The Power of Bargaining in negotiations

The Power of Bargaining in negotiations

In negotiations bargain power plays an necessary evil roll and it is often seen as a contest between negotiators. Depending upon the power of the negotiators it can have one of below three out comes

1. One winner and one looser

2. Two Winners

3. No winners

Case 1: One winner and one looser

Most of the time in negotiations this kind of scenario comes as the outcome i.e. one party in the negotiation wins and the other has to lose out. The process of negotiation proceeds as follows

Here Each party independently recognizes the problems and looks for solutions to the problem.

But each party independently decides on a solution to the problem that fulfils its own needs.

Each party tries to force its solution on the other party. The party with the most power wins that’s the party having the most bargaining power comes out as the clear winner. The other party loses.

Case 2: Two Winners

This kind of scenario occur in case of ideal negotiations where there are both sides and parties win. The negotiation process proceeds as follows:

Each party creates a list of needs as they relate to the problem. Solutions are not discussed at this point. The parties share their lists with each other. Parties engage in problem solving to develop solutions that satisfy the needs of both parties. Parties make a joint decision on the solution to the problem and take action based on the decision. The agreement is monitored and adjusted accordingly, again based on the needs of both parties. Here though bargaining do remain in the discussion but both parties remain flexible on their demands and tries out the middle way which suits the most to both parties without hurting each other.

Case 3: No winners

It occurs when a negotiation becomes unsuccessful. There is no clear winner and the outcome does not come out of the discussion. The negotiation process proceeds as follows:

Here Each party independently recognizes the problems and looks for solutions to the problem.

And also each party independently decides on a solution to the problem that fulfils its own needs. Each party tries to force its solution on the other party. The party that seems to lose out does not agree upon the solution and puts up resistance to the solution. This resistance is often concealed, but does undermine the solution. Then both parties become losers in the negotiation and process of negotiation fails.

Now taking the example of the Australian cricket umpire Darrel Hair’s mail to the ICC regarding the none negotiable offer, he first tried to be clear winner by showing his supremacy and higher bargaining power because of dearth of skilful umpires in the cricketing arena and as also as he was member of the elite umpiring panel. Also he was regarded as the one of the best umpires of all time that was clearly evident as Hair was voted Umpire of the Season in a poll carried out by The Wisden Cricketer, with more than a third of the votes. A leaked ICC report showed that immediately before the Oval incident, Hair was ranked the second-best umpire in the world overall and number one in terms of decision-making statistics.

Because of all these achievements and the higher influence of western cricketing governing bodies he could strongly exercise his bargaining power while negotiating with the ICC. So the outcome was seemed to be a one winner and one looser scenario.

But aftermath due to heavy lobby by the Asian cricketing councils the IIC had to ban him from umpiring without agreeing on his demands. Hair also announced he was suing the ICC and the Pakistan Cricket Board on grounds of racial discrimination. Here both sides could reach upon a feasible solution and the negotiation failed. So it became a no winners situation.

However, on 9 October 2007 Hair dropped his discrimination case. The ICC said Hair would undergo a development programme over the next six months seemingly with the goal to place him back into top level matches. During this six month period he will continue to officiate in second tier ICC associate matches. The ICC restored Hair to the Elite Umpiring Panel on 12 March 2008. However, on 22 August 2008 Hair handed in his resignation to the ICC in order to take up a coaching role after he was only allowed to officiate in two tests in May and June 2008 between England and New Zealand. Hair was allowed a respectable exit from his work and it became a Two winner scenario and the negotiation become successful one and ideal one.

Sources: http://en.wikipedia.org/wiki/Darrell_Hair

So for successful negotiations between two parties the following things are strongly needed

1. Positive Climate where mutual trust and reliability lies. The negotiators should not be suspicious about each other’s intention. For a positive climate following things are needed:

a. Use descriptive terms.

b. Be calm and straightforward, use neutral terms, and avoid value or judgement statements.

c. Be flexible. Be open to any reasonable alternatives.

2. Timing is most important while doing the negotiations. So the timing of the discussion should be appropriate for both the parties in order to get a win -win situation.

3. Association can align both the parties and the negotiators negotiation power can be hence enhanced.

4. Authority allows the negotiators to review the deal prior to approval.

Enhance Your Bargaining Power Position

There are many ways to enhance a negotiator's position in the negotiation. Understand the sources and try to know which all options available to each negotiator are. Negotiators can strengthen their position in the negotiation by improving their position of power in the negotiation. This is especially required for negotiators with limited skill and experience in negotiation.

In order to exercise power in a negotiation in a more efficient way, all parties in the negotiation must believe that the dominant party possesses the power and will use it if necessary.

Employee's Position decides Negotiation Power

My answers would be as follows:

Do you think the individual is always at the receiving end and the "bargaining power" is always shifted in favor of employer?

“Bargaining Power” is highly situational and time specific as to who is at the receiving end in the exercise of this so called “Bargaining Power”. It totally depends on when the employee and employer are bargaining. If the employee is having the skill set and experience which is commonly available in the labor market then obviously the employee is at the receiving end because in that condition employee has the other options. However if the employee has skill-set which is rare in the market, and then he can bargain on his own terms. Thus it is highly dependent on the employees and the need to the resources.

