The Role of Individual Bargaining Behavior in the Pay Setting Process: A Pilot Study Author(s): Marian M. Extejt and Craig J. Russell Source: Journal of Business and Psychology, Vol. 5, No. 1 (Fall, 1990), pp. 113-126 Published by: Springer Stable URL: http://www.jstor.org/stable/25092268 Accessed: 08/11/2009 18:16 Your use of the JSTOR archive indicates your acceptance of JSTOR's Terms and Conditions of Use, available at http://www.jstor.org/page/info/about/policies/terms.jsp. JSTOR's Terms and Conditions of Use provides, in part, that unless you have obtained prior permission, you may not download an entire issue of a journal or multiple copies of articles, and you may use content in the JSTOR archive only for your personal, non-commercial use. Please contact the publisher regarding any further use of this work. Publisher contact information may be obtained at http://www.jstor.org/action/showPublisher?publisherCode=springer. Each copy of any part of a JSTOR transmission must contain the same copyright notice that appears on the screen or printed page of such transmission. JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact [email protected]. Springer is collaborating with JSTOR to digitize, preserve and extend access to Journal of Business and Psychology. http://www.jstor.org JOURNAL OF BUSINESS Volume 1, Fall 5, No. AND PSYCHOLOGY 1990 THE ROLE OF INDIVIDUAL BARGAINING BEHAVIOR IN THE PAY SETTING PROCESS: A PILOT STUDY Marian M. Extejt of Management Department John Carroll University Craig Department J. Russell Resources and Human Relations New State University Jersey of of Industrial Rutgers?The for professional and man A model of initial salary detemination on is developed. That part of the model which concentrates agerial employees the role of employee salary negotiation behaviors and attitudes was investigated in salary bargaining variance using a sample of 117 individuals. Significant and demographic differences be attitudes and behaviors was found; attitudinal ABSTRACT: tween negotiators and were non-negotiators ing behavior was found to be positively lated to salary growth. determined. related Additionally, negotiat to salary, but only slightly re has long been a topic of intense The issue of salary determination Not and managers. among study and debate economists, sociologists, of equity, motivation and only has it been studied from the perspectives market have also investigated but researchers the pay levels efficiency, of groups of workers and job based on their occupation, demographics One area of compensation that has received less performance. practice an individual's attention than others is the process by which starting is determined. This issue is particularly relevant for managerial salary and professional these For the hiring manager employees. employees, often has a certain amount in judging what of discretion the appropriate an for be. should starting salary applicant particular It is the purpose a model to develop of the current research of initial to and that determination test of the model which deals salary portion with employee and behaviors. attitudes Address Relations, all Box correspondence 5062, Rutgers to Craig University, J. Russell, Institute New NJ Brunswick, 113 of Management 08903-5062. and Labor ? 1990 Human Sciences Press, Inc. 114 JOURNAL OF BUSINESS AND PSYCHOLOGY A MODEL OF STARTING SALARY DETERMINATION the starting is fixed by salary for a given position or contract. union This is especially true for clerical, management policy or blue collar workers. a model technical For these positions, of individ ual behavior are de to understand is not needed how starting salaries or strict policy, not covered by a contract termined. But for employees the manager who has the responsibility for hiring these individuals pos sesses a certain amount in determining the starting of discretion salary awarded. is influenced This decision of factors, represented by a numer In many in Figure firms, 1. Figure A Model of Starting 1 Determination Salary Employer's Bargaining Pouier a. Labor Market Conditions i Bargaining Behauior Pay Grades E & Ranges Management Starting ?j Salary SL Policy Individual's Human Capital X el Individual's Prior Salary SL Indiuidual's Bargaining Potuer and their associated grades and rate ranges, are de Pay structures, These practices termined practices. compensation accepted by generally a to establish use job evaluation and labor market surveys techniques can be a of These rates for ranges group range of wage jobs. particular to reflect the firm's modified goals. strategic policy by management exercise the hiring manager Within each range, may regard judgment The floor of this start salary for each new entrant. ing the appropriate in to total is floor the of the range for the pay grade; equal ing salary most cases the ceiling will be less than the pay grade's highest wage (in MARIAN M. EXTEJT AND CRAIG J. RUSSELL 115 order to allow for future pay raises) but could include the entire range in order to attract unusually candidates. qualified a new hire's final starting Where that pay range salary falls within is determined of both the candidate and the hiring by characteristics The starting each party faces are described manager. salary parameters in Figure (1982). 