The Bargaining World

Bargaining has been a very primitive phenomena and is extensively used in attaining something which is not possible in a direct deal. A number of factors like the relative importance of the deal, cohesion shown by the parties towards reaching an agreement, negotiation skills and the power exhibited by the parties drive the bargaining scene. If a party is at advantage in the current scenario, then it may not enter into bargaining at all. Similarly, the same holds true for the other side. If the deal is very necessary, then both sides can agree on a common price which more or less is divided between the two sides and paid accordingly.

Moving towards the question whether bargaining power is always shifted in the favour of employer, I feel it is not the case always. It is true that the employer always has an upper hand in such cases but due to various factors like competency of the employee, shortage of talent in the market, economic, societal factors etc., the employee too enjoys some power and can execute them when time permits.

The Darrell Hair case is very different. He was an international umpire who had been enjoying the elite status in ICC. After the ball tampering fiasco, he was reprimanded by the media of most of the cricketing nations excluding England, Australia and New Zealand. Now, since most of the nations including the Asian ones were against him, ICC might have seen the benefit of banning him to save its face in spite of being right according to the cricketing rules. Again, here Hair having served at the top for a long time, offered the bargain in order to evade the forthcoming decision which was imminently awaiting him. He understood that he had some support with him and could leverage that to get a good deal. But ICC was not interested in his bargain and instead banned him. Had he been having a greater support, I don't think there would have been any chance of him getting reprimanded for this. So, a lot of external factors came into play here rather than the competence of Mr. Hair.

Posed with a similar situation, it is natural to go for such non-negotiable offer. But what matters is whether the employer is interested in it. If I get into such situation, then it's possible that I make such offer. During normal times, it depends upon my affinity with my employer and the kind of work that I do. If both are very favourable, I might not make such offer at all.

Faced with such kind of situation as that of Mr. Hair, I would not have any doubts in rejecting the offer if my employee offers this. But in other scenarios, I would like to bargain till I see that the cost of bargain is more than the replacement of such employee.

See- Saw...The Balance keeps shifting

While the ongoing discussion in the class Saurabh had raised the issue of bargaining power saying that IIT Mumbai was at the receiving end following the rejection of offer letters by Infosys. According to my views there is very little probability of the employer being at the receiving end i.e the bargaining power to be shifted in favour of the employee. As discussed by my friends earlier in many posts this can happen in some situations where the organization has no substitute or replacement for the current service offered by the individual. The main reason for my view is as discussed in class by Sir that the market would regulate itself as in the case of IIT Mumbai where there would been a limited applicant pool for Infosys next year. Hence for the current scenario an employer would in most cases have the benefit of replacing the current employee making such an offer.

In the case of Darrel Hair the employer ICC disclosed the confidential non-negotiable offer by Hair thereby making his case negative in front of media and people. He was not allowed to officiate in any of the following matches until the end of his contract. Later Hair resigned on 22 August 2008 in order to take up a coaching role without any terms and conditions. So, we saw a shift in the bargaining power from employer to the employee in the example where the employee was never at the receiving end.

Darrell Hair was able to make a non-negotiable offer only because he had been one of the best and respected umpires for 16 long years. He was in the elite panel of the umpires in ICC. Now I would make an similar offer to an employee if I am indispensable to the organisation and have sufficient skills at that point in my career which don’t have any replacement in the job market. Also it wouldn’t matter to me whether the employee acknowledges the offer or rejects it as I would have a lot of options to choose from.

If I would have received such an offer from my employee then I would have accessed the value & contribution of employee to the company in the present and the future. Also I would have definitely seen whether the current job contribution could be replaced from either within or outside the organisation. If the overall contribution would be significant and losing such an employee would affect the organisation significantly then I would have tried to see whether further negotiations would be possible with the employee or not.

The Shift in The Balance of Brgaining Power

Before starting on with the actual issues I would like to quote the definition of Bargaining Power. “Bargaining Power is defined as the capacity of one party to dominate the other due to its influence, power, size, or through a combination of different persuasion tactics, when they enter into any kind of negotiation”

Darrel Hair exercised his bargaining powers in sending the Non-Negotiable Offer to his employers ICC. In a very similar way both employees and employers since long have been exercising their bargaining powers to bring themselves in a more profitable and much better position as compared to their current state of affairs.