Based on the email, what are your observations on "bargaining power" in the context of individual - organizational relationship?

Based on the mail, in the context of individual-organizational relationship, both the parties tend to make wrong use of it. The instance has been provided in the mail. Sometimes employee put demand which is quite unjustified in many sense and if the organization does not accept it, employee is ready with the resignation papers. Same is the case when employer keeps unjustified terms and conditions. To avoid this, it is quite important that the contract letter be drafted very meticulously with utmost care as any clause might have undesirable consequences in the future.

Would you be able to make similar non-negotiable offer to your employer in any point of time in your career?

After doing my post graduation, I will be in a position to male similar non-negotiable offer to my employer but not with the same intensity as that given in the mail. By way of non-negotiable offer I would be able to protect my rights as an employee and would be able to get the work bet suited to my skills and knowledge, thereby making justice to myself.

Also, if you were to receive a similar one time non-negotiable offer from your employee, how would you handle this issue?

First of all I would like to know whether the offer really serves the need for the company and the employee. If the demand of the employee is justified with his career level, past performance and his skill sets, then I might think of acceding to his demands. My decision will also be influenced by the available workforce in the market.

Situation Favours the Brave!!!

Non-Negotiable going by its definition means difficult or impossible to settle by arbitration, mediation, or mutual concession. Generally it is considered that the power to bargain generally rests with the employer and the employee has no option but to concede to the wishes of the employer. This was quite explicit in the story “Job Letters turn into pink slips”. However in this case as we see, the bargaining power has shifted in the favour of the employee. This if we examine closely is purely circumstantial. If we refer to the history of what caused this shift, we will realise it was the situation that forced ICC to be at the receiving end of this bargain. In the year 2006 Hair accused the Pakistani team of tampering the ball and declared England the winner by forfeiture when the Pakistani team decided to protest. This caused much heated debate across the world where much respected cricketers asked him to be sacked. However going by the contract terms ICC was not in the position to do so.

In this case as we can see the circumstances favoured the employee. There can be many more such cases as well. If the employee is a star performer or an asset in the organisation he can take advantage of his position to make the employer accept his terms and conditions. So we can safely conclude that whether the power to exercise the bargaining power can purely be dependent on the situation or circumstance. Like in this case the contract did not mention anything about the conditions under which it can be revoked, Darell Hair tried to use it to his advantage. In this case a more structured and detailed employment contract would have saved the day for ICC.

If I at some point of time feel that my skill set is what the organisation values me for and that there is no substitution available for my skills, I may be able to make a similar non-negotiable contract to my employer

On receiving such an offer in the future I will first get legal consultation on the consequences if the contract is revoked. If the circumstances don’t support my case, I would weigh the loss on losing the employee against the pros of him leaving. The last thing that I would consider is whether the particular skill set can be substituted.

And the winner is...

Going by definition, bargaining power is the relative abilities of parties in a situation to exert influence over each other. Theoretically, either party can be in the receiving end. However, it is not always true that the individual is at the receiving end and the employer has the bargaining power. It heavily depends on the power and position held by the individual. If the individual possesses qualities or abilities which are indispensable to the organisation, the bargaining power automatically tilts towards the individual. Rather, the organisation or the employer will choose to give a free hand to the individual and let him bargain his way within the organisation, comfortably enough to let the individual think he has won the argument. While this might be true for a person who has options and offers to choose from, majority of the employees face a ‘beggars cannot be choosers’ situation. More often than not, it’s their job which is at stake and the individual finally finds himself at the receiving end.

With respect to the mail by Darrel Hair, it was a situation where the bargaining is between an elite umpire and ICC, a powerful body by itself. Mr. Hair was well aware of his abilities and his previous contributions. His experience and power enabled him to react the way he did, to the controversy he was facing. The terms he had quoted in his one-time non-negotiable offer very clearly showed the authority he commanded. In this case, legality matters. No matter how powerful you are as an individual in an organisation or whatever your ability may be, bargaining power always shifts to the side which is legally strong. If the situation calls for it, I would definitely make a non-negotiable offer to my employer or accept a similar offer from an employee, provided there is no conspiracy involved.

My personal experience

Even though i am a fresher and have not had any employee contract till date, i have already had an experience in which one of the most "trusted" companies of India openly breaks the trust which thousands of students had placed in the company.

Adding to Renuka's point on Markets and Bargaining Power, I would like to bring to light how the company TCS Limited has taken an open advantage of the global meltdown to back out from the salary offered to us during campus placements.






What can we do after receiving this letter. No option is given to the candidate as to whether he is ready to accept the offer or not. The information is just passed on to the candidates that their salary structure has been revised.

Another point which i would like to raise is that almost all the contracts which i have read state the last clause as "The company reserves the right to change/modify any of the above stated conditions at any point of time with/without informing the stakeholders. " With such a clause in place, to the best of my comprehending skills, all the other clauses in the contract become meaningless and this shows that the power rests in then hands of one party and can be used/misused to that party's benefit. So, there is no question of balance of power of power in the hands of the employees, at least in India.

Circumstances decides the Bargaining Power!

