March 2, 2018
By Chuck Doran and Megan Winkeler
In game theory, there is a well-known exercise called the ultimatum game that highlights the human need for fairness. One person – the proposer – receives a sum of money, but there is a catch. The proposer must offer a portion of the money to someone else – the responder – and can only keep the cash if the responder agrees to the terms. It’s a one-time offer, and if the responder rejects the offer, neither person receives any money. In theory, the responder should accept any offer from the proposer; after all, any offer above a 100-0 split results in a net gain. However, responders almost always reject any offer less than 30%. The desire for a fairness is such a driving force that most people will reject free money if an offer seems unfair.
Understanding what is fair or unfair isn’t always an easy game, though. It’s easy to over- or under-evaluate the fairness of an offer without a guide or referee to call the shots. As negotiators, how can we figure out which options and processes are fair or unfair? Utilizing objective standards helps us to define what is fair and can result in more equitable, agreeable solutions.
Objective standards are independent measures of legitimacy that help negotiators evaluate what is fair, reasonable, or acceptable in an agreement. When utilizing objective standards in negotiation, our goal is to create an outcome where neither side feels taken and allow both sides to walk away feeling like the deal was a fair one. The strongest objective standards are those based on something outside of either party’s relative power, influence, resources, or interests.
Common examples of objective standards include:
When considering which objective standards will be most effective in a negotiation, consider how persuasive it will be to your negotiation counterpart. Ask yourself: what information will bring them understand my way of thinking? What do they value and find important, and what sources of information can I identify that will reflect that? Consider their interests and what you know about your relationship. Are they a person heavily influence by numbers, or are they more persuaded by industry norms?
Let’s say you would like to negotiate a flextime policy with your supervisor. You believe that your company’s mission statement to create a strong work-life balance for employees supports your request. However, your supervisor may disagree with that interpretation and decides that your ability to work from home occasionally already helps you cultivate a strong work-life balance. In this situation, think about your supervisor’s interests. You know that she wants to retain top talent and remain competitive within the industry. Perhaps you can point to a flextime policy implemented by one of your competitors as a more persuasive objective standard.
The best objective standards are also far removed from your control and do not leave a specter of bias or manipulation. If you are negotiating how much someone owes you for damage to your vehicle, you can get a quote from an auto-mechanic and use that as an objective standard in your negotiation. If the auto-mechanic you choose is your sister, though, that standard no longer feels as objective and will be less persuasive to the other side.
It’s not always a simple task to identify persuasive objective standards, so dedicate enough time to research and evaluate the available information as part of your negotiation preparation.
Avoid using objective standards to create positions
It can be easy to take an objective standards and turn it into a position or a bottom line. If you find that the average salary for a person in your role is $80,000, you might ignore any offer less than $80,000. Objective standards point at what is fair, but they are one component to define a good outcome in negotiation. Remain persuadable, because a positional negotiation can leave value off the table. By remaining persuadable, you also increase the likelihood that your negotiation counterpart will be persuadable as well. Invite them to share their own objective standards to create a zone of fairness. Then, negotiate which standards best fit within your specific situation.
Use the Test of Reciprocity as an objective standard
During a mediation between two business partners, Partner A offered a buyout to Partner B. In response, Partner B offered Partner A the exact same deal. Partner A wouldn’t consider it. Partner B laughed and said, “Why would you expect me to accept an offer that you won’t even consider?” This situation sums up the importance of the Test of Reciprocity. Ask yourself: if someone offered me this deal, would I accept it? If the answer is no, then your offer is probably inequitable or unfair, or it doesn’t meet your specific interests. Consider the other party’s interests to sweeten the deal with low-cost, high-value trades.
Use objective standards to play offense and defense
Let’s say you are negotiating the price of a monthly service for your company, and you have information about a discount the other party provided to another company last year. You have two choices of how to use that information. You can present it up front, or you can use it to defend yourself against any offers the company makes. If you use the objective standard as a sword and present it first, you have an opportunity to anchor your counterpart and control the conversation. However, you may miss out on an even better deal that they might have offered you otherwise, and the other side may feel put on the spot. If you feel confident about your objective standard and its ability to start the negotiation off in your favor, then present it up front. You can also utilize objective standards as a shield to protect yourself against offers you find unfair or incomplete. Gather a variety of objective standards so that you are prepared to respond to different types of offers and negotiators.
Want to learn more about identifying and utilizing objective standards effectively in your upcoming negotiations? Looking to improve your outcomes in negotiations? Contact Chuck Doran at 617-895-4026 or cdoran@mwi.org for more information.
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