Now taking on each question on individual basis:

Is “Bargaining Power” always shifted in the favor of the employer and is individual always at the receiving end?

I don’t agree with the statement that bargaining power is always shifted in the favor of the employer and the individual is always at the receiving end. Rather, the bargaining power keeps shifting between the employee and the employer based upon various economic and legal factors surrounding the employee relation system. The advent and implementation of new technologies also impacts the shift in the bargaining power and many a times puts the individual on the beneficiary side. The main force that defines the shift in Bargaining Power is “Who amongst the employee or the employer is in the demanding position”. Usually the shift in bargaining power is towards the individual when he knows that there is a lot of dependency on him (due to his skills, his repo in the team and with the client) or he has some better offers in hand.

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

Darrel Hair is well known in his field and comes amongst the Elite panels of umpires. He considered himself to be in a strong and demanding enough position to send the e-mail entitled "The Way Forward" asking for US$500,000 from his employer ICC. This was an ironical situation as the position of Hair was relatively weaker than his employer ICC as neither did he possess any such skills that could not be easily replaced and neither did he have any other option in hand on the basis of which he could bargain with ICC. The results of this offer were clearly visible when ICC banned Hair from officiating in international matches. What we observe from this case is that one party should exercise its bargaining powers over the other only when the other party is in the real need for the first one. Relating to the organizations, neither the employees nor the employers should practice their bargaining powers unless they are in a position strong enough to do so.

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

I might also make such a Non-Negotiable offer in future to my employer depending upon the position I would hold in the organization. If I feel that the skills I possess are very crucial for the organization and losing me as an employee can prove to be harmful for them, and I am being underpaid according to the industrial standards for the same, I may exercise my “Bargaining Powers” and initiate the non- negotiable offer. Also, if I would ever have a better job opportunity in my hand, I would certainly negotiate with my current employer.

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

If I were to receive a similar one time non-negotiable offer from my employee, I would analyze the complete situation and determine the rationality behind the offer being put forward by the employee. I would ask my lawyer to examine properly both the contract we made with the employee while hiring him and the non- negotiable offer given by him. I would also evaluate the level of dependency the organization has on that employee and the level of impact this would have on my business. In addition to this I would try to find out ways in which the work can be carried on even if the employee leaves. Would determine the amount of cost I would have to incur in case the employee leaves and in case I accept his offer and ask him to stay back. Based on these criteria, I would take my decision of whether to accept the offer or not. And if possible, I would also try to further negotiate more on the offer with the employee.

Bargain- Balance or Imbalance of Power??

One who is able to shift it in its court there lays the power. It is not necessary that it will be at the cost of either individual or the organization. The bargain is a mutual agreement by both the parties which may be a compromise or both the parties may be satisfied at the end.

From the employee’s point of view, he may ask for salary hike, higher incentives, promotions, foreign projects or any another personal favour. Now how much bargain can be made depends upon many factors. One among crucial factors is the type of industry and the uniqueness of the job which decide the bargain power. For example if the cost of replacing the employee is not much and another one can be trained easily and paid less, then the power lies with the employer and vice-versa. I believe the market conditions also play a vital role. Also the culture of the organization holds an important place under such circumstances. The terms and conditions should be explicitly mentioned in order to make the end of relationship a pleasurable experience. But whenever one party tries to make use of the situation in one’s favour, then the problems arise.

I think that I will be able to make a non-negotiable offer to my employer in my career but that will depend upon my priorities and will be determined by the situation and corresponding risk evaluation.If my employer gives me any such offer then I will properly evaluate it and estimate the offering.

For example : in the case of nuclear deal, the way India prioritized the givings and takings gives a very nice example of power of bargain as to how we were able to manage the Indo-US relationship and still get our share of bargain.

Power Equation - Balanced or Imbalanced ?