The bargaining power between the employer and the employee depends typically on the circumstances when the bargaining actually takes place. Either of the employer or the employee can be at the receiving end.Both parties can exercise their power for their own benefit but whether its fair or not is subjective. All the organisation are market driven and if the organisation doesnot have the requisite skill sets then the employees posses the bargaining power. I myself have exercised the bargaining power which was again because of the skill set that i possessed that was pretty rare at that circumstances.

I think that the Darell Hair was taking advatage of the contract which doesnt mention anything about the conditions under which it can be revoked. Also its not that Hair is wrong in doing this, but the contract should have taken this fact into consideration as well.

So instead of making an explicit employment contract, which talks mostly about work, wages, performance and curtain cases under which it can be revoked..a detail contract should be made that takes into consideration other factors as well.

I have made similar non-negotiable contract to my employer in the past. I was asked to work for a particular project from a remote location for our months where I never wanted to go. Since I possessed one of the rare skills they had to accept the conditions under which I planned to move.

In case I receive such a non-negotiable contract in the furture, I would consider the following:-

- Whether the employee is dispensible or Indispensible.

- Cost of replacing the employee.

- Merits or Demerits of accepting or rejecting the offer.

The above will aid me in coming to a conclusive decision.

Bargaining power can change hands

Do you think the individual is always at the receiving end and the "bargaining power" is always shifted in favour of employer?

No, the individuals are not at the receiving end and the “bargaining power” is not always shifted in favour of employer. The bargaining power may shift in the favour of the individual in the following: -

1. The individual possesses certain skills which are not easily available in the market. In this case, individual may realise his important for the employer and can exercise his bargaining power to make sure that he gets what he deserves.

2. Based on my experience in IT industry I can say that, sometimes certain individuals become extremely important for project because of the relationship they have developed with the client over the years. The project will simply not work in the absence of these individuals. They become an extremely critical resource for the project. Such individuals can also exercise there bargaining power.

3. Employer can exercise their bargaining power when the market situation is not good and there are no new opportunities available for employees to switch jobs.

Based on the email, what are your observations on "bargaining power" in the context of individual - organizational relationship?

Darrell Hair used his bargaining power and demanded $500000 from ICC in favour of putting down his papers. He had faced severe criticism from all Asian Test Playing nations but he had great support from Australia, England and New Zealand. In this case ICC was caught in the centre. ICC didn’t know what to do as one side the Asian test playing nations demanded a ban on Darrel Hair and on the other side ICC would have earned the hatred of Australia, England and New Zealand by banning Hair.

In such case, it is very essential to mention the terms and conditions in the contract at the time of framing it. The employment contract between Mr. Hair and ICC was a term contract (Darrell Hair was in contract with ICC till March,08). In such term contracts, it should be clearly mentioned that on what condition the contract can be revoked before its completion date and on what basis the compensation will be decided. Absence of such a clause from might have prompted Umpire Darrell Hair to use his bargaining power.

Would you be able to make similar non-negotiable offer to your employer in any point of time in your career?

Yes, I feel that I will be able to make a non negotiable offer in future. One can make a non negotiable offer to the employer if one processes unique skills that are not easily available in the market or if one is critical resource to the project that cannot be done away with.

Also, if you were to receive a similar one time non-negotiable offer from your employee, how would you handle this issue?

If an employer receives a similar offer he should verify whether the claim made by the employee is a genuine one or not? If the claim is genuine, the employee’s demand should be full filled. Also, if the cost of replacing the employee is more than the claim, then also employee’s demand should be accepted. The employer should learn from such incidences and make necessary changes in the future employment contract like under what conditions the contract can be declared null and void before the contract end date and in that circumstances, on what basis the compensation will be decided.

Power swings from one end to another

Here are the answers of the questions :

Do you think the individual is always at the receiving end and the "bargaining power" is always shifted in favour of employer?

Bargaining power is the power used by one party to influence the exchange in offerings between two parties. In the context of individual organizational relationship, both employer and employee can use the bargaining power depending on the situation. During the initial phase of the career, the employee accepts whatever is given to him. Here the employer uses its bargaining power. Also during recession when company are laying-offs, employees are at the receiving end as employer exert their bargaining power to make the employee work according to their likings.

After gaining some experience, the employee might have become the critical resource of the company. He might be handling some business units by himself. At this time he can bargain and fulfil his demands.

Based on the email, what are your observations on "bargaining power" in the context of individual - organizational relationship?

Darrell Hair uses the bargaining power in the form of non-negotiable offer. His contract was terminated based on some wrong decision made in Sri-Lanka Pakistan match. Umpiring is a very subjective job. It might have been a bad day for Darell. ICC can never prove that it was intentional. So he was able to put this non-negotiable offer to ICC.

Both the individual and organization uses the bargaining power based on their self interest. Sometimes it creates bad relations between employer and employee. It is all situation based.

Would you be able to make similar non-negotiable offer to your employer in any point of time in your career?

Coming to the third question, I feel at some point of time in our career, one has the opportunity to make similar non-negotiable offer. Let me just give some experiences of my previous company – Texas Instruments India Pvt. Ltd. I believe the bargaining power is more in the hand of people who are up in the technical ladder rather than those who are in the managerial ladder. If you are the important resource who is very critical for some project and you have all the technical know-how of the project. And if you put a non-negotiable offer at that time, the company will accept it to save the project. The employee should be wise enough to put the non-negotiable offer at the right time.