2, adapted from Raiffa Figure The Wage 2 Parameters Negotiation Range of Rgreernent LIT LU W2 Employee's 1 Reservation Wage (employee will or more) Reservation Employer's Wage accept W, (employer will or pay W less) the employer's reservation Wx represents is the price (wage). Wi the is to pay an individual wage highest for a partic employer prepared ular position. W2 represents the applicant's reservation the very wage, minimum that will be accepted. The applicant has determined that set less than W2 is worse than no settlement tling for a wage at all. W* the final wage settlement to represents both the star agreed by parties, individual in this position. ting salary for this particular IfW2 is greater than Wx, there will be no possible ifW2 if range of agreement. However, less than or equal to W1} a range of agreement for the final "contract" of W* exists. wage Exact determination of W* is a function of several factors. First, the candidate to the job a given amount of human brings capital. This capi tal may be in the form of the amount and type of education, of years 116 JOURNAL OF BUSINESS AND PSYCHOLOGY or job related that an skills. Human experience, capital theory assumes of each individual's the worth will recognize efficient labor market capi rate of return with a suitable will be compensated tal and the individual 1964). (Becker, an entrant's is the indi A second factor influencing salary starting new or firm. The in another vidual's employer may position prior salary true worth of assume the reflected that a candidate's salary previous to his/her worth reflects hence and that person to the previous employer sal the starting the prospective Or, the employer may want employer. to the or than to to be salary ary previous applicant's greater equal avoid morale problems. in negotia and the job candidate may engage the employer Finally, influenced is final The tions of the starting upon salary agreed salary. each amount the of possesses. Bargaining party power by bargaining outcomes as the ability to bring about desired can be defined power sources of power exist including & Pfeffer, 1977). Numerous (Salancik can be itself (Lewicki & Litterer, the power of information 1985). Power or an interac the environment, of the individual, from qualities derived as and strategies, to use certain tion of the two. The ability techniques the level of power will moderate of the negotiator well as the personality & Brown, 1975). each (Rubin party by possessed is recog in the salary determination The role of bargaining process studied but has not been systematically (Heneman, nized as important 1985). Only Freed & Dyer, 1989; Kolb & Sheppard, Fossum, Schwab, in negotiation?the man the role of one factor studied (1978) has an de decisions. raise of demand?on experimental Using pay strength sub were subordinates found that when paid, equitably sign, Freedman a strong demand for a who made jects gave larger raises to subordinates were subordinates the no When demand. made raise than to those who on the level of raise had no effect of demand strength underpaid, the level of an if be to is determined It awarded. beyond negotiation yet sal of determination in the a role similar has initial demand starting ary. the of the current The purpose study is to examine of to the determination behavior of bargaining bution the bargaining on examining This study concentrates are the following In particular questions job candidate. 1. Do differences in salary negotiating behavior relative starting activities contri salary. of the investigated: exist between indi viduals? etc.) dis work outcome factors 2. What preferences, (demographic, who those from for salary those who actively negotiate tinguish do not? final to the related behavior salary starting 3. Is negotiating agreed upon by the parties? MARIAN M. EXTEJT AND CRAIG J. RUSSELL 117 METHOD Subjects were from 117 respondents collected (40 female and 77 male) at two in evening MBA universities. programs Comparative no dif of the responses affiliation revealed based on university analysis are reported for the entire sample. At the time of all analyses ferences; in a man the study, all respondents held a full-time typically position, or professional characteristics of the agerial capacity. Demographic are in 1. listed Table sample Data enrolled Table 1 Characteristics Sample Variable Mean (in years) Age Current Salary in Current Years Years Work Standard Deviation 30.10 7.20 $32,960.00 3.60 2.90 6.64 5.4 Job Experience $12,402.00 Instruments a five-section The first segment questionnaire. and work history information. the re Second, to react to a list of bargaining that a behaviors in during of This list person might behav engage salary negotiations. iors was compiled based on a content analysis of the by the researchers were classified as either: literature. Behaviors bargaining Subjects completed for demographic were asked spondents asked 1) information 2) negotiating gathering behaviors behaviors (6 items). (6 items); or An of the first type of behavior is "asking peers and colleagues example about the 'going rate' for the position". An example of a negotiating behavior is "asking for a higher was than offered". For salary initially each of these twelve behaviors the respondents were asked to indicate on a 5-point scale were how (1) [their propensity] Likert-type likely they = to engage in each of these behaviors 5 = very (1 very unlikely, likely) and (2) how likely they believe it is that each behavior would in a higher result 5 = very likely). salary [their instrumentality] (1 = very unlikely, 118 JOURNAL OF BUSINESS AND PSYCHOLOGY were asked whether in any of Third, participants they had engaged