and they have data to back it up. Whether they already crunched the numbers on their value for the company or have a good understanding of what they would be paid working elsewhere, you should assume that they have done their research. It is in your best interest to do the same.
If you know for a fact that your employee would like to renegotiate their contract because they are being offered a higher salary from a competitor, you already know where to begin. However, it is more likely that the employee will not give you too many details in their request. In this situation, you need to be prepared for anything.
What to research:
- Competitor salaries. Whether the employee has already received another offer or not, familiarize yourself with the average salaries for the same role and experience level of your employee in other companies. Glassdoor’s salary index is not only a tool for job seekers.
- The employee’s internal accomplishments. To fully understand the extent of the employee’s value for your company, you need to understand what they have done in their role. You can gather this information by talking to their supervisors or direct reports. If you use human resources information systems (HRIS), you may also be able to look at data linked to their productivity.
- What the employee’s current pay and benefits are. This one should be obvious. You need to know what is outlined in the employee’s current contract. This contract is your starting point. Have it handy for your discussion.
Understand what you are able to offer
As you prepare to negotiate, it is important to know what you can and cannot offer. While these factors may change after negotiations, it is always important to begin with a baseline of what is and is not reasonable. Having this information in the back of your mind will help you to guide the conversation so that it ends with a mutually beneficial outcome.
Obviously, the most important part of the negotiation process is the negotiation itself. Sit down with your employee and prepare for an uncomfortable conversation because no one enjoys contract negotiations.
- Listen and take notes during the conversation
- Be understanding and empathetic towards the employee
- Begin the conversation with an open mind
- Make an offer on the spot
- Dismiss the employee’s wants and needs
- Ask unnecessary questions
Once the conversation is over and you have your detailed notes, it is time to consider the next steps. Below are some possibilities:
- Offer more benefits or a higher salary based on employee needs. If everything the employee said during the meeting was reasonable and it is within your budget, offering them what they requested is obviously the ideal situation. Your employee receives what they requested, and your team continues to keep a valuable asset. It is a win-win.
- Come to a compromise. If the employee requested a salary that is out of your budget or requested benefits that your company is not in a position to offer, see what you can offer instead. It isn’t exactly what they wanted, but if it is better than their current contract and still remains within the confines of what your company can do, it is better than no offer at all. However, do be prepared for the employee to potentially reject the offer and seek employment elsewhere.
- Offer no changes and be prepared for what that will mean. If the employee’s request was unreasonable or they do not offer enough value to the company, it may be time for both parties to say goodbye. If this situation occurs, a new round of recruiting and hiring may be a good idea.
Ultimately, your employees deserve pay and benefits that meet their needs and your company should not have to exhaust its budget to keep one person. Ideally, you and the employee will come to an agreement that leaves everyone walking away happy. However, you should always be prepared if the conversation goes south.
We hope this article helped you and your team prepare for contract renegotiations. If you have additional advice, let us know in the comments and subscribe to BrandResumes’ HR Corner for more articles each month.
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