Putting a non-negotiable offer sometimes leads to bad relations among the employer and the employee in future.

Also, if you were to receive a similar one time non-negotiable offer from your employee, how would you handle this issue?

Being an employer, I would first try to find out the answer of these questions:

· What is the job description of the employee? Is there anybody having the same job description?

· Whether the demands are valid?

· What will be the demerits of accepting the offer like relation between the employer and the employee, work environment among the peer groups etc.

· What will be merits of accepting the offer like project completion on time, importance of resource in the market etc.

After evaluating all these, we might terminate employee contract. If we come to a conclusion that he is important resource for the company, then I should have a one to one meeting with to discuss why these demands arises and if something can be negotiated.

My Comments...

Hi,

I completely agree with Sundeep’s statement that Darrel Hair was acting in his own self interest. But there is nothing wrong in it as long as one is able to act in such a way that fulfills his / her own interest. However, Darrel Hair, in my opinion, did not help himself make his case better. The subsequent events in Hair’s episode do confirm this.

However, I am wondering at his statement “Employment relations can be undermined by poor communication and if the employee and the employer interests are not in the same direction.” But why it should always be the case that the interests of the employer and that of the employee is not in the same direction? What makes you to think so? This is an important contribution to analysis.

Further he says, “It is obvious that there is an unequal bargaining power between employees and employee. This is due to the reason that an employer hires a lot of employees. The loss of a single employee to a big employer is only a slight loss. But for employee, his job is usually his only source of income. Losing his job is the biggest thing that can happen to him.”

Subhrajit, Soumya, Swati Garnai also make the same point.

“the employer is so abundant with available pool that it has an upper hand and hence it gives an impression that employee is always at the receiving end.”

“But in today's scenario I think the bargaining power mostly remains in favor of employer. This is due to the large pool of aspirant employees available for the employer and high competitive labour force, which makes the employer find the substitute of an employee very easy.”

“ This may be due to the fact that employer has option of replacing the employee with someone from outside or inside the organization.”

But my sentiments are in line with Renuka George’s statement, “Equal bargaining power works when there exists a free market (which is a myth of course).According to proponents of free market economics perfect competition makes sure that neither parties have power over the other and state is a neutral framework and interactions determine the norms of contract.” Does perfect competition exist?

I don’t know whether all of you made this point after reading is the description of “Power in Sociological Exchange Theories” (Page 12 in Reading Material) or not but it is an important contribution. To simplify, we could say that asymmetry in relationships between organizations and individuals is a precondition for the exercise of power.

But Soumendu Samal and Abhimanyu are optimistic, “…the bargaining power can also shift in the favour of the employee.” / “Though the Employer has a major role to play in the making of the employment contract, employee always has the option to negotiate the terms of the contract and leave or join the job depending on the availability of another offer.”

It is also interesting to consider the example of bargaining power between the employer and employees in SMEs as stated by Ankit Arora.

U109162 (???) also advocates for exercising power in a responsible manner.

Sundeep’s analogy related to M.Tech candidates leaving L&T at critical stage during the project is not appropriate to highlight “expert power”. Do you think the M.Tech candidates did not have expertise before they got the offer from the market? In a lighter note, the credit should go to the OB professors, although your inappropriate usage should be a cause of concern for them, and not to Ketan as he himself seems to be a confused lot and misquoting “legitimate power” (See my comments on his posting). But the important question is “if you were an employer what would you do to prevent yourself from yielding to pressure under such scenario? Or what organizations have been doing to address this problem as there is a flip side to giving pay increases or promotion to retain the employee? (See Gurbani Kaur’s posting)”

I am also concerned about the future of our participants if they were to make such a non-negotiable offer to your company if your organization makes false allegations against you which could not be proved. My words of advice to you is “it may backfire” as it seems you have not learned anything from Darrel Hair’s case. See the quote by Vinay, “Marketability of an employee banking on his rare skill could be affected if he/she was trying to be opportunistic. In such a case it could go against them”.

But I also have a question to Vinay. He says that there are three different options available to an employer when s/he is presented with such a non-negotiable offer by an employee. One of the options that he mentions is “Prove the charges against the employee”. Don’t you think, in Hair’s case, proving the charges against him by ICC may also make them liable for the past racial discrimination charges against Darrel Hair?. Debasis statement that “it was in ICC's best interests to retain him (might not be only because of his skills on the field but also the audience he might be managing to gather because of his association with endless controversies, a unique attribute not to be seen with other umpires in world cricket)” would also support this logic indirectly He also makes an important point “Employees also try to make use of information asymmetry to their advantage. Not sharing valuable information with others keeps the organization's dependency over the employee intact.”

Urv’s legal, financial and social approaches to handling of such “non-negotiable” offers are worth looking at.

Urv says “Also, in this case, the consideration of Labor market does not have a very major influence. The reason for this being that the ICC is an unparalleled body and does not have major competitors in the cricketing circuit.” (Good insight!)

