Updated: Mar 28
Some people feel uncomfortable with negotiating. This is unfortunate. Good negotiation leads to better outcomes for all. A good negotiation is a form of good communication, where all parties express their key preferences. This creates a better platform for productive, long-term relationships. Focusing on your BATNA is the foundation of good negotiation and a productive, long-term relationship.
When negotiating, identifying, and actively building a “Best Alternative To A Negotiated Agreement” or “BATNA” is important to both understand your own negotiating position and to help you build negotiating confidence. Next, we will explain the BATNA. Further on, we provide a job change BATNA-based example.
In negotiation theory, the best alternative to a negotiated agreement or BATNA (no-deal option) refers to the most advantageous alternative course of action a party can take if negotiations fail and an agreement cannot be reached. The exact opposite of this option is the WATNA (worst alternative to a negotiated agreement). The BATNA could include diverse situations, such as suspension of negotiations, transition to another negotiating partner, appeal to the court's ruling, the execution of strikes, and the formation of other forms of alliances. BATNA is the key focus and the driving force behind a successful negotiator. There are many situations in our everyday life requiring negotiation, such as:
a new job,
and many others.
Also, in business, we regularly negotiate contracts, employee salaries, or incentives. However, we often neglect to build our BATNAs. This is unfortunate. It does take some extra time and energy to build BATNAs. It is very worthwhile! Without credible alternatives, we are putting ourselves at a significant disadvantage. In fact, the basis for economic discrimination is a buyer that fails to build a sufficient alternative set before negotiating. We discuss this in our article The subtleties of lending discrimination.
A party should generally not accept a worse resolution than its BATNA. Care should be taken, however, to ensure that deals are accurately valued, taking into account all considerations, such as relationship value, time value of money, and the likelihood that the other party will live up to their side of the bargain. These other considerations are often difficult to value, since they are frequently based on uncertain or qualitative considerations, rather than easily measurable and quantifiable factors.
Oftentimes, it is even more difficult to determine the BATNA of the other party. However, the information is crucial as the BATNA determines the other side’s negotiation power. Do not be afraid to ask questions. Sometimes, conclusions can be drawn by determining his/her main interests and the negotiation itself can be used to verify or falsify the assumptions. If, for example, it is assumed that a very early delivery date is of key importance to the negotiating partner, deliberately setting a later delivery date can be proposed. If this late delivery date is decidedly rejected, the desired delivery date is likely to be of great importance.
A job change example
When changing jobs, at some point, compensation negotiations will be required. The most important element to a successful compensation negotiation is building a strong BATNA. Here is how to do it:
Start by pursuing similar jobs at multiple companies. It is important to build credible alternatives.
Do primary research to determine typical compensation for similar jobs in similar markets. It is worth paying for this information.
When working with the company recruiter, ask them for the standard salary range for the intended role. You would be surprised what they will tell you.
Upon receiving the offer, consider asking for more money. Utilize your BATNA knowledge as the foundation for the compensation challenge. Remember, receiving an offer is a tell. It means they want you and you meet or exceed their hiring requirements! Well done!
Remember, compensation has a few different levers, like salary, bonus pool, ownership potential, benefits, and signing bonus. You will need to weigh each form of compensation.
In most companies, the recruiter is your main interface. They will likely have some leeway to negotiate salary. Beyond the leeway, they will need to get approval from the hiring manager or others in the leadership chain. DON’T FEEL BAD FOR NEGOTIATING, or, worry that you may look bad. If you have a well-researched BATNA, you will look good for advocating for yourself with thoughtful reasoning. They want employees like that!
Endeavor to understand the incentives of the agents involved with hiring you. The recruiter is more of a broker, they are incented to fill a position based on the job description. The hiring manager is like a buyer, they are incented for longer-term hiring position quality. The hiring manager “lives” with the hiring decisions after the recruiter does their job successfully. The hiring manager likely has an accountability to a hiring budget. It is important to appreciate the agents’ subtle incentive differences.
Ultimately, the company will come back with a counteroffer. You will need to decide if it’s worth it or whether you should pursue the BATNA.
Always be professional. All communication should be clear, concise, and with appreciation. If you end up not taking the offer, you want to leave them wishing you had!
Is a phantom BATNA ok? Meaning, is It ok to manufacture a fictional offer as a BATNA? Be careful. a) never make an untrue statement. Your credibility is most important. b) part of a BATNA is for your own psychology and confidence. c). your primary research may suggest market compensation. This could be used as an alternative in a seller's employment market.
In a related article, we discuss the use of BATNAs when making a car purchase. Car buying, especially when auto financing is involved, is surprisingly complex. This article provides an approach to cut through the complexity: Cutting through complexity: A car buying approach.
Some people feel uncomfortable with negotiating. This is unfortunate. Good negotiation leads to better outcomes for all. Good negotiation is a form of good communication, where all parties express their key preferences. This creates a better platform for productive, long-term relationships. Focusing on your BATNA is the foundation of good negotiation and a productive, long-term relationship.