Of all the other major factors which determine the relationship between the employer and the employee, most important is the power equation between them. It might seem undesirable to use a strong word like ‘power’ when we are talking about the employment relationship but yes, I strongly believe that the balance or rather imbalance of bargaining or negotiating power is very much contextual here. The question is – “Who is in the driver position? “. The answer lies in finding for whom the stakes are higher – the employee or the employer. Generally, it is indeed the employer who is safely positioned in terms of making the offers and deciding them too. This is very obvious as the employer has many resources at his disposal and losing few of them should not really matter to them as it is generally taken into account as the inherent cost of business. But the stakes are higher for the employee as it is, especially in the current scenario, much more difficult to find the same job or the same salary in other organizations. Having said this, i also admit there are exceptions where this equation no longer holds good. Take an example of a movie star – he charges an amount of his choice and more often than not is the one making all the bargains and offers irrespective of the business the movie does. Same goes for a star cricket player for whom there are two or three clubs ready to shell out lot of money to take him in. Also, the case where we have labour unions and employee is a part of that. There the stakes are higher for the employer as well as the treatment to the employee can trigger different reactions in the union.
Whether i would be able to make such an offer to my employer in my career depends on various factors. First and most important of them would be the chances of getting the similar or better jobs in other organizations without any hassles. If i see my chances and prospects in other organizations better than the current one, i might be able to make such offer. Even being able to do that does not ensure me actually doing that as it also depends on how satisfied i am in my current job – both personally and professionally.
Receiving a similar one time non-negotiable offer from one of my employee would make me think a little. First of all, i would try to know the reason for this action and try to get a clear picture of the whole issue which triggered this. If the issue can be pacified by talking to the individual no other action is required but in case the issue is big and involves other complications related to the organization, it would need to be taken seriously. I would try to measure the relative worth of the individual in my organization to get an idea of how crucial he or she is to the business. This would include assessing the cost of replacing the individual and cost of accepting the offer. Then i would assess the dependencies of the projects he or she is currently involved in and might have been in future too. Then, last but not the least, i will have a look at all the legal options which are available and then having all this information appropriate action would be taken.

Bargaining power

Bargaining power is a concept related to the relative abilities of parties in a situation to exert influence over each other. If both parties are on an equal footing in a debate, then they will have equal bargaining power, such as in a perfectly competitive market. In a competitive market, negotiation and bargaining become synonyms.

Ideally, negotiation results in win-win situation for both the parties. However, most of the times bargaining results in favour of only 1 party.

On 4 November 2006, Hair was banned from officiating in international matches by the ICC following a two-day meeting held by the ICC. The announcement was made by ICC President.

However, The ICC restored Hair to the Elite Umpiring Panel. This showed the weakness on part of ICC and gave Hair the bargaining power to set terms and conditions of the offer.

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 with the desired skill set for the job while that of employee is influenced by the alternative earning option available to him.

Thus, whenever the market conditions are not favorable, employer has higher bargaining power and vice versa. But even when the market conditions are not favorable, some employees whom the employer regards as critical has a strong bargaining power.

My making a similar kind of offer will depend on the following factors

Market conditions (Employment Opportunities available)

Relationship with the employer

Job satisfaction

If I am the employer, then I would accept the offer if there is no other employee to fill his position. Normally this situation does lasts for long because most of the organizations groom junior employees to take the charge in future. I may negotiate the offer and if it is not favorable then will reject the offer.

The Paradigm Shift

Before starting the discussion I would like to quote the guiding principle of International Labour Organisation. Its guiding principle is that "labour is not a commodity" to be traded in the same way as goods, services or capital, and that human dignity demands equality of treatment and fairness in dealing within the workplace.

Earlier the industry used to look out for bright people, try to bargain the offers it can make to bring them in. But lately the employers have the liberty of having many employees: hundreds or maybe even thousands. If the company thinks of laying off an employee then it thinks of it as retrenchment cost.

Lately the bargaining power has seen a drastic shift towards the employer from the employee. Trying to think in the lines of an employee whose only source of income is his job, it has become very difficult for them to even think of bargaining. The current economic slowdown has worsened the situation even more.

When I joined my company (a PSU), I joined with a batch of 40 employees. We were pre-assigned our postings and other related offers the company provided us. Only after serving the company for 2 years and rising up the ranks, I usually put forward by preferences ( which I had profoundly reasoned with myself) and used to get the deal. The major driving forces were scarcity of professionals in the field and competitive salary and perks offered by the private players.

But in the back of my mind I also know that this situation does not prevail in most of the other sectors. I might not get a similar chance after I pass out and get a job. To overcome this problem I think the best strategy as an employee would be to keep on building on one’s competencies and try to be ahead of the crowd. But it is easier said than done.

Now coming to the situation when I am on the receiving end, I would like to first convince the employer of the cons of me losing the job. Then the next step would be to sit back and think of the risk-return of giving in. Then only my obvious course of action can be determined.