I also liked Swati Garnaik’s example of hijackers offering non-negotiable offers, Abhijeet Shrivastava, “The importance of rules in a society”, Sundeep’s quote by Emerson, “Before we acquire great (bargaining)power, we must acquire wisdom to use it well.”

With Regards,

Ganesh

From an Employer's Perspective...

From the last few posts it’s very much evident that majority of us believe that either bargaining power depends on internal & external factors or it lies with the Employer…But I would like to differ a bit.

Most of our views are biased towards the circumstances that we witness in Top notch MNCs or other big organizations. But there is a contrasting situation in Small and Medium enterprises (SMEs). Most of the times, in these organizations, it’s the employees who have an upper hand when it comes to bargaining. (Here when I use the word employees, I am talking about skilled labor and not the unskilled one).

My dad and uncle, who are running a designing and advertising firm respectively, often face this problem whenever an employee thinks of switching to some other firm. Crisis could be attributed to two major reasons:

1. Unlike big organizations, SMEs don’t have the multiple employees doing same sort of work so it’s not easy for them to find replacement (or find a temporary backup).

2. Moreover small and medium organizations don’t have a bench sort of thing where they can put new employees and provide them training.

So for these organizations, a favorable market condition or government policy can’t do much in shifting the control into their hands. The only thing that comes to their rescue is the Bargaining skills that they possess. Still more often than not, it’s the employer who has to compromise.

As for the second part,

It’s too early to comment on the fact that whether I would make a non-negotiable offer to my employer or not. But one thing is for sure that my decision in this regard will definitely have some consideration upon the relationship that I share with my employer in the past, rather than being purely on materialistic gains.

On the other hand as an Employer If I face such situation, than I might compromise a bit (if the situation demands). But the relationship that I share with the employee involved, would never be the same. From then on I would start looking for the suitable replacement. And once I find that, I would like to go for another round of negotiation (with the same employee), making sure that this time ball will be in my court!!

The Other Side - Power Begets Responsibility

There has been a lot of discussion about who has the power; Employer or the Employee. Although there is nothing like absolute power in Employment Relations as which party is more powerful may vary at different points of time due to various factors like market forces, skill set of the employees, etc. The main point is that both the parties should exercise their power in a responsible manner so that it is a win-win situation for both. Responsibility is a very subjective term but responsible behaviour certainly builds trust & benefits both the parties.

For example; Suppose an employee working on a very critical project gets a luring job offer from some other organization. The employee could pay for the notice period as the offered job is good enough to compensate for the notice period loss. Assuming there are no other legal implications, the employee can simply switch over to other organization leaving the project at such a critical stage, or the employee could give some time & ensure that there are no hiccups in the project due to any knowledge transfer gap on his part. In such a situation, a responsible behaviour on the employee’s part would be to negotiate with the current employer to reduce the notice period, so that the employee can provide the required knowledge transfer at the earliest & join the other organization without incurring any financial losses. It’s a win-win situation for both the parties.

The other way around..

This is the other way around.

When a person seeks employment with a company, he or she is basically means that he or she wants to work for the company. By this the person assures that he or she will give up doing whatever he or she please, show up for work and behave the way the company wants it to behave, so long as the company pays in exchange.

Now, that leads to the opportunity for the employer to set standards of behavior that are non-negotiable. Setting standards doesn’t mean that the creativity of the employees will be lost. After all, it is highly significant for the employees to have some flexibility and to project their own personality into their job. Keeping in mind the above said; it is also a good idea for the company to be inflexible with some things. In other words set some non-negotiable standards.

We can see that it is no way different from our diurnal lives. The Society of which we are part of has rules. Imagine, for example, if there were no traffic rules or road signs or laws to guide us on how to behave, develop our values, beliefs. Imagine if there were no rules in sport and the games we play. Everything would be in shambles.

This could be accounted to the fact that most of us like to know our boundaries or limits, because that way we know what we can and can't do. For breaking a law we get fined or arrested. Similarly, if we don't play fairly in sport we get penalized in some way. Thus, we are used to non-negotiable standards.

Accordingly, there shouldn’t be any difference in applying it for running businesses. It is a necessity for smooth functioning of any business to have rules and policy. There could be always be some instances when the employees may not agree with a few of the policies, they can and usually will comply.

For explaining this we can take the example of coming to office in formal attire. All the employees are required to wear them - that is non-negotiable. However, it isn't quite like being in the military. There are various acceptable combinations, so that they could adjust the clothes to suit their own personality.

Here's the deal: It was a non-negotiable standard that the employees are required to dress in a proper way. Furthermore, it needed to be within the agreed guidelines using any one of the approved combinations. Anything else is unacceptable. Now, that's not unreasonable.

I feel that, for setting the non-negotiable standards, it is important to put the policies in writing. However, verbal instructions will be necessary on certain occasions it is much easier to hold people accountable for something that is written.

Finally, it is of utmost importance to ensure that employees have the full knowledge and fully understand the meaning of the non-negotiable standards. It is indeed needed that they are thoroughly trained on what is required to be done or how to handle a particular situation.

Although it might sound very disciplined to set non-negotiable standards, it is really required in running a business efficiently. However, in no way the standards should stop the employees from having a lot of fun and deriving a lot of pleasure in what they do. Besides, the employees will try hard to please and it is their right to know what's required of them and their boundaries.