current for their twelve behaviors while these searching job. This job or external If search could have been in either an internal labor market. the times indicated how many negotiation they appropriate, during they For example, rounds of how many exhibited the behavior. they indicated to a final salary. took place before agreeing bargaining of the In part four, each person was asked to rate their perceptions at the time of their job search. for their skills and position labor market of for a number Finally, they were asked to rank order their preferences benefits. and selected rewards, fringe salary job including Analyses in were used to examine and cross tabulations variability and t-test an behavior 1]. Correlation [Research question in beliefs, to examine the differences attitudes, performed and for salary who between those persons and behaviors bargained of variables those who did not 2]. The dependent [Research question mar on labor were human capital, regressed salary and salary growth of the relative contributions to assess variables ket, and bargaining Simple bargaining alyses were three these potential salary determinants [Research question 3]. RESULTS is pre activities of negotiating of a variety analysis frequency current in the and 2. in Table sented sample professionals Managers from the firm. They in relatively little information gathering engaged to state a salary offer; few asked about for their new employer waited about sal asked job incumbents the salary range, and they infrequently a with contact of lack to be due last behavior This information. may ary or the lack of them in these cases, the job holder. All three behaviors, norms the that dictate rules of business etiquette; may reflect unwritten a job interview. interest is It about of during salary asking impropriety in the initial did make of the respondents ing to note that a majority benefits. about fringe quiry and from peers information did gather of the respondents Many association sources reports, surveys, professional (government published future employment do not threaten sources of information etc.). These as providing unbiased and are likely perceived reports of relationships, market. labor in the current the wage parameters than for a higher asked of the respondents salary Thirty percent 65% a for ask did was offered. Of those who salary, higher originally 2 went 25% one rounds, round of negotiations, went through through in from 3 to 9 rounds of negotiation. and the rest engaged A MARIAN M. EXTEJT AND CRAIG J. RUSSELL 119 Table 2 Self-Report of Information-Gathering Behavior Most During Behavior Recent Job and Search Behavior Negotiating Percent Engaging in Behavior Information Gathering Made initial salary 19.0 inquiry about salary range 27.6 Inquired Asked 50.0 peers about "going" rate sources 46.1 Investigated published Asked about salary 15.4 job incumbent Asked about fringe benefits 75.0 Negotiating Asked for higher salary than initial offer Asked for better fringe benefits 13.9 Asked for different work schedule 10.4 30.2 Asked for job duties 7.8 Stated Stated "reservation wage" 20.0 "had another job with $X salary" 7.8 The second research asks what those who question distinguished for a higher from those who the ini negotiate salary accept employer's tial offer. Tables 3 and 4 present the results of a series of t-tests that were performed to identify in responses differences and char significant of the two groups. Bargainers acteristics tended to be male, have their in business and report that they were raised in a undergraduate degree socioeconomic higher group. For all variables investigated, negotiators rated themselves than non-negotiators, consistently higher although were only a few of these differences There were significant. statistically few differences in information behavior and beliefs. gathering Signifi cant differences in information on instrumentality centered gathering beliefs. Further of the sex differences in information and negotia analysis tion behavior search is warranted in light of "earnings during job gap" research & Hartman, (cf. Treiman 1981; Ferber & Spaeth, 1984; Day mont & Andrisani, in Table 5, a higher percentage 1984). As presented of males that they asked the prospective reported about the employer that used salary range, while women and reported peer they published more often. Women information were more likely to state that they had disclosed the existence of an alternative tech job offer as a negotiating 120 JOURNAL OF BUSINESS AND PSYCHOLOGY Table 3 T-test (n = 47) of Mean by Bargainers Ratings Reported and Non-Bargainers (n = 70) Comparison T-values1 Probability Engaging Behavior Information Gathering initial salary Made inquiry Inquired about salary range Asked peers about "going" rate sources Investigated published Asked about fringe of in Will Lead to Higher Negotiating for higher Asked salary than initial offer benefits for better fringe Asked "reservation Stated wage" Salary 0.40 2.41** 0.41 1.14 2.14* 2.52** 0.77 1.80 0.55 0.28 benefits Behavior Belief 3.17** 1.37 2.36* 2.37** 0.86 1.83 0.40 2.56** 2.08* 3.77** Stated "had another job with $X salary" Bargained salary than back and forth for higher that bargainers indicates t-value 1A positive non-bargainers. at .05 level test) (two-tailed *Significant at .01 level test). (two tailed **Significant rated themselves higher on the variable sex used by either sex, neither this tactic was infrequently nique. While sexes in nego the between