Non Negotiable Offer: Not always binding

A relative ability of parties in a situation to exert influence over each other is termed as bargaining power. But when one party has better alternatives (upper hand) as compared to another or does not want to compromise, inequality occurs. One of the ways this happens is by Non Negotiable Offers. This inequality is generally perceived as weighted towards the Employer’s point of view. Employers dictate contracts and the employee do not have a say. This may be due to the fact that employer has option of replacing the employee with someone from outside or inside the organization. But there are situations where employees also make non negotiable offers. For obvious reasons they think they have upper hand in the situation. I can relate this situation to a hostile hijack attack. Hijackers send out a non negotiable offer and their demands have to be fulfilled. With reference to the post, Darrell Hair had the upper hand (hijacker). The situation of having a non negotiable offer depends on how critical I am to the organization. If I am a critical resource and have expertise which is unique to me, I might be in position to put forward a non negotiable offer.

If any time non negotiable offers were to be given by any employee in future and if the employee is not critical to organization, then I would not accept the offer. But if the employee can bring about strategic advantage to the organization, retaining him/her would be beneficial in long run for me and the demand is not outlandish, accepting the offer will be a good option.

Negotiability of the offer is situation specific

Bargaining Power is one of the many factors which determine the salary of the employees. Though the terms of the employment are determined by the employer, however it can be influenced by the following factors:
Perceived value that the prospective employee will bring to the company based on his capabilities.
Supply and demand of the qualified people in the market.
Though the Employer has a major role to play in the making of the employment contract, employee always has the option to negotiate the terms of the contract and leave or join the job depending on the availability of another offer.
Therefore employer ability to effect the terms of the contract is influenced by availability of requisite personnel for the job while that of employee is influenced by the alternative earning option available to him.

I will be in a position to make a non-negotiable offer in the future. This is because it can be made in case I have better employment opportunities, which I believe I will have at some point in my career.

If I receive such a non negotiable offer from my employee I would accept or reject depending on the situation. If he/she is indispensable in the given situation, I would accept the offer. However I believe such situation cannot last for long. In case I have another employee to fill the position I would try to negotiate or else reject the offer.This is because such non negotiable offer would encourage similar behaviour in the company.

Who has the upper hand???

No it's not always that an individual who is at recieving end and the bargaining power always shifts in favour of an employer. In my opinion, whetrhe it is the employee or the meployer, has an upper hand wins the bargain. In the case of Darrel Hair, certainly Mr.Hair had an upper hand. His expertise in field ofumpiring, experience and his success enabled him to make such demnads. Basically, th current situation of both employee and employer along with many other factors palys a vital role to decid who will be at receiving end.
In all these situations, either party looks for his own interests, nobody wants to lose his opportunity. Both parties know whenener in future if any one of them has the upper hand, will take the maximum benefit out of it. Hence this makes the bargaining process unstable and unequal. Similarly, in Darrel Hair case, Mr. Hair is certainly looking for his own interest and dont want to lose the ooportunity while making his demands.
Taking myself intothat situation, I think if I have an upper hand, certainly I will make an offer. For example, in my college placement period, some guys had multiple offers. After bieng placed in the first company when they sat for interviews of other companies, these students had an option to demand on basis of their knowledge, skills etc.
But being an employer at these knid of situations, I may have to look into various factors. First of all I will look into the concerns put forwarded by the employee. The genuiness of his offer, alternatives, aftreeffect of both accepting and rejecting his offer will be taken into account. If I see his demnads are within limits of the company and is justifiable then I may accept the offer. On the other hand if his demands are not geuine or way away from the limits, then I will have no problem in rejecting his offer.
But in today's scenario I think the bargaining power mostly remains in favor of employer. This is due to the large pool of aspirant employees available for the employer and high competitive labour force, which makes the employer find the substitute of an employee very easy.

Regards,
Soumya

Non-negotiable offers: Striking the right balance?

As per my understanding, a non-negotiable offer being made by an employee to an employer would require either the employee to be in a very strong position, as to be able to command what he thinks he deserves. As mentioned in a previous post as well, such an offer would hold merit if the employee possessed a skill-set that the organization felt was irreplaceable. In such a scenario, the employee could be on an upper pedestal and have the capacity to demand. However, my question at this stage would be: can an employee ever actually be in an advantageous situation enough to be able to negotiate.

Even though Darrell Hair wrote a mail, suggesting a one-off non-negotiable offer (which he wanted to keep private), & his decision (of England winning by virtue of forfeiture of play by the Pakistani team) was in accordance with the rules of international cricket; the ICC did consider the contents of his mail inappropriate. The same was also communicated by the ICC chief executive, Malcolm Speed, to Darrell Hair. Speed even stressed that he was satisfied there was no 'malicious, underhand or dishonest intent' in the offer and that in his belief, Hair was under 'great stress when he wrote the letter'.

(Content ref: http://www.cr17.com/index.php?topic=699.45;wap2 )

Perhaps one mayn’t be faced with situations of such magnanimity & media exposure in the real world, but as an employee, and citing a personal example here, a person can bargain with his employer (organization) on the basis of a better offer that he may have in hand. One of my colleagues had done the same, in return for a better pay package. Owing to the fact that he was amongst one of the top performers in the business unit, the top management chose to retain him by offering him a salary hike. Of course, he was directed not to divulge the salary details to anyone.

However, the situation also has a flip side to it, because of the fact that nothing remains a secret for too long. When other employees, who had joined at the same time as him, became aware of the new settlement that was made for him, it did cause some friction amongst them. This eventually did lead to a negative sentiment amongst the employees, thus creating a situation for the HR department.

Having said that, as to where the employee-organizational relationship is concerned, in the case I shared, the non-negotiable offer made by the employee did work out in favor of the employee. Also, the organization too did not lose a star achiever, and in consequence, didn’t lose valuable business. Still, the question remains in my mind, who really benefits out of such a bargain? Or would you say that both the employee and the employer form a mutually beneficial compromise on the offer, by striking the right balance?

Markets and Bargaining power

In almost all cases unequal bargaining power exists. During boom time employees have the upper hand (or in the case of football players or cricketers bargaining between clubs) while during recession time, employers have. The loss of a single employee to a big employer can be said to be the anticipated cost of doing business. Hence cost of losing a job is more for an employee.

I would like to include another perspective looking at the larger picture of markets and bargaining power. Talking of bargaining power in a country like India which has high unemployment and disguised employment, the tilt of the bargaining power is on the employer’s side. Equal bargaining power works when there exists a free market (which is a myth of course).According to proponents of free market economics perfect competition makes sure that neither parties have power over the other and state is a neutral framework and interactions determine the norms of contract. However, since free markets never really exist, unequal bargaining comes to the picture.

The fact that Darrell Hair is taking advantage of the employment contract also points to the issue of the framing of the employment contract. Keeping a few terms in the contract negotiable while a few others non negotiable can be beneficial/ non beneficial to both parties. Thus it is not about how much bargaining power lies with one party but about how much bargaining power each party allows the other to have!

Bargaining Power-A Hairy Affair

Once Benjamin Franklin said "Bargaining has neither friends nor relations".

Bargaining is basically the ability of one party to exert influence over another.Whoever

has the upper hand, is in a better bargaining position.As simple as that.So, it's nothing like either the employee or the employer is "always" at the receiving end.Their current positions determine their Bargaining Power.It's just that most of the the times, the employer is so abundant with available pool that it has an upper hand and hence it gives an impression that employee is always at the receiving end.Clearly in the case Darrel Hair that was'nt the case.

The bargaining power of an employee is almost directly proportional to two things-profit and loss i.e. how much profit would he able to generate for the company if he stays with the company and how much loss would he cause to the company if he is asked to leave the company without his demands being satisfied.As in case of Darrel Hair,it was because of his value in terms of expertise in umpiring and drawing in crowds cause of the controversies along with the favourable position of his to win the lawsuit and his potential to tarnish the image of ICC that gave him the confidence to write such a non-negotiable letter .

Whether I would be able to make such a non-negotiable offer or not-only time will tell. If I am in a favourable position, I would perhaps definitely go for it but only after looking at it from all possible angles and only after being certain I indeed am at a position to bargain! Else it's definitely going to backfire at me.

Incase I receive such a non-negotiable letter from my employee, first step would be to do a thorough investigation into the relevance of the demands and find out if the employee is actually in a position to make such a demand.Next would be to do a trade off between loss to the company in terms of money and reputation if it doesn't agree to the demands and value the company would achieve by agreeing to the employee's demands.If even after that, I find employee is at an upper hand and is indeed an integral part of the company, there is no harm in agreeing to his demands.

In the present scenario of reduced job opportunites, the chance of the same looks bleak though.

Regards

Subhrajit

Contextual Bargaining Power

Hi Everyone,

The theme being discussed is a very relevant theme in wake of the recent recessionary phase of the world economy. The answer to the first question is invariably situational in many of the previous posts.

Do you think the individual is always at the receiving end and the "bargaining power" is always shifted in favor of employer?

Well I believe that in most cases it depends on the contractual clauses in the job offer letters, the amount of time you have spent in an organization and the kind of expertise you have in that field. Based on this if you look at the IT industry today, people in the lower level of jobs can be fired easily based on poor performance which is a rampant practice. Most people in India will not file a suit in such cases, also the employers have safeguarding measuers in their contracts to handle such situations. On the other hand, if you are a critical resource for the company and you posses a rare expertise then I believe yes, you can have a say in the bargaining process. In fact, your employer will be more than keen on retaining you. To cite a case with my previous employer, one person in my team was an architectural expert in setting up new technical designs for contact centers using certain softwares. He was being offered 80% hike in some other companies. The person used this to bargain with the employer and was successful in getting a turnkey project in UK with a promotion and long term onsite opportunity.

In the case of Darrell Hair, he was a member of the elite list of umpires for ICC and also was in a favourable position to win the lawsuit he filed against ICC. This made ICC's position precarious and which is why he was able to negoitate this one time payoff with them.

Based on the email, what are your observations on "bargaining power" in the context of individual - organizational relationship? Would you be able to make similar non-negotiable offer to your employer in any point of time in your career?

The bargaining power as I already mentioned can be twisted towards any one - the employee or the employer. Mr. Darrell Hair could use such a tool because he could successfully argue his case against ICC (when he sued them) and was touted to be successfully winning it. ICC on the other hand was under pressure from some countries to retain Mr. Hair while most of the Asian countries wanted him penalized. Besides he was an elite umpire and had a huge experience of umpiring in his kitty. He also said however, that he wanted to retire after that controversial test between Pakistan and England, but I believe to retire in such a manner did hurt him which is why he would probably have fought this case. Being on the field and umpiring in a high tension match requires a lot of experience and skills which Mr. Hair had and this was recognized by ICC. This shows that the bargaining power can also shift in the favour of the employee. However, today it is not difficult to find talent in the market and poaching is very rampant. Employees invariably look for jobs elsewhere (offering better pay) and it has almost become a norm. They then use these offers to negotiate better remunerations with present employers. In such circumstances, it becomes important for the management to decide the real value of such an employee to the firm and the loss which they would have to bear if he moves. In case of confidential projects they might as well make him sign a non disclosure agreement and force him to sign a bond to work till the project gets completed. Hence, it really depends on the economic conditions, employee's value to the organization and its processes, the nature of the job he was in and the available talent pool in the market which largely decided on the shift of power in a bargaining process.

In future if I acquire such kind of skills and think that my presence is imperative to the company (which is very unlikely) then yes, I might use it in the process of bargaining. Before joining XIMB when I broke the news to my manager he immediately offered my an onsite opportunity within a month and also laid out a detailed growth plan for next two years before me. I wondered where was he when I didn't had an offer from XIMB!!

If you were to receive a similar one time non-negotiable offer from your employee, how would you handle this issue?

This part is real tricky. When you recieve such kind of a letter from one of your employees then you have to objectively look at all the factors which would change if he leaves. Most importantly what would be the damange to the company's image if he is a high profile public figure and despite best efforts his ousting cannot be kept under wraps. If this is combined with his superior expertise and knowledge of the company affairs then it is in the best interest of the company to keep him and be willing to negotiate further. On the other hand, if he is an employee in the entry levels of the company or not so important figure, and your HR deptt can fix the void in no time, then you can let go of him. It also depends on the criticality and confidentiality of the project which the employee was a part of and whether or not any contractual elements are being breached by you. If not, you can happily let him go.

Controversy king

Hi all,

A detailed description of events involving the case of Darrell Hair in the Pakistan-England Test Match can be found here. I would try to keep my viewpoints in relation to the incident as much as possible. However do excuse me if I happen to bring in other relevant [of course according to me] observations.

Darrell Hair was a well established umpire elected by the ICC into its elite panel of umpires. He had been voted the Umpire of the Season in a poll carried out by The Wisden Cricketer (Link). If we consider the case of Darrell Hair, it has been indicated by him that he had been encouraged to make the offer. His bargaining power is mainly from the fact that he stood on the ICC elite panel and any reactions by the ICC on this case would attract a lot of media attention. He had not taken any decision in the incident at hand that was against the books. This had been confirmed by the ICC as well. Hence, I take the liberty of assuming that the ICC could not have terminated his contract prior to March 2008 without providing compensation as acceptable to him. Also, in this case, the consideration of Labor market does not have a very major influence. The reason for this being that the ICC is an unparalleled body and does not have major competitors in the cricketing circuit. Mr Hair could have well been contemplating a “lifestyle change” himself and he would have been reasonably satisfied even if his offer was rejected, sending a wave of negativity to the ICC and he was not selected to umpire in upcoming Test Matches during his term of employment [This is a very far-fetched possibility but I have let my imagination run wild].

Whether or not an individual would be able to make a similar non-negotiable offer to the employer would primarily depend on the terms of employment. However, such a move on the part of the employee may well have future repercussions not in favor of the employee (as had happened in the case of Darrell Hair). In the IT sector, there are occasions when employees try to negotiate for higher pay packages and increments by bargaining with the aid of better offers from other employers. Even if the employee is successful at that juncture to avail a hefty rise or increment and other perks, he may well be the first in the firing line when the organization is facing a crunch situation since he has the lost the trust and goodwill of the employer. Also, it may well happen that the employer may want to “teach a lesson” to such employees and may temporarily accept the terms and conditions of the employee but later show the door to the employee on basis of “performance issues”. A similar situation had occurred with Darrell Hair wherein he was removed from the ICC panel of umpires under the pretext of bad umpiring and poor decision making and was put onto a developmental programme for 6 months.

Majority of the organizations today have adequate lawyers staffed to deal with such situations. If an employee gives me a non-negotiable offer, I would consider the following:

• Consult the lawyers seeking possible legal actions that could be taken by both parties.
• Analyze the financial costs related to the possible alternatives of action. For instance, considering the role play that was taken up in the class, management would not like to create an imbalance in the internal equity of their organization.
• Consider the social aspect of the outcomes. I would not like to send any weak or negative signals to employees within the organization which would tempt them to approach the management with non-negotiable offers that are not in the interest of the organization

I hope I have been able to do some justice to the issue at hand with my limited understanding of the technicalities involved. Looking forward to your valuable comments and any sort of constructive feedback.

Regards,

Urv