used it as a bluff. There were no differences in to the issues In addition for non-cash reported compensation. tiating "other" for asked whether Table they had negotiated 5, subjects were of None or rewards [an characteristics of question]. open-ended job types the of Twelve in this category. filled percent the male respondents to career paths, in answers training women filled e.g. special relating etc. job rotation, programs, and dem between behaviors, attitudes, The relationships bargaining order to In correlation were analyzed variables analysis. using ographic the 10 more attitudes the respondents' efficiently, bargaining analyze were col items and 10 instrumentality analyzed previously propensity MARIAN M. EXTEJT AND CRAIG J. RUSSELL 121 Table 4 T-test Between Comparisons Non-Bargainers Bargainers (n = 70) (n = 47) and Demographics Salary 0.79 Age Gender 0.20 2.38** Degree Undergraduate Business 2.24* Technical Labor Market Socio-Economic 0.60 1.26 Experience Status 2.06* Table 5 Male-Female Differences in Information-Gathering Behavior Job Search Negotiation During Male (n=77) Information Gathering Made initial salary inquiry 16.8% 21.0% about salary range 30.0 23.7** mquired Asked peers about "going" rate 46.8 55.3 sources 42.1 Investigated 52.6 published Asked job incumbent about salary 15.0 15.8 Asked about fringe benefits 74.0 76.3 Negotiating Asked for higher salary than initial offer 31.2% 28.9 Asked for better fringe benefits 13.0 16.2 Asked for different work schedule 9.1 13.5 Stated "reservation wage" 18.4 21.1 Stated "had another job with $X salary" 3.9 13.2** 'Significant at .05 level (two tailed test). and Female (n=40) 122 JOURNAL OF BUSINESS AND PSYCHOLOGY lapsed into 4 separate scales are labeled: 1) Information 2) Information 3) Bargaining 4) Bargaining scales, Gathering Gathering Behavior Behavior all items Behavior Behavior Propensity; receiving unit weight. These four Propensity; Instrumentality; and Instrumentality. for all scales exceeded an incidence .80. In addition of alphas behavior and an information behavior variable bargaining gathering were constructed the actual number of these types of behav by counting iors the respondents in during the most recent reported engaging job Coefficient search. the correlations Not surprisingly, between that these scales suggest a high instrumentality for a behavior is associated with a high propen = in turn is related to a (r sity for that behavior .42, p < .01) which = of actual behavior correla (r .43, p < .01). Additional high incidence tions revealed that the propensity to bargain and bargaining behavior were related to the relative im perceptions instrumentality positively = .27 and .20 < of (r .01). However, portance p salary respectively, when it came time to actually it was those persons who ranked bargain, = to engage in bargaining low who tended behavior (r .17, salary the more valuable the less p < .05). Apparently, salary is to an individual, one. for a higher likely s/he is to risk that salary by trying to bargain and those with more labor market tended Older persons experience but engaged in less information-gathering to do more bargaining than in their the labor these years market, persons younger persons. During this knowledge and did not need to may have been able to accumulate it specifically at the time of the job search. A tight labor market gather to bargain (few jobs, many persons may have encouraged applicants) market diffi correlations between labor less as indicated by negative of of and the rounds number culty, bargaining bargain instrumentality as a risky one in which may be perceived ing. This type of environment If one asks for too high a salary, instead of a coun to negotiate salary. the prospective applicant. employer will simply contact another to actual is related current salary bargaining significantly Finally, = were performed to behavior (r .22, p < .05). Two regression analyses influences how bargaining examine further salary. The first uses cur the second, salary change. Salary rent salary as the dependent variable; as the subject's current salary and the starting change was measured teroffer, These full-time of their first analyses position. post-college salary as preliminary. in both regres The dependent variable should be viewed sions is based on current salary as our model would salary, not starting in in current the the average Since person sample had been suggest. and the correlation between 31h their job only years, salary starting MARIAN M. EXTEJT AND CRAIG J. RUSSELL 123 Table 6 Stepwise Regression Analysis Results for Salary Beta Coefficients Independent Information Gathering t-value 0.30 2.18* 0.12 Age Behavior 3.58** Sex -1.14 Work experience Labor Market Difficulty 0.09 - 2.60* Constant *Significant **Significant -3.17** 0.14 3.76** 2.89 2.37* at .05 level (two tailed test) at .01 level (two tailed test). current to be high. Therefore, salary could be expected can be considered a proxy variable for starting salary current salary for the current sample. was onto information-gathering regressed behavior, age, sex, and labor market in order to examine the experience, difficulty of the model in Figure 1. Table 6 presents the appropriateness present coefficients and goodness of fit tests associated with these regression Salary work regressions. is positively behavior associated with Information-gathering salary. For each additional behavior the indi information-gathering reported, viduals salary increased by approximately $1500l. Age and work experi ence are positively related sex and labor market to salary, while condi tions were negatively related. The of sex and labor market influence on salary has experience been previously and Duncan investigated (1979) and Lloyd by Corcoran and Niemi indicate (1979). Their that when number of years findings in the work force is controlled for in an analysis experience relating of sex on salary is reduced. In the current salary and sex, the influence both variables a significant amount of variance. analysis, One explain for this is that the current sample con possible explanation phenomena sists of persons of both genders in labor market having high variance whereas often experience, previous the samples analyzed samples where women had relatively low amounts of work experience. 1 $5000 The variable increments was measured SALARY as an interval-scaled in salary. A code of 1 represents a in the salary $5001 to $10,000, etc. variable representing to $5000 2 = range, $0 124 JOURNAL OF BUSINESS AND PSYCHOLOGY Table 7 Stepwise Regression Analysis Results for Salary Change Beta Coefficients Independent Sex -0.81 Work experience 0.16 InformationGathering Propensity 0.03 Constant 1.50 *Significant **Significant t-value -1.79* 4.54*^ 0.46 1.10* at .05 level (two tailed test) at .01 level (two tailed test) initial One conclusion is that information is positively gathering related to salary. Although the information did not tend to gatherers = effective (r because .17), their bargaining may be more bargain more of the information they possess. Further, when both information-gather are held women and labor market constant, ing behavior experience still earn approximately less than their male Table $4600 counterparts. 7 presents the results of a regression where is analysis salary change the dependent variable. in salary change of the variance is explained Only 28% by the inde This low level of explanatory variables. be attrib power might pendent an individual uted to the fact that just because for his/her bargained last salary, this behavior in previous may not have been demonstrated An alternative determination is that salary experiences. explanation for salary determination exists at the power significant bargaining an of not into ten but the organization, entry point during employee's ure. As expected, work experience accounted for the majority of the vari ance explained. DISCUSSION AND FUTURE RESEARCH SUGGESTIONS that individuals in a variety do engage of different suggest in and hold levels of belief the behaviors usefulness varying bargaining is associated with increased start of those behaviors. Salary negotiation to salary growth. This suggests but is only weakly related ing salaries, that bargaining skill and behavior only play a part in the determination are likely to be a func increases of starting subsequent salary salary; The data MARIAN M. EXTEJT AND CRAIG J. RUSSELL 125 and attitudes tion of actual job performance also. Information-gathering In Karrass' are especially behaviors (1968) findings. relevant, extending a survey of experienced that "preparation Karrass reported negotiators, trait of an effective and planning skill" ranked as the most important use deter to in the correct information bargaining Having negotiator. and tactics. of other strategies mines the efficacy in differences male-female of this research The findings concerning sex an dif "cause" behind to alternative rise behaviors gives bargaining in the United States. While in wages ferentials pre typically reported on general and has demon vious research style aptitude bargaining differences strated gender (Lewicki & Litterer, 1985; Rubin & Brown, in salary negotia clear differences current identifies the research 1975), the pay expectation in conjunction with This difference, tion behavior. and McFarlin examined differences (1984), may by Major, Vanderslice are lower than their male some salaries women's starting explain why as a per If one assumes that most pay raises are awarded counterparts. men of and the dollar between of the absolute size gap centage salary, women would in widen years. only subsequent on the employee concentrates side of our pro The current research at other parts of the model, to efforts directed In addition posed model. in which to identify those situations work is also needed salary negotia suc with associated tion are most useful, and the tactics and strategies cess. While of bargain the effectiveness the current study demonstrates the processes which may differentially it does not examine ing behavior, are certain outcomes. For example, influence negotiating bargaining more effective than others; do certain techniques work better techniques or economic in certain conditions? Can these industries, occupations, are or in with per there strong associations skills be developed persons, variables? sonality this model needs to be evaluated of from the perspective Finally, an opening the hiring manager. That is, how do managers establish of to a job candidate, fer to present how are concessions and determined, are in what the strategies employed process? REFERENCES G.S. National of Economie Bureau Becker, (1964). Human Research New capital. Study, York: Columbia Press. University M. & Duncan, G.J. labor force attachment Corcoran, (1979). Work and Earnings history, differences between the races and sexes. Journal Resources, of Human 14(1), 